UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 31, 20192020
or
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 84-0835164 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation) | | Identification No.) |
| | |
1144 15th Street, Suite 2500 | | |
Denver, Colorado | | 80202 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code (303) 573-1660
1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202
(Former address if changed since last report)
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, a 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 65,572,97865,606,496 shares of the Company’s common stock, par value $0.01 per share, outstanding as of January 30, 2020. 28, 2021.
In this Quarterly Report on Form 10-Q, Royal Gold, Inc., together with its subsidiaries, is collectively referred to as “Royal Gold,” “we,” “us,” or “our.”
INDEX
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PART I | | FINANCIAL INFORMATION | | |
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| | Consolidated Statements of Operations and Comprehensive Income | | 4 |
| | | 5 | |
| | | 6 | |
| | | 7 | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
ITEM 1. FINANCIAL STATEMENTS
ROYAL GOLD, INC.
Consolidated Balance Sheets
(Unaudited, amounts in thousands except share data)
| | | | | | |
|
| December 31, |
| June 30, | ||
|
| 2019 | | 2019 | ||
ASSETS | | | | | | |
Cash and equivalents | | $ | 80,504 | | $ | 119,475 |
Royalty receivables | | | 28,446 | | | 20,733 |
Income tax receivable | | | 9,671 | | | 2,702 |
Stream inventory | | | 15,336 | | | 11,380 |
Prepaid expenses and other | | | 2,485 | | | 389 |
Total current assets | | | 136,442 | | | 154,679 |
Stream and royalty interests, net (Note 3) | | | 2,333,091 | | | 2,339,316 |
Other assets | | | 85,103 | | | 50,156 |
Total assets | | $ | 2,554,636 | | $ | 2,544,151 |
LIABILITIES | | | | | | |
Accounts payable | | $ | 3,170 | | $ | 2,890 |
Dividends payable | | | 18,354 | | | 17,372 |
Income tax payable | | | 14,366 | | | 6,974 |
Other current liabilities | | | 8,240 | | | 6,374 |
Total current liabilities | | | 44,130 | | | 33,610 |
Debt (Note 5) | | | 129,869 | | | 214,554 |
Deferred tax liabilities | | | 87,352 | | | 88,961 |
Uncertain tax positions | | | 39,804 | | | 36,573 |
Other long-term liabilities | | | 6,267 | | | - |
Total liabilities | | | 307,422 | | | 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 65,496,004 and 65,440,492 shares outstanding, respectively | | | 655 | | | 655 |
Additional paid-in capital | | | 2,205,364 | | | 2,201,773 |
Accumulated earnings (losses) | | | 10,290 | | | (65,747) |
Total Royal Gold stockholders’ equity | | | 2,216,309 | | | 2,136,681 |
Non-controlling interests | | | 30,905 | | | 33,772 |
Total equity | | | 2,247,214 | | | 2,170,453 |
Total liabilities and equity | | $ | 2,554,636 | | $ | 2,544,151 |
| | | | | | |
|
| December 31, |
| June 30, | ||
|
| 2020 | | 2020 | ||
ASSETS | | | | | | |
Cash and equivalents | | $ | 381,859 | | $ | 319,128 |
Royalty receivables | | | 44,316 | | | 27,689 |
Income tax receivable | | | 8,939 | | | 2,435 |
Stream inventory | | | 13,900 | | | 11,671 |
Prepaid expenses and other | | | 1,477 | | | 1,227 |
Total current assets | | | 450,491 | | | 362,150 |
Stream and royalty interests, net (Note 3) | | | 2,231,980 | | | 2,318,913 |
Other assets | | | 81,263 | | | 85,224 |
Total assets | | $ | 2,763,734 | | $ | 2,766,287 |
LIABILITIES | | | | | | |
Accounts payable | | $ | 2,587 | | $ | 2,484 |
Dividends payable | | | 19,680 | | | 18,364 |
Income tax payable | | | 23,318 | | | 13,323 |
Other current liabilities | | | 11,569 | | | 9,384 |
Total current liabilities | | | 57,154 | | | 43,555 |
Debt (Note 5) | | | 195,983 | | | 300,439 |
Deferred tax liabilities | | | 85,017 | | | 86,439 |
Uncertain tax positions | | | 13,267 | | | 25,427 |
Other liabilities | | | 7,634 | | | 8,308 |
Total liabilities | | | 359,055 | | | 464,168 |
Commitments and contingencies (Note 13) | | | | | | |
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 65,548,415 and 65,531,288 shares outstanding, respectively | | | 656 | | | 655 |
Additional paid-in capital | | | 2,201,076 | | | 2,210,429 |
Accumulated earnings | | | 189,910 | | | 61,133 |
Total Royal Gold stockholders’ equity | | | 2,391,642 | | | 2,272,217 |
Non-controlling interests | | | 13,037 | | | 29,902 |
Total equity | | | 2,404,679 | | | 2,302,119 |
Total liabilities and equity | | $ | 2,763,734 | | $ | 2,766,287 |
The accompanying notes are an integral part of these consolidated financial statements.
3
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited, amounts in thousands except share data)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Revenue (Note 6) | | $ | 123,643 | | $ | 97,592 | | $ | 242,417 | | $ | 197,585 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales (excludes depreciation, depletion and amortization) | | | 21,077 | | | 18,162 | | | 41,188 | | | 34,689 |
General and administrative | | | 6,665 | | | 7,423 | | | 14,108 | | | 17,349 |
Production taxes | | | 984 | | | 909 | | | 2,083 | | | 2,201 |
Exploration costs | | | 1,514 | | | 842 | | | 4,140 | | | 5,204 |
Depreciation, depletion and amortization | | | 40,096 | | | 38,807 | | | 78,810 | | | 81,358 |
Total costs and expenses | | | 70,336 | | | 66,143 | | | 140,329 | | | 140,801 |
| | | | | | | | | | | | |
Operating income | | | 53,307 | | | 31,449 | | | 102,088 | | | 56,784 |
| | | | | | | | | | | | |
Fair value changes in equity securities | | | 222 | | | (3,631) | | | (1,153) | | | (5,099) |
Interest and other income | | | 226 | | | 487 | | | 1,001 | | | 590 |
Interest and other expense | | | (2,217) | | | (7,410) | | | (5,051) | | | (15,287) |
Income before income taxes | | | 51,538 | | | 20,895 | | | 96,885 | | | 36,988 |
| | | | | | | | | | | | |
Income tax (expense) benefit | | | (11,124) | | | 2,148 | | | 12,401 | | | (1,967) |
Net income and comprehensive income | | | 40,414 | | | 23,043 | | | 109,286 | | | 35,021 |
Net loss and comprehensive loss attributable to non-controlling interests | | | 907 | | | 543 | | | 2,488 | | | 3,575 |
Net income and comprehensive income attributable to Royal Gold common stockholders | | $ | 41,321 | | $ | 23,586 | | $ | 111,774 | | $ | 38,596 |
Net income per share available to Royal Gold common stockholders: | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.63 | | $ | 0.36 | | $ | 1.70 | | $ | 0.59 |
Basic weighted average shares outstanding | | | 65,495,907 | | | 65,395,457 | | | 65,480,759 | | | 65,385,161 |
Diluted earnings per share | | $ | 0.63 | | $ | 0.36 | | $ | 1.70 | | $ | 0.59 |
Diluted weighted average shares outstanding | | | 65,611,567 | | | 65,473,400 | | | 65,613,406 | | | 65,485,423 |
Cash dividends declared per common share | | $ | 0.28 | | $ | 0.265 | | $ | 0.545 | | $ | 0.515 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue (Note 7) | | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales (excludes depreciation, depletion and amortization) | | | 24,859 | | | 21,077 | | | 46,760 | | | 41,188 |
General and administrative | | | 6,789 | | | 6,665 | | | 14,244 | | | 14,108 |
Production taxes | | | 1,401 | | | 984 | | | 2,756 | | | 2,083 |
Exploration costs | | | — | | | 1,514 | | | 563 | | | 4,140 |
Depreciation, depletion and amortization | | | 47,945 | | | 40,096 | | | 94,245 | | | 78,810 |
Total costs and expenses | | | 80,994 | | | 70,336 | | | 158,568 | | | 140,329 |
| | | | | | | | | | | | |
Gain on sale of Peak Gold JV interest | | | — | | | — | | | 33,906 | | | — |
Operating income | | | 77,366 | | | 53,307 | | | 180,578 | | | 102,088 |
| | | | | | | | | | | | |
Fair value changes in equity securities | | | (382) | | | 222 | | | 2,158 | | | (1,153) |
Interest and other income | | | 613 | | | 226 | | | 1,034 | | | 1,001 |
Interest and other expense | | | (1,578) | | | (2,217) | | | (3,454) | | | (5,051) |
Income before income taxes | | | 76,019 | | | 51,538 | | | 180,316 | | | 96,885 |
| | | | | | | | | | | | |
Income tax (expense) benefit | | | (16,031) | | | (11,124) | | | (13,654) | | | 12,401 |
Net income and comprehensive income | | | 59,988 | | | 40,414 | | | 166,662 | | | 109,286 |
Net (income) loss and comprehensive (income) loss attributable to non-controlling interests | | | (99) | | | 907 | | | 166 | | | 2,488 |
Net income and comprehensive income attributable to Royal Gold common stockholders | | $ | 59,889 | | $ | 41,321 | | $ | 166,828 | | $ | 111,774 |
Net income per share attributable to Royal Gold common stockholders: | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.91 | | $ | 0.63 | | $ | 2.55 | | $ | 1.70 |
Basic weighted average shares outstanding | | | 65,546,938 | | | 65,495,907 | | | 65,542,326 | | | 65,480,759 |
Diluted earnings per share | | $ | 0.91 | | $ | 0.63 | | $ | 2.54 | | $ | 1.70 |
Diluted weighted average shares outstanding | | | 65,619,241 | | | 65,611,567 | | | 65,625,965 | | | 65,613,406 |
Cash dividends declared per common share | | $ | 0.300 | | $ | 0.280 | | $ | 0.580 | | $ | 0.545 |
The accompanying notes are an integral part of these consolidated financial statements.
4
ROYAL GOLD, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Three months ended December 31, 2020 and 2019
(unaudited, amounts in thousands except share data)
| | | | | | | | | | | | | | | | | |
| | Royal Gold Stockholders | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | | |
| | Common Shares | | Paid-In | | Accumulated | | Non-controlling | | Total | |||||||
| | Shares | | Amount | | Capital | | (Losses) Earnings | | Interests | | Equity | |||||
Balance at September 30, 2020 |
| 65,545,606 | | $ | 656 |
| $ | 2,199,705 | | $ | 149,702 | | $ | 13,158 | | $ | 2,363,221 |
Stock-based compensation and related share issuances |
| 2,809 | |
| — |
|
| 1,371 | |
| — | |
| — | |
| 1,371 |
Distributions to non-controlling interests | | — | |
| — |
|
| — | |
| — | |
| (220) | |
| (220) |
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| 59,889 | |
| 99 | |
| 59,988 |
Dividends declared |
| — | |
| — |
|
| — | |
| (19,681) | |
| — | |
| (19,681) |
Balance at December 31, 2020 |
| 65,548,415 | | $ | 656 |
| $ | 2,201,076 | | $ | 189,910 | | $ | 13,037 | | $ | 2,404,679 |
| | | | | | | | | | | | | | | | | |
| | Royal Gold Stockholders | | | | | | | |||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | | |
| | Common Shares | | Paid-In | | Accumulated | | Non-controlling | | Total | |||||||
| | Shares | | Amount | | Capital | | (Losses) Earnings | | Interests | | Equity | |||||
Balance at September 30, 2019 |
| 65,495,787 | | $ | 655 |
| $ | 2,202,350 | | $ | (12,676) | | $ | 31,999 | | $ | 2,222,328 |
Stock-based compensation and related share issuances |
| 217 | |
| — |
|
| 1,214 | |
| — | |
| — | |
| 1,214 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 1,800 | |
| — | |
| (187) | |
| 1,613 |
Net income (loss) and comprehensive income (loss) |
| — | |
| — |
|
| — | |
| 41,321 | |
| (907) | |
| 40,414 |
Dividends declared |
| — | |
| — |
|
| — | |
| (18,355) | |
| — | |
| (18,355) |
Balance at December 31, 2019 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 |
ROYAL GOLD, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Six months ended December 31, 2020 and 2019
(unaudited, amounts in thousands except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Royal Gold Stockholders | | | | | | | | Royal Gold Stockholders | | | | | | | |||||||||||||||||||||
| | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | Other | | | | | | | | | | | | | | | | Additional | | | | | | | | | | |||
| | Common Shares | | Paid-In | | Comprehensive | | Accumulated | | Non-controlling | | Total | | Common Shares | | Paid-In | | Accumulated | | Non-controlling | | Total | |||||||||||||||
| | Shares | | Amount | | Capital | | Income (Loss) | | (Losses) Earnings | | Interests | | Equity | | Shares | | Amount | | Capital | | (Losses) Earnings | | Interests | | Equity | |||||||||||
Balance at September 30, 2019 |
| 65,495,787 | | $ | 655 |
| $ | 2,202,350 | | $ | — | | $ | (12,676) | | $ | 31,999 | | $ | 2,222,328 | |||||||||||||||||
Balance at June 30, 2020 |
| 65,531,288 | | $ | 655 |
| $ | 2,210,429 | | $ | 61,133 | | $ | 29,902 | | $ | 2,302,119 | ||||||||||||||||||||
Stock-based compensation and related share issuances |
| 217 | |
| — |
|
| 1,214 | |
| — | |
| — | |
| — | |
| 1,214 |
| 17,127 | |
| 1 |
|
| 1,476 | |
| — | |
| — | |
| 1,477 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 1,800 | |
| — | |
| — | |
| (187) | |
| 1,613 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 41,321 | |
| (907) | |
| 40,414 | |||||||||||||||||
Sale of Peak Gold JV interest | | — | | | — | | | (10,829) | | | — | | | (16,218) | | | (27,047) | ||||||||||||||||||||
Distributions to non-controlling interests | | — | |
| — |
|
| — | |
| — | |
| (481) | |
| (481) | ||||||||||||||||||||
Net income (loss) and comprehensive income (loss) |
| — | |
| — |
|
| — | |
| 166,828 | |
| (166) | |
| 166,662 | ||||||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (18,355) | |
| — | |
| (18,355) |
| — | |
| — |
|
| — | |
| (38,051) | |
| — | |
| (38,051) |
Balance at December 31, 2019 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | — | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
| | 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 September 30, 2018 |
| 65,394,898 | | $ | 654 |
| $ | 2,195,034 | | $ | — | | $ | (92,465) | | $ | 36,046 | | $ | 2,139,269 | |||||||||||||||||
Stock-based compensation and related share issuances |
| 1,441 | |
| — |
|
| 1,380 | |
| — | |
| — | |
| — | |
| 1,380 | |||||||||||||||||
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 840 | |
| — | |
| — | |
| (203) | |
| 637 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 23,586 | |
| (543) | |
| 23,043 | |||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (17,359) | |
| — | |
| (17,359) | |||||||||||||||||
Balance at December 31, 2018 |
| 65,396,339 | | $ | 654 |
| $ | 2,197,254 | | $ | — | | $ | (86,238) | | $ | 35,300 | | $ | 2,146,970 | |||||||||||||||||
Balance at December 31, 2020 |
| 65,548,415 | | $ | 656 |
| $ | 2,201,076 | | $ | 189,910 | | $ | 13,037 | | $ | 2,404,679 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Royal Gold Stockholders | | | | | | | | Royal Gold Stockholders | | | | | | | |||||||||||||||||||||
| | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | Other | | | | | | | | | | | | | | | | Additional | | | | | | | | | | |||
| | Common Shares | | Paid-In | | Comprehensive | | Accumulated | | Non-controlling | | Total | | Common Shares | | Paid-In | | Accumulated | | Non-controlling | | Total | |||||||||||||||
| | Shares | | Amount | | Capital | | Income (Loss) | | (Losses) Earnings | | Interests | | Equity | | Shares | | Amount | | Capital | | (Losses) Earnings | | Interests | | Equity | |||||||||||
Balance at June 30, 2019 |
| 65,440,492 | | $ | 655 |
| $ | 2,201,773 | | $ | — | | $ | (65,747) | | $ | 33,772 | | $ | 2,170,453 |
| 65,440,492 | | $ | 655 |
| $ | 2,201,773 | | $ | (65,747) | | $ | 33,772 | | $ | 2,170,453 |
Stock-based compensation and related share issuances |
| 55,512 | |
| — |
|
| 891 | |
| — | |
| — | |
| — | |
| 891 |
| 55,512 | |
| — |
|
| 891 | |
| — | |
| — | |
| 891 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 2,700 | |
| — | |
| — | |
| (379) | |
| 2,321 | | — | |
| — |
|
| 2,700 | |
| — | |
| (379) | |
| 2,321 |
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 111,774 | |
| (2,488) | |
| 109,286 | |||||||||||||||||
Net income (loss) and comprehensive income (loss) |
| — | |
| — |
|
| — | |
| 111,774 | |
| (2,488) | |
| 109,286 | ||||||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (35,737) | |
| — | |
| (35,737) |
| — | |
| — |
|
| — | |
| (35,737) | |
| — | |
| (35,737) |
Balance at December 31, 2019 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | — | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 |
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
| | 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 |
| 36,298 | |
| — |
|
| 1,852 | |
| — | |
| — | |
| — | |
| 1,852 | |||||||||||||||||
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 2,790 | |
| — | |
| — | |
| (227) | |
| 2,563 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 38,596 | |
| (3,575) | |
| 35,021 | |||||||||||||||||
Other comprehensive loss |
| — | |
| — |
|
| — | |
| 1,201 | |
| (1,201) | |
| — | |
| — | |||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (33,735) | |
| — | |
| (33,735) | |||||||||||||||||
Balance at December 31, 2018 |
| 65,396,339 | | $ | 654 |
| $ | 2,197,254 | | $ | — | | $ | (86,238) | | $ | 35,300 | | $ | 2,146,970 |
The accompanying notes are an integral part of these consolidated financial statements.
5
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)
| | | | | | |
| | Six Months Ended | ||||
| | December 31, | | December 31, | ||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities: | | | | | | |
Net income and comprehensive income | | $ | 109,286 | | $ | 35,021 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| | | | | | |
Depreciation, depletion and amortization | | | 78,810 | | | 81,358 |
Amortization of debt discount and issuance costs | | | 566 | | | 7,864 |
Non-cash employee stock compensation expense | | | 3,639 | | | 4,070 |
Fair value changes in equity securities | | | 1,153 | | | 5,099 |
Deferred tax benefit | | | (36,126) | | | (307) |
Changes in assets and liabilities: | | | | | | |
Royalty receivables | | | (7,714) | | | 697 |
Stream inventory | | | (3,956) | | | 1,356 |
Income tax receivable | | | (6,968) | | | (12,753) |
Prepaid expenses and other assets | | | (7,020) | | | 2,305 |
Accounts payable | | | (929) | | | (7,026) |
Income tax payable | | | 7,392 | | | (7,514) |
Uncertain tax positions | | | 3,230 | | | 2,197 |
Other liabilities | | | 8,133 | | | (8,899) |
Net cash provided by operating activities | | $ | 149,496 | | $ | 103,468 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of stream and royalty interests | | | (72,417) | | | (55) |
Purchase of equity securities | | | (411) | | | (3,569) |
Other | | | 4,774 | | | (87) |
Net cash used in investing activities | | $ | (68,054) | | $ | (3,711) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repayment of debt | | | (85,000) | | | — |
Net payments from issuance of common stock | | | (2,747) | | | (2,217) |
Common stock dividends | | | (34,755) | | | (32,754) |
Contributions from non-controlling interest | | | 2,700 | | | 2,790 |
Other | | | (611) | | | 210 |
Net cash used in financing activities | | $ | (120,413) | | $ | (31,971) |
Net (decrease) increase in cash and equivalents | | | (38,971) | | | 67,786 |
Cash and equivalents at beginning of period | | | 119,475 | | | 88,750 |
Cash and equivalents at end of period | | $ | 80,504 | | $ | 156,536 |
| | | | | | |
| | Six Months Ended | ||||
| | December 31, | | December 31, | ||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: | | | | | | |
Net income and comprehensive income | | $ | 166,662 | | $ | 109,286 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, depletion and amortization | | | 94,245 | | | 78,810 |
Gain on sale of Peak Gold JV interest | | | (33,906) | | | — |
Non-cash employee stock compensation expense | | | 2,892 | | | 3,639 |
Fair value changes in equity securities | | | (2,158) | | | 1,153 |
Deferred tax benefit | | | (8,405) | | | (36,126) |
Other | | | 398 | | | 566 |
Changes in assets and liabilities: | | | | | | |
Royalty receivables | | | (16,627) | | | (7,714) |
Stream inventory | | | (2,229) | | | (3,956) |
Income tax receivable | | | (6,504) | | | (6,968) |
Prepaid expenses and other assets | | | 900 | | | (7,020) |
Accounts payable | | | (549) | | | (929) |
Income tax payable | | | 9,995 | | | 7,392 |
Uncertain tax positions | | | (12,160) | | | 3,230 |
Other liabilities | | | 1,510 | | | 8,133 |
Net cash provided by operating activities | | $ | 194,064 | | $ | 149,496 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of stream and royalty interests | | | (48,832) | | | (72,417) |
Proceeds from sale of Peak Gold JV interest | | | 49,154 | | | — |
Proceeds from sale of Contango shares | | | 12,146 | | | — |
Other | | | (364) | | | 4,363 |
Net cash provided by (used in) investing activities | | $ | 12,104 | | $ | (68,054) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repayment of debt | | | (105,000) | | | (85,000) |
Net payments from issuance of common stock | | | (1,415) | | | (2,747) |
Common stock dividends | | | (36,735) | | | (34,755) |
Other | | | (287) | | | 2,089 |
Net cash used in financing activities | | $ | (143,437) | | $ | (120,413) |
Net increase (decrease) in cash and equivalents | | | 62,731 | | | (38,971) |
Cash and equivalents at beginning of period | | | 319,128 | | | 119,475 |
Cash and equivalents at end of period | | $ | 381,859 | | $ | 80,504 |
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 metalprecious metals 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 1one or more metals produced from a mine at a price determined for the life of the transaction by the purchase agreement. A royalty is aRoyalties are non-operating interestinterests in a mining project that providesprovide 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, 20192020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020.2021. These interim unaudited financial statements should be read in conjunction with the Company’sour Annual Report on Form 10-K for the fiscal year ended June 30, 20192020 filed with the Securities and Exchange Commission on August 8, 20196, 2020 (“Fiscal 20192020 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
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires recognition of right-of-use assets and lease payment liabilities on the balance sheet by lessees for all leases with terms greater than twelve months. 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, was effective for the Company July 1, 2019. 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 guidance, the Company has elected to use the following practical expedients at transition:
In addition, the Company has elected to use the following practical expedients at and subsequent to adoption in accordance with ASU 2016-02:
7
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 updating 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.
The Company leases office space and office equipment under operating leases expiring at various dates through the fiscal year ending June 30, 2030. The following amounts were recorded in the consolidated balance sheets at December 31, 2019 (amounts in thousands):
| | | | | |
| | Classification | | December 31, 2019 | |
Operating Leases | | | | | |
Right-of-use assets - current |
| Prepaid expenses and other |
| $ | 568 |
Right-of-use assets - non-current | | Other assets | | | 5,052 |
Total right-of-use assets | | | | $ | 5,620 |
| | | | | |
Lease liabilities - current | | Other current liabilities | | $ | 412 |
Lease liabilities - non-current | | Other long-term liabilities | | | 6,267 |
Total operating lease liabilities | | | | $ | 6,679 |
Maturities of operating lease liabilities at December 31, 2019 were as follows (amounts in thousands):
| | | |
Fiscal Years: | | Operating Leases | |
2020 | | $ | 194 |
2021 | | | 804 |
2022 | | | 802 |
2023 | | | 789 |
2024 | | | 790 |
Thereafter | | | 4,190 |
Total lease payments | | $ | 7,569 |
Less imputed interest | | | (890) |
Total | | $ | 6,679 |
Other information pertaining to leases consist of the following:
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not have any finance leases as of December 31, 2019. The adoption of ASU 2016-02 did not impact accumulated earnings (losses), our consolidated statements of operations and comprehensive income, or our consolidated statements of cash flows.
8
Recently Issued Accounting Standards
Current Expected Credit Loss
In June 2016, the FASBFinancial Accounting Standards Board issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which, together with subsequent amendments, changes how an entity will recordrecords credit losses from an “incurred loss” approach to an “expected loss” approach. This update iswas effective for annual periods beginning after December 15, 2019 (i.e. July 1, 2020 for the Company) and interim financial statement periods within those years, with early adoption permitted. The Company is currently undergoing itsOn July 1, 2020, we adopted the new guidance and, based on our assessment, the adoption of the new guidance and thedid not have any impact it will have on our consolidated financial statements and related disclosures. Based on procedures performed as of December 31, 2019, the Company does not expect the adoption to have a material impact on the Company’s consolidated financial statements. The Company will adopt the new guidance effective July 1, 2020.
2. ACQUISITIONSALE OF PEAK GOLD JV INTEREST
Castelo de Sonhos royalty acquisition
In August 2019, a subsidiary of the CompanyOn September 30, 2020, we entered into an agreement with TriStaran affiliate of Kinross Gold Inc.Corporation to sell our 40% membership interest in the Peak Gold Project for cash consideration of $49.2 million 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 19,640,000sell our 809,744 common shares in Contango Ore, Inc. (“Contango”), our partner in Peak Gold, LLC, for cash consideration of TriStar. Total$12.1 million.
In addition to the total cash consideration is $7.5of $61.3 million, and is payable over 3 payments, of which $4.5 million was paid in August 2019 and $1.5 million was paid in November 2019. The final payment of $1.5 million is subject to satisfaction of certain conditions and is payable by March 31, 2020. The NSRwe received the following 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.interests:
● | An incremental 28% net smelter return royalty on silver produced from an area of interest which includes the current Peak Gold Project resource area. Peak Gold, LLC retains the right to acquire 50% of this royalty for consideration of $4.0 million; and |
● | An incremental 1% net smelter return royalty on certain State of Alaska mining claims acquired by a wholly owned subsidiary of Contango in the transaction, increasing our royalty on this area from 2% to 3%. |
The CDS royalty acquisition has been accounted for as an asset acquisition. The $6.0 million paid as part of the aggregate funding schedule, plus direct acquisition costs, have beenroyalties were recorded as an exploration stage royalty interest withininterests in Stream and royalty interests, neton in our consolidated balance sheets. Any future funding of the third payment, 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 $0.2 millionsheet as of December 31, 2019. The warrants have been classified as2020 and were assigned a financial asset instrument and are recorded at fair value at each reporting date using the Black-Scholes model. Any change in faircombined value of approximately $4.4 million on the warrants at subsequent reporting periods will bedate of the transaction.We recorded withina gain of $33.9 million on the sale of our 40% membership interest in the Peak Gold Project during the three months ended September 30, 2020. The mark-to-market increase of $3.6 million on the sale of our 809,744 common shares in Contango is included in Fair value changes in equity securitieson our consolidated statements of operations and comprehensive income. As of December 31, 2019,income and was recognized during the Company holds 15,712,000 warrants at an exercise price of C$0.25 per common share with a term of approximately five years.three months ended September 30, 2020.
97
3. STREAM AND ROYALTY INTERESTS, NET
The following tables summarize the Company’sour stream and royalty interests, net as of December 31, 20192020 and June 30, 2019.2020.
| | | | | | | | | | | | | | | | | | |
As of December 31, 2019 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | ||||||||||||
As of December 31, 2020 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | ||||||||||||
Production stage stream interests: | | | | | | | | | | | | | | | | | | |
Mount Milligan | | $ | 790,636 | | $ | (201,382) | | $ | 589,254 | | $ | 790,635 | | $ | (270,370) | | $ | 520,265 |
Pueblo Viejo | | | 610,404 | | | (179,796) | | | 430,608 | | | 610,405 | | | (226,083) | | | 384,322 |
Andacollo | | | 388,182 | | | (100,873) | | | 287,309 | | | 388,182 | | | (120,847) | | | 267,335 |
Rainy River | | | 175,727 | | | (20,438) | | | 155,289 | | | 175,727 | | | (34,820) | | | 140,907 |
Wassa and Prestea | | | 146,475 | | | (62,182) | | | 84,293 | |||||||||
Wassa | | | 146,475 | | | (72,839) | | | 73,636 | |||||||||
Total production stage stream interests | | | 2,111,424 | | | (564,671) | | | 1,546,753 | | | 2,111,424 | | | (724,959) | | | 1,386,465 |
Production stage royalty interests: | | | | | | | | | | | | | | | | | | |
Voisey's Bay | | | 205,724 | | | (98,684) | | | 107,040 | | | 205,724 | | | (104,850) | | | 100,874 |
Peñasquito | | | 99,172 | | | (42,451) | | | 56,721 | | | 99,172 | | | (47,263) | | | 51,909 |
Holt | | | 34,612 | | | (23,273) | | | 11,339 | |||||||||
Cortez | | | 80,681 | | | (13,055) | | | 67,626 | | | 80,681 | | | (16,418) | | | 64,263 |
Other | | | 487,224 | | | (395,171) | | | 92,053 | | | 521,289 | | | (433,800) | | | 87,489 |
Total production stage royalty interests | | | 907,413 | | | (572,634) | | | 334,779 | | | 906,866 | | | (602,331) | | | 304,535 |
Total production stage stream and royalty interests | | | 3,018,837 | | | (1,137,305) | | | 1,881,532 | | | 3,018,290 | | | (1,327,290) | | | 1,691,000 |
| | | | | | | | | | | | | | | | | | |
Development stage stream interests: | | | | | | | | | | | | | | | | | | |
Khoemacau | | | 66,605 | | | — | | | 66,605 | | | 180,220 | | | — | | | 180,220 |
Other | | | 12,038 | | | — | | | 12,038 | | | 12,037 | | | — | | | 12,037 |
Development stage royalty interests: | | | | | | | | | | | | | | | | | | |
Other | | | 70,952 | | | — | | | 70,952 | | | 69,780 | | | — | | | 69,780 |
Total development stage stream and royalty interests | | | 149,595 | | | — | | | 149,595 | | | 262,037 | | | — | | | 262,037 |
| | | | | | | | | | | | | | | | | | |
Exploration stage royalty interests: | | | | | | | | | | | | | | | | | | |
Pascua-Lama | | | 177,690 | | | — | | | 177,690 | | | 177,690 | | | — | | | 177,690 |
Other | | | 124,274 | | | — | | | 124,274 | | | 101,253 | | | — | | | 101,253 |
Total exploration stage royalty interests | | | 301,964 | | | — | | | 301,964 | | | 278,943 | | | — | | | 278,943 |
Total stream and royalty interests, net | | $ | 3,470,396 | | $ | (1,137,305) | | $ | 2,333,091 | | $ | 3,559,270 | | $ | (1,327,290) | | $ | 2,231,980 |
108
| | | | | | | | | |
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 |
| | | | | | | | | | | | |
As of June 30, 2020 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Impairments | | Net | ||||
Production stage stream interests: | | | | | | | | | | | | |
Mount Milligan | | $ | 790,635 | | $ | (236,352) | | $ | — | | $ | 554,283 |
Pueblo Viejo | | | 610,404 | | | (203,935) | | | — | | | 406,469 |
Andacollo | | | 388,182 | | | (110,521) | | | — | | | 277,661 |
Rainy River | | | 175,727 | | | (27,278) | | | — | | | 148,449 |
Wassa | | | 146,475 | | | (67,619) | | | — | | | 78,856 |
Total production stage stream interests | | | 2,111,423 | | | (645,705) | | | — | | | 1,465,718 |
| | | | | | | | | | | | |
Production stage royalty interests: | | | | | | | | | | | | |
Voisey's Bay | | | 205,724 | | | (101,381) | | | — | | | 104,343 |
Peñasquito | | | 99,172 | | | (44,614) | | | — | | | 54,558 |
Cortez | | | 80,681 | | | (15,065) | | | — | | | 65,616 |
Other | | | 521,837 | | | (426,931) | | | (1,341) | | | 93,565 |
Total production stage royalty interests | | | 907,414 | | | (587,991) | | | (1,341) | | | 318,082 |
Total production stage stream and royalty interests | | | 3,018,837 | | | (1,233,696) | | | (1,341) | | | 1,783,800 |
| | | | | | | | | | | | |
Development stage stream interests: | | | | | | | | | | | | |
Khoemacau | | | 136,608 | | | — | | | — | | | 136,608 |
Other | | | 12,037 | | | — | | | — | | | 12,037 |
| | | | | | | | | | | | |
Development stage royalty interests: | | | | | | | | | | | | |
Other | | | 70,952 | | | — | | | — | | | 70,952 |
Total development stage royalty interests | | | 70,952 | | | — | | | — | | | 70,952 |
Total development stage stream and royalty interests | | | 219,597 | | | — | | | — | | | 219,597 |
| | | | | | | | | | | | |
Exploration stage royalty interests: | | | | | | | | | | | | |
Pascua-Lama | | | 177,690 | | | — | | | — | | | 177,690 |
Other | | | 137,826 | | | — | | | — | | | 137,826 |
Total exploration stage royalty interests | | | 315,516 | | | — | | | — | | | 315,516 |
Total stream and royalty interests, net | | $ | 3,553,950 | | $ | (1,233,696) | | $ | (1,341) | | $ | 2,318,913 |
Mount MilliganSeparation of the Wassa and Prestea/Bogoso Stream Agreement
On October 1, 2020, we announced the separation of the Wassa and Prestea/Bogoso gold stream agreement into separate stream agreements effective September 30, 2020. This separation was completed to facilitate the sale by Golden Star Resources Ltd. (“Golden Star”) of the Prestea/Bogoso mines to Future Global Resources (“FGR”).
The Company’s wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), ownsWassa stream agreement, which remains with Golden Star, continues to provide us the right to purchase 35%10.5% of the payable gold and 18.75% of the payable copper produced from the Mount Milligan copper-goldWassa mine in British Columbia, Canada,until the delivery of 240,000 ounces, after which is operated by an indirect subsidiary of Centerra Gold Inc. (“Centerra”)the stream percentage will decrease to 5.5%. The Company’scash purchase price for gold remains at 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter. As of December 31, 2020, approximately 110,200 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.
The Prestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.
The material terms of both the Wassa stream agreement and the Prestea/Bogoso stream agreement, including security and the rights and obligations of both Royal Gold and Golden Star, remain substantially consistent with those terms in the original agreement. The Wassa stream is recorded as a production stage stream interest within Stream and royalty interests, net on our consolidated balance sheets and has a carrying value for its stream interest at Mount Milligan is $589.3of $73.6 million as of December 31, 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 record an impairment charge against their carrying value of the Mount 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 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 calendar 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.
A significant reduction in reserves and mineralized material could be an indicator of potential impairment for Royal Gold’s stream interest. The financial impairment taken by Centerra does not impact the mine operating 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 Mount Milligan stream interest. It is unclear at this point what impact, if any, the results of Centerra’s updated 43-101 technical report 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.2020.
119
Rainy RiverCOVID-19 and current economic environment
RGLD Gold ownsThroughout 2020 and into 2021, several of our operating counterparties have instituted temporary operational curtailments due to the rightongoing COVID-19 pandemic. In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to purchase 6.50%forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance. For the most part, our results of operations and financial condition have not been materially impacted by these measures to date. However, the effects of the gold produced frompandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19. As a result, we are currently unable to predict the Rainy River project, which is located in northwestern Ontario, Canada and is operated by New Gold, Inc. (“New Gold”), until 230,000 gold ounces have been delivered, and 3.25% thereafter; and 60%nature or extent of the silver produced from the Rainy River project until 3.1 million silver ounces have been delivered, and 30% thereafter. As of December 31, 2019, approximately 32,200 ounces of gold and approximately 332,300 ounces of silver have been delivered to RGLD Gold. The Company’s carrying value for its stream interest at Rainy River is $155.3 million as of December 31, 2019.
During the quarter ended December 31, 2019, New Gold reported that it continued to advance a comprehensive mine optimization study that includes a review of alternative open pit and underground mining scenarios, and it expects to release theany future impact on our results of this study on February 13, 2020. It is unclear at this point what impact, if any, the results of New Gold’s optimization studyoperations and any updates to the reserves and mineralized material at Rainy River will have on the carrying value of our stream interest. The Company willfinancial condition. We continue to monitor thesethe impact of developments in subsequent quarterly reporting periods.
Other
Duringassociated with the quarter ended June 30, 2019, the Company was made aware of insolvency proceedings at one of our non-principal producing properties, El Toqui. The outcome of these insolvency proceedings may impact ourpandemic on stream and royalty interests and the associated carrying value, which is approximately $1.3 million as of December 31, 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 our interest to an amount less than the current carrying value or to zero is necessary.
4. MARKETABLE EQUITY SECURITIES
As of December 31, 2019, the Company’s2020, our marketable equity securities include 809,744 common shares of Contango Ore, Inc. (“CORE”), 3,949,575 common shares of Rubicon MineralsBattle North Gold Corporation, and warrants to purchase up to 15,712,00019,640,000 common shares of TriStar.TriStar Gold Inc. Our marketable equity securities are measured at fair value (Note 11)12) each reporting period with any changes in fair value recognized in net income.
As discussed in Note 2, on September 30, 2020, we sold 809,744 common shares of Contango for total consideration of $12.1 million and recorded a mark-to-market increase of $3.6 million on the sale, which is included in Fair value changes in equity securities in our consolidated statement of operations and comprehensive income for the three months ended September 30, 2020.
The fair value of our marketable equity securities increased $0.2decreased $0.4 million and decreased $1.2increased $2.2 million for the three and six months ended December 31, 2019,2020, respectively, and decreased $3.6 million and $5.1 million for the three and six months ended December 31, 2018, respectively, and isare included in Fair value changes in equity securities on our consolidated statements of operations and comprehensive income. The carrying value of the Company’sour marketable equity securities as of December 31, 20192020 and June 30, 20192020 was $15.2$7.9 million and $16.0$17.9 million, respectively, and is included in Other assets on the Company’sour consolidated balance sheets.
5. DEBT
The Company’sOur debt as of December 31, 20192020 and June 30, 20192020 consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 | | As of June 30, 2019 | | As of December 31, 2020 | | As of June 30, 2020 | ||||||||||||||||||||||||||||
|
| Principal |
| Debt Issuance Costs |
| Total |
| Principal |
| Debt Issuance Costs |
| Total |
| Principal |
| Debt Issuance Costs |
| Total |
| Principal |
| Debt Issuance Costs |
| Total | ||||||||||||
| | | (Amounts in thousands) | | | (Amounts in thousands) | | | (Amounts in thousands) | | | (Amounts in thousands) | ||||||||||||||||||||||||
Revolving credit facility | | $ | 135,000 | | $ | (5,131) | | $ | 129,869 | | $ | 220,000 | | $ | (5,446) | | $ | 214,554 | | $ | 200,000 | | $ | (4,017) | | $ | 195,983 | | $ | 305,000 | | $ | (4,561) | | $ | 300,439 |
Total debt | | $ | 135,000 | | $ | (5,131) | | $ | 129,869 | | $ | 220,000 | | $ | (5,446) | | $ | 214,554 | | $ | 200,000 | | $ | (4,017) | | $ | 195,983 | | $ | 305,000 | | $ | (4,561) | | $ | 300,439 |
Revolving credit facility
On September 20, 2019, the Company entered into a third amendment to our revolving credit facility dated as of June 2, 2017. Under the amendment, the Company’s Swiss subsidiary RGLD Gold was added as a co-borrower and joint and several obligor, certain of the Company’s Canadian subsidiaries were added as guarantors, and certain equity pledges that previously had been granted in favor of the lenders to support the facility were released, with the result that the facility is now unsecured.
12
As of December 31, 2019, the Company2020, we had $135$200 million outstanding and $865$800 million available under theour revolving credit facility. Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.
As of December 31, 2019, theThe interest rate on borrowings under theour revolving credit facility as of December 31, 2020 was LIBOR plus 1.10% for an all-in rate of 2.99%1.33%. Interest expense, which includes interest on the outstanding borrowings under the revolving credit facility and the amortization of the debt issuance costs, was $1.0 million and $2.2 million for the three and six months ended December 31, 2020, respectively, and $1.6 million and $3.8 million for the three and six months ended December 31, 2019, respectively, and $0.3 million and $0.6 million for the three and six months ended December 31, 2018, respectively. As discussed in Note 56 to the consolidated financial statements in the Company’sour Fiscal 20192020 10-K, the Company haswe have financial covenants associated with itsour revolving credit facility. As of December 31, 2019, the Company was2020, we were in compliance with each financial covenant.
On January 4, 2021, we repaid $50 million of the outstanding borrowings under our revolving credit facility. This increased the amount available under our revolving credit facility to $850 million and decreased the amount outstanding to $150 million.
10
Royal Gold may repay any borrowings under our revolving credit facility at any time without premium or penalty. Our revolving credit facility matures on June 3, 2024.
6. LEASES
Our significant lease arrangements relate to our office spaces. These arrangements are for leases of assets such as corporate office space and office equipment. We lease office space and office equipment under operating leases expiring at various dates through the fiscal year ending June 30, 2030. The following amounts were recorded in the consolidated balance sheets at December 31, 2020 (amounts in thousands):
| | | | | |
| | Classification | | December 31, 2020 | |
Operating Leases | | | | | |
Right-of-use assets - current |
| Prepaid expenses and other |
| $ | 806 |
Right-of-use assets - non-current | | Other assets | | | 6,404 |
Total right-of-use assets | | | | $ | 7,210 |
| | | | | |
Lease liabilities - current | | Other current liabilities | | $ | 951 |
Lease liabilities - non-current | | Other long-term liabilities | | | 7,634 |
Total operating lease liabilities | | | | $ | 8,585 |
Maturities of operating lease liabilities at December 31, 2020 were as follows (amounts in thousands):
| | | |
Fiscal Years: | | Operating Leases | |
2021 | | $ | 574 |
2022 | | | 1,145 |
2023 | | | 1,121 |
2024 | | | 1,121 |
2025 | | | 1,082 |
Thereafter | | | 4,524 |
Total lease payments | | $ | 9,567 |
Less imputed interest | | | (982) |
Total | | $ | 8,585 |
Other information pertaining to leases consist of the following:
| | | |
| | December 31, 2020 | |
Operating Lease Term and Discount Rate | | | |
Weighted average remaining lease term in years | | | 9 |
Weighted average discount rate | | | 2.5% |
We did not have any finance leases as of December 31, 2020.
7. REVENUE
Revenue Recognition
Under current ASC 606 – Revenue from Contracts with Customers (“ASC 606”)U.S. GAAP 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 each distinct performance obligation and recognized as revenue when, or as, a performance obligation is satisfied. In accordance with this guidance, revenue attributable to our stream interests and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers. The amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement. A more detailed summary of our revenue recognition policies for our stream and royalty interests is discussed below.
11
Stream Interests
A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more of the metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Gold, silver and copper received under our metal streaming agreements are taken into inventory, and then sold primarily using average spot rate gold, silver and copper forward contracts. The sales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between ten days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time) commencing shortly after receipt and purchase of the metal. We settle our forward sales contracts via physical delivery of the metal to the purchaser (our customer) on the settlement date specified in the contract. Under our forward sales contracts, there is a single performance obligation to sell a contractually specified volume of metal to the purchaser, and we satisfy this obligation at the point in time of physical delivery. Accordingly, revenue from our metal sales is recognized on the date of settlement, which is the date that control, custody and title to the metal transfer to the purchaser.
Royalty Interests
Royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. We are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price (for example, a monthly or quarterly average spot price) for the period in which metal production 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 for that period. As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator. If adequate information is not available from the operator or from other public sources before we issue our financial statements, we 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 2020 10-K. For the three and six months ended December 31, 2020, royalty revenue that was estimated or was attributable to metal production for a period prior to December 31, 2020, was not material.
Disaggregation of Revenue
We have identified 2 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 11.
1312
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 for that period. As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator. If adequate information is not available from the operator or from other public sources before we issue our financial statements, the Company will recognize royalty revenue during the period in which the necessary payment information is received. Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known. Please also refer to our “Use of Estimates” accounting policy discussed in our Fiscal 2019 10-K. For the three and six months ended December 31, 2019, royalty revenue that was estimated or was attributable to metal production for a period prior to December 31, 2019, was not material.
Disaggregation of Revenue
We have identified 2 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 10.
Revenue by metal type attributable to each of our revenue sources is disaggregated as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | ||
| Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended | ||||||||||||||||
| December 31, | | December 31, | | December 31, | | December 31, | December 31, |
| December 31, |
| December 31, |
| December 31, | ||||||||
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Stream revenue: | | | | | | | | | | | | | | | | | | | | | ||
Gold | $ | 69,111 | | $ | 53,179 | | $ | 141,335 | | $ | 112,293 | $ | 83,685 | | $ | 69,111 | | $ | 167,282 | | $ | 141,335 |
Silver | | 8,929 | | 7,884 | | | 17,365 | | 16,604 | | 11,128 | | | 8,929 | | | 22,026 | | | 17,365 | ||
Copper | | 11,585 | | | 6,616 | | | 17,906 | | | 8,819 | | 12,906 | | | 11,585 | | | 24,914 | | | 17,906 |
Total stream revenue | $ | 89,625 | | $ | 67,679 | | $ | 176,606 | | $ | 137,716 | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
Royalty revenue: | | | | | | | | | | | | | | | | | | | | | ||
Gold | $ | 22,068 | | $ | 19,656 | | $ | 43,825 | | $ | 38,210 | $ | 36,471 | | $ | 22,068 | | $ | 63,375 | | $ | 43,825 |
Silver | | 3,365 | | 1,567 | | | 5,194 | | 2,919 | | 4,193 | | | 3,365 | | | 7,634 | | | 5,194 | ||
Copper | | 4,107 | | 4,359 | | | 7,087 | | 7,974 | | 4,395 | | | 4,107 | | | 8,456 | | | 7,087 | ||
Other | | 4,478 | | | 4,331 | | | 9,705 | | | 10,766 | | 5,582 | | | 4,478 | | | 11,553 | | | 9,705 |
Total royalty revenue | $ | 34,018 | | $ | 29,913 | | $ | 65,811 | | $ | 59,869 | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | $ | 123,643 | | $ | 97,592 | | $ | 242,417 | | $ | 197,585 | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
Revenue attributable to our principal stream and royalty interests is disaggregated as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Six Months Ended | | | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | | | December 31, | | December 31, | | December 31, | | December 31, | | | | December 31, |
| December 31, |
| December 31, |
| December 31, | ||||||||
| | Metal(s) | | 2019 | | 2018 | | 2019 | | 2018 | | Metal(s) | | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Stream revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mount Milligan | | Gold & Copper | | $ | 30,629 | | $ | 28,169 | | $ | 61,126 | | $ | 37,015 | | Gold & Copper | | $ | 44,713 | | $ | 30,629 | | $ | 79,332 | | $ | 61,126 |
Pueblo Viejo | | Gold & Silver | | 23,614 | | | 18,230 | | | 45,232 | | | 37,717 | | Gold & Silver | | | 27,554 | | | 23,614 | | | 58,824 | | | 45,232 | |
Andacollo | | Gold | | | 20,665 | | 7,635 | | 41,269 | | | 35,378 | | Gold | | | 17,766 | | | 20,665 | | | 41,275 | | | 41,269 | ||
Wassa | | Gold | | 4,794 | | | 6,459 | | | 10,113 | | | 11,784 | | Gold | | | 6,761 | | | 4,794 | | | 15,870 | | | 10,113 | |
Rainy River | | Gold & Silver | | 7,562 | | | 4,095 | | | 14,728 | | | 9,995 | |||||||||||||||
Other | | Gold | | | 2,361 | | | 3,091 | | | 4,138 | | | 5,827 | | Gold & Silver | | | 10,925 | | | 9,923 | | | 18,921 | | | 18,866 |
Total stream revenue | | | | $ | 89,625 | | $ | 67,679 | | $ | 176,606 | | $ | 137,716 | | | | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
Royalty revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peñasquito | | Gold, Silver, Lead & Zinc | | $ | 7,577 | | $ | 4,660 | | $ | 11,997 | | $ | 8,297 | | Gold, Silver, Lead & Zinc | | $ | 12,952 | | $ | 7,577 | | $ | 23,161 | | $ | 11,997 |
Cortez | | Gold | | 3,292 | | | 2,335 | | | 7,709 | | | 2,939 | | Gold | | | 8,128 | | | 3,292 | | | 13,812 | | | 7,709 | |
Other | | Various | | | 23,149 | | | 22,918 | | | 46,105 | | | 48,633 | | Various | | | 29,561 | | | 23,149 | | | 54,045 | | | 46,105 |
Total royalty revenue | | | | $ | 34,018 | | $ | 29,913 | | $ | 65,811 | | $ | 59,869 | | | | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | | | | $ | 123,643 | | $ | 97,592 | | $ | 242,417 | | $ | 197,585 | | | | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
Please refer to Note 1011 for the geographical distribution of our revenue by reportable segment.
8. STOCK-BASED COMPENSATION
We recognized stock-based compensation expense as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | (Amounts in thousands) | | | (Amounts in thousands) | ||||||
Stock options | | $ | 17 | | $ | 26 | | $ | 33 | | $ | 57 |
Stock appreciation rights | | | 430 | | | 430 | | | 801 | | | 872 |
Restricted stock | | | 588 | | | 697 | | | 1,585 | | | 1,940 |
Performance stock | | | 363 | | | 385 | | | 473 | | | 770 |
Total stock-based compensation expense | | $ | 1,398 | | $ | 1,538 | | $ | 2,892 | | $ | 3,639 |
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
13
During the six months ended December 31, 2020 and 2019, we granted the following stock-based compensation awards (note that 0 awards were granted during the three months ended December 31, 2020 and 2019):
| | | | | | |
| | | Six Months Ended | |||
| | | December 31, | | | December 31, |
|
| | 2020 |
| | 2019 |
| | | (Number of shares) | |||
Stock options | | | 2,860 | | | 1,604 |
Stock appreciation rights | | | 64,100 | | | 46,726 |
Restricted stock | | | 26,104 | | | 23,976 |
Performance stock (at maximum 200% attainment) | | | 35,380 | | | 28,560 |
Total equity awards granted | | | 128,444 | | | 100,866 |
As of December 31, 2020, 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) | ||
Stock options | | | | | | | | $ | 123 | | | 2.3 |
Stock appreciation rights | | | | | | | | | 3,172 | | | 2.2 |
Restricted stock | | | | | | | | | 4,993 | | | 3.5 |
Performance stock | | | | | | | | | 2,367 | | | 1.9 |
9. EARNINGS PER SHARE (“EPS”)
Basic EPS 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 EPS pursuant to the two-class method. Our unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. Our unexercised stock option awards, unexercised stock-settled stock appreciation rights and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic EPS 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 EPS.
The following tables summarize the effects of dilutive securities on diluted EPS for the period (amounts in thousands, except share data):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income attributable to Royal Gold common stockholders | | $ | 59,889 | | $ | 41,321 | | $ | 166,828 | | $ | 111,774 |
Weighted-average shares for basic EPS | | | 65,546,938 | | | 65,495,907 | | | 65,542,326 | | | 65,480,759 |
Effect of other dilutive securities | | | 72,303 | | | 115,660 | | | 83,639 | | | 132,647 |
Weighted-average shares for diluted EPS | | | 65,619,241 | | | 65,611,567 | | | 65,625,965 | | | 65,613,406 |
Basic EPS | | $ | 0.91 | | $ | 0.63 | | $ | 2.55 | | $ | 1.70 |
Diluted EPS | | $ | 0.91 | | $ | 0.63 | | $ | 2.54 | | $ | 1.70 |
14
Contract Receivables10. INCOME TAXES
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.
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | (Amounts in thousands, except rate) | | (Amounts in thousands, except rate) | ||||||||
Income tax expense (benefit) | | $ | 16,031 | | $ | 11,124 | | $ | 13,654 | | $ | (12,401) |
Effective tax rate | | | 21.1% | | | 21.6% | | | 7.6% | | | (12.8%) |
Under our royalty arrangements, payment is typically due byThe effective tax rate for the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirtysix months ended December 31, 2020, included discrete tax benefits ($24.5 million) attributable to sixty days after the respective quarter-end. Revenuesettlement of an uncertain tax position with a foreign jurisdiction and the release of a valuation allowance related to production that has occurred asdeferred tax assets, both of which were recorded during the reporting date butthree months ended September 30, 2020. The effective tax rate 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 ofsix months ended December 31, 2019, included discrete benefits ($32.3 million) attributable to the remeasurement of certain deferred tax assets and June 30, 2019, our royalty receivables were $28.4 milliona net step-up in the basis of tax assets due to the enactment of the Federal Act on Tax Reform and $20.7 million, respectively.
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.
AHV Financing (Swiss Tax Reform).
7. STOCK-BASED COMPENSATION11. SEGMENT INFORMATION
The Company recognized stock-based compensation expenseWe manage our business under 2 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 follows:shown in the following table (amounts in thousands):
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
| | | (Amounts in thousands) | | | (Amounts in thousands) | | ||||||
Stock options | | $ | 26 | | $ | 33 | | $ | 57 | | $ | 154 | |
Stock appreciation rights | | | 430 | | | 408 | | | 872 | | | 1,175 | |
Restricted stock | | | 697 | | | 677 | | | 1,940 | | | 1,956 | |
Performance stock | | | 385 | | | 507 | | | 770 | | | 785 | |
Total stock-based compensation expense | | $ | 1,538 | | $ | 1,625 | | $ | 3,639 | | $ | 4,070 | |
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, 2019, the Company granted the following stock-based compensation awards:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Six Months Ended | | As of December 31, 2020 | | As of June 30, 2020 | ||||||||||||||||||||
| | | December 31, | | | December 31, | | | December 31, | | | December 31, | | | | | | | | Total stream | | | | | | | | Total stream | ||
|
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 | | Stream | | Royalty | | and royalty | | Stream | | Royalty | | and royalty | ||||||
| | | (Number of shares) | | | (Number of shares) |
| interest |
| interest |
| interests, net |
| interest |
| interest |
| interests, net | ||||||||||||
Stock options | | | — | | | — | | | 1,604 | | | 6,430 | ||||||||||||||||||
Stock appreciation rights | | | — | | | — | | | 46,726 | | | 69,360 | ||||||||||||||||||
Restricted stock | | | — | | | — | | | 23,976 | | | 42,260 | ||||||||||||||||||
Performance stock (at maximum 200% attainment) | | | — | | | — | | | 28,560 | | | 57,420 | ||||||||||||||||||
Total equity awards granted | | | — | | | — | | | 100,866 | | | 175,470 | ||||||||||||||||||
Canada | | $ | 661,172 | | $ | 184,601 | | $ | 845,773 | | $ | 702,732 | | $ | 189,855 | | $ | 892,587 | ||||||||||||
Dominican Republic | | | 384,322 | | | — | | | 384,322 | | | 406,469 | | | — | | | 406,469 | ||||||||||||
Chile | | | 267,334 | | | 224,116 | | | 491,450 | | | 277,661 | | | 223,922 | | | 501,583 | ||||||||||||
Africa | | | 253,856 | | | 321 | | | 254,177 | | | 215,463 | | | 321 | | | 215,784 | ||||||||||||
Mexico | | | — | | | 71,843 | | | 71,843 | | | — | | | 75,951 | | | 75,951 | ||||||||||||
United States | | | — | | | 115,427 | | | 115,427 | | | — | | | 159,445 | | | 159,445 | ||||||||||||
Australia | | | — | | | 29,161 | | | 29,161 | | | — | | | 30,006 | | | 30,006 | ||||||||||||
Rest of world | | | 12,038 | | | 27,789 | | | 39,827 | | | 12,038 | | | 25,050 | | | 37,088 | ||||||||||||
Total | | $ | 1,578,722 | | $ | 653,258 | | $ | 2,231,980 | | $ | 1,614,363 | | $ | 704,550 | | $ | 2,318,913 |
15
As of December 31, 2019, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | |
|
| | | | | | | Unrecognized |
| Weighted- | ||
| | | | | | | | compensation | | average vesting | ||
| | | | | | | | expense |
| period (years) | ||
Stock options | | | | | | | | $ | 136 | | | 1.8 |
Stock appreciation rights | | | | | | | | | 2,624 | | | 2.0 |
Restricted stock | | | | | | | | | 5,555 | | | 3.1 |
Performance stock | | | | | | | | | 2,191 | | | 1.9 |
8. EARNINGS PER SHARE (“EPS”)
Basic earnings 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 option awards and unexercised SSARs and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic earnings 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 per common share.
The following tables summarize the effects of dilutive securities on diluted EPS for the period (amounts in thousands, except share data):
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Net income and comprehensive income available to Royal Gold common stockholders | | $ | 41,321 | | $ | 23,586 | | $ | 111,774 | | $ | 38,596 | |
Weighted-average shares for basic EPS | | | 65,495,907 | | | 65,395,457 | | | 65,480,759 | | | 65,385,161 | |
Effect of other dilutive securities | | | 115,660 | | | 77,943 | | | 132,647 | | | 100,262 | |
Weighted-average shares for diluted EPS | | | 65,611,567 | | | 65,473,400 | | | 65,613,406 | | | 65,485,423 | |
Basic earnings per share | | $ | 0.63 | | $ | 0.36 | | $ | 1.70 | | $ | 0.59 | |
Diluted earnings per share | | $ | 0.63 | | $ | 0.36 | | $ | 1.70 | | $ | 0.59 | |
9. INCOME TAXES
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | (Amounts in thousands, except rate) | | (Amounts in thousands, except rate) | ||||||||
Income tax (expense) benefit | | $ | (11,124) | | $ | 2,148 | | $ | 12,401 | | $ | (1,967) |
Effective tax rate | | | 21.6% | | | (10.3%) | | | (12.8%) | | | 5.3% |
The effective tax rate for the six months ended December 31, 2019, included discrete tax benefits attributable to the remeasurement of certain deferred tax assets and a net step-up in the basis of tax assets due to the enactment of the Federal Act on Tax Reform and AHV Financing (Swiss Tax Reform). The effective tax rate for the three and six months ended December 31, 2018 included benefits related to the transition tax as part of H.R. 1, originally known as the Tax Cuts and Jobs Act, which was due to consideration of new U.S. Treasury regulations and IRS guidance released during the period.
16
10. SEGMENT INFORMATION
The Company manages its business under 2 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 (amounts in thousands):
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 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 | | $ | 744,543 | | $ | 194,676 | | $ | 939,219 | | $ | 767,749 | | $ | 200,251 | | $ | 968,000 |
Dominican Republic | | | 430,609 | | | — | | | 430,609 | | | 451,585 | | | — | | | 451,585 |
Chile | | | 287,309 | | | 214,171 | | | 501,480 | | | 301,507 | | | 214,226 | | | 515,733 |
Africa | | | 150,898 | | | 321 | | | 151,219 | | | 89,555 | | | 321 | | | 89,876 |
Mexico | | | — | | | 79,891 | | | 79,891 | | | — | | | 83,748 | | | 83,748 |
United States | | | — | | | 161,391 | | | 161,391 | | | — | | | 163,398 | | | 163,398 |
Australia | | | — | | | 30,677 | | | 30,677 | | | — | | | 31,944 | | | 31,944 |
Rest of world | | | 12,038 | | | 26,567 | | | 38,605 | | | 12,039 | | | 22,993 | | | 35,032 |
Total | | $ | 1,625,397 | | $ | 707,694 | | $ | 2,333,091 | | $ | 1,622,435 | | $ | 716,881 | | | 2,339,316 |
The Company’sOur reportable segments for purposes of assessing performance are shown below (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2019 | | Three Months Ended December 31, 2020 | ||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales (1) |
| Production taxes | �� | Depletion (2) |
| Segment gross profit |
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | ||||||||||
Stream interests | | $ | 89,625 | | $ | 21,077 | | $ | — | | $ | 32,181 | | $ | 36,367 | | $ | 107,719 | | $ | 24,859 | | $ | — | | $ | 40,226 | | $ | 42,634 |
Royalty interests | | | 34,018 | | | — | | | 984 | | | 7,801 | | | 25,233 | | | 50,641 | | | — | | | 1,401 | | | 7,635 | | | 41,605 |
Total | | $ | 123,643 | | $ | 21,077 | | $ | 984 | | $ | 39,982 | | $ | 61,600 | | $ | 158,360 | | $ | 24,859 | | $ | 1,401 | | $ | 47,861 | | $ | 84,239 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2018 | | Three Months Ended December 31, 2019 | ||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit |
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | ||||||||||
Stream interests | | $ | 67,679 | | $ | 18,162 | | $ | — | | $ | 28,636 | | $ | 20,881 | | $ | 89,625 | | $ | 21,077 | | $ | — | | $ | 32,181 | | $ | 36,367 |
Royalty interests | | | 29,913 | | | — | | | 909 | | | 10,123 | | | 18,881 | | | 34,018 | | | — | | | 984 | | | 7,801 | | | 25,233 |
Total | | $ | 97,592 | | $ | 18,162 | | $ | 909 | | $ | 38,759 | | $ | 39,762 | | $ | 123,643 | | $ | 21,077 | | $ | 984 | | $ | 39,982 | | $ | 61,600 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended December 31, 2019 | | Six Months Ended December 31, 2020 | ||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit |
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | ||||||||||
Stream interests | | $ | 176,606 | | $ | 41,188 | | $ | — | | $ | 63,643 | | $ | 71,775 | | $ | 214,222 | | $ | 46,760 | | $ | — | | $ | 79,253 | | $ | 88,209 |
Royalty interests | | | 65,811 | | | — | | | 2,083 | | | 15,000 | | | 48,728 | | | 91,018 | | | — | | | 2,756 | | | 14,822 | | | 73,440 |
Total | | $ | 242,417 | | $ | 41,188 | | $ | 2,083 | | $ | 78,643 | | $ | 120,503 | | $ | 305,240 | | $ | 46,760 | | $ | 2,756 | | $ | 94,075 | | $ | 161,649 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended December 31, 2018 | | Six Months Ended December 31, 2019 | ||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Production taxes |
| Depletion |
| Segment gross profit |
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | ||||||||||
Stream interests | | $ | 137,716 | | $ | 34,689 | | $ | — | | $ | 60,733 | | $ | 42,294 | | $ | 176,606 | | $ | 41,188 | | $ | — | | $ | 63,643 | | $ | 71,775 |
Royalty interests | | | 59,869 | | | — | | | 2,201 | | | 20,531 | | | 37,137 | | | 65,811 | | | — | | | 2,083 | | | 15,000 | | | 48,728 |
Total | | $ | 197,585 | | $ | 34,689 | | $ | 2,201 | | $ | 81,264 | | $ | 79,431 | | $ | 242,417 | | $ | 41,188 | | $ | 2,083 | | $ | 78,643 | | $ | 120,503 |
(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. |
A reconciliation of total segment gross profit to the consolidated Income before income taxes is shown below (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
Total segment gross profit | | $ | 84,239 | | $ | 61,600 | | $ | 161,649 | | $ | 120,503 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
General and administrative expenses | | | 6,789 | | | 6,665 | | | 14,244 | | | 14,108 |
Exploration costs | | | — | | | 1,514 | | | 563 | | | 4,140 |
Depreciation and amortization | | | 84 | | | 114 | | | 170 | | | 167 |
Gain on sale of Peak Gold JV interest | | | — | | | — | | | (33,906) | | | — |
Operating income | | | 77,366 | | | 53,307 | | | 180,578 | | | 102,088 |
Fair value changes in equity securities | | | (382) | | | 222 | | | 2,158 | | | (1,153) |
Interest and other income | | | 613 | | | 226 | | | 1,034 | | | 1,001 |
Interest and other expense | | | (1,578) | | | (2,217) | | | (3,454) | | | (5,051) |
Income before income taxes | | $ | 76,019 | | $ | 51,538 | | $ | 180,316 | | $ | 96,885 |
1716
Our revenue by reportable segment for the three and six months ended December 31, 2020 and 2019 is geographically distributed as shown in the following table (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Stream interests: | | | | | | | | | | | | |
Canada | | $ | 54,302 | | $ | 38,191 | | $ | 95,888 | | $ | 75,854 |
Dominican Republic | | | 27,554 | | | 23,614 | | | 58,824 | | | 45,232 |
Chile | | | 17,766 | | | 20,665 | | | 41,275 | | | 41,269 |
Africa | | | 8,097 | | | 7,155 | | | 18,235 | | | 14,251 |
Total stream interests | | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
| | | | | | | | | | | | |
Royalty interests: | | | | | | | | | | | | |
United States | | $ | 17,090 | | $ | 10,012 | | $ | 30,788 | | $ | 20,614 |
Mexico | | | 15,174 | | | 9,376 | | | 26,751 | | | 15,763 |
Australia | | | 8,314 | | | 3,546 | | | 12,856 | | | 7,348 |
Canada | | | 6,047 | | | 8,037 | | | 13,458 | | | 16,958 |
Africa | | | 744 | | | 911 | | | 1,494 | | | 1,606 |
Rest of world | | | 3,272 | | | 2,136 | | | 5,671 | | | 3,522 |
Total royalty interests | | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
A reconciliation of total segment gross profit to the consolidated Income before income taxes is shown below (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
| | | 2019 | | | 2018 | | | 2019 | | | 2018 |
Total segment gross profit | | $ | 61,600 | | $ | 39,762 | | $ | 120,503 | | $ | 79,431 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
General and administrative expenses | | | 6,665 | | | 7,423 | | | 14,108 | | | 17,349 |
Exploration costs | | | 1,514 | | | 842 | | | 4,140 | | | 5,204 |
Depreciation | | | 114 | | | 48 | | | 167 | | | 94 |
Operating income | | | 53,307 | | | 31,449 | | | 102,088 | | | 56,784 |
Fair value changes in equity securities | | | 222 | | | (3,631) | | | (1,153) | | | (5,099) |
Interest and other income | | | 226 | | | 487 | | | 1,001 | | | 590 |
Interest and other expense | | | (2,217) | | | (7,410) | | | (5,051) | | | (15,287) |
Income before income taxes | | $ | 51,538 | | $ | 20,895 | | $ | 96,885 | | $ | 36,988 |
The Company’s revenue by reportable segment for the three and six months ended December 31, 2019 and 2018 is geographically distributed as shown in the following table (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | December 31, | | December 31, | | December 31, | | December 31, | ||||
|
| 2019 |
| 2018 | | 2019 |
| 2018 | ||||
Stream interests: | | | | | | | | | | | | |
Canada | | $ | 38,191 | | $ | 32,264 | | $ | 75,854 | | $ | 47,010 |
Dominican Republic | | | 23,614 | | | 18,230 | | | 45,232 | | | 37,717 |
Chile | | | 20,665 | | | 7,635 | | | 41,269 | | | 35,378 |
Africa | | | 7,155 | | | 9,550 | | | 14,251 | | | 17,611 |
Total stream interests | | $ | 89,625 | | $ | 67,679 | | $ | 176,606 | | $ | 137,716 |
| | | | | | | | | | | | |
Royalty interests: | | | | | | | | | | | | |
United States | | $ | 10,012 | | $ | 8,284 | | $ | 20,614 | | $ | 14,340 |
Canada | | | 8,037 | | | 7,536 | | | 16,958 | | | 17,717 |
Mexico | | | 9,376 | | | 7,837 | | | 15,763 | | | 15,833 |
Australia | | | 3,546 | | | 3,157 | | | 7,348 | | | 6,217 |
Africa | | | 911 | | | 532 | | | 1,606 | | | 1,024 |
Rest of world | | | 2,136 | | | 2,567 | | | 3,522 | | | 4,738 |
Total royalty interests | | $ | 34,018 | | $ | 29,913 | | $ | 65,811 | | $ | 59,869 |
Total revenue | | $ | 123,643 | | $ | 97,592 | | $ | 242,417 | | $ | 197,585 |
11.12. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishesvalue is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, we utilize a three-tier fair value hierarchy, thatwhich 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 themeasuring fair value hierarchy under ASC 820 are described below:as follows:
Level 1: Quoted prices for identical instruments in active markets;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
18
The following table sets forth the Company’sour financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2019 | | As of December 31, 2020 | ||||||||||||||||||||||||||
| | | | Fair Value | | | | Fair Value | ||||||||||||||||||||||
|
| Carrying Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Carrying Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Assets (Amounts in thousands): | | | | | | | | | | | | | | | | |||||||||||||||
Assets (amounts in thousands): | | | | | | | | | | | | | | | | |||||||||||||||
Marketable equity securities(1) | | $ | 15,242 | | $ | 15,242 | | $ | 15,003 | | $ | 239 | | $ | — | | $ | 7,874 | | $ | 7,874 | | $ | 6,447 | | $ | 1,427 | | $ | — |
The Company’sOur marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets multiplied by the quantity of shares held by the Company. The warrants classified within Level 2 of the fair value hierarchy are valued each period using the Black-Scholes model. The warrants are part of the TriStar transaction, discussed further in Note 2, and have been classified as a financial asset instrument.held. The carrying value of the Company’sour revolving credit facility (Note 5) approximates fair value as of December 31, 2019.2020. The TriStar Gold Inc. warrants classified within Level 2 of the fair value hierarchy are model-derived (Black-Scholes) valuations in which the significant inputs are observable in active markets.
17
As of December 31, 2019, the Company also2020, we 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.
12.13. COMMITMENTS AND CONTINGENCIES
Khoemacau Silver Stream Acquisition
On November 5, 2019, RGLD Gold made its first advance payment ($65.8 million) pursuantPursuant to theour Khoemacau silver stream acquisition madetransaction closed in February 2019. As of December 31, 2019, we made the Company’sfollowing advance payments under our conditional funding scheduleschedule:
● | $65.8 million – November 5, 2019 |
● | $22.0 million – February 2, 2020 |
● | $47.9 million – April 3, 2020 |
● | $11.1 million – July 5, 2020 |
● | $32.5 million – October 5, 2020 |
● | $32.6 million – January 6, 2021 |
Including the sixth advance payment made on January 6, 2021, we have made total contributions of $212 million which completes the advance payments for $146.2 millionthe Base Silver Stream. We are further committed to up to $199.2$53.0 million pursuantin additional contributions should Khoemacau Copper Mining (Pty.) Limited elect to its Khoemacau silver stream acquisition remainsfully exercise the Option Silver Stream. Any further payments under the Option Silver Stream are subject to certain conditions. On February 5, 2020, RGLD Goldconditions and are scheduled to be made its second advance payment ($22 million) pursuant to the Khoemacau silver stream.using an agreed formula and certification process as project spending progresses. Refer to our Fiscal 20192020 10-K for further details on the Khoemacau silver stream acquisition.
Ilovica Gold Stream Acquisition
As of December 31, 2019, the Company’s2020, our conditional funding schedule forof $163.75 million, related to itsas part of the Ilovica gold stream acquisition made in October 2014, remains subject to certain conditions.
13. SUBSEQUENT EVENT
Alturas royalty acquisition
On January 29, 2020, a wholly-owned subsidiary of the Company entered into an agreement with various private individuals for the acquisition of a NSR royalty of up to 1.06% (gold) and up to 1.59% (copper) on mining concessions as part of the Alturas project, which is located within the Coquimbo Region of Chile and held by a subsidiary of Barrick Gold Corporation (“Barrick”), Compañia Minera Salitrales Limitada (“CMSL”). Total consideration for the royalty is up to $41 million, of which $11 million was paid on January 29, 2020. A future payment of up to $20 million is conditional based on a project construction decision by Barrick and the size of the minable mineralized material on the date of the construction decision. A further future payment of $10 million will be made to the private individuals upon first production from the mining concessions.
1918
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Presentation
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 youYou should 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, 20192020, filed with the Securities and Exchange Commission (the “SEC”) on August 8, 2019 (Fiscal 2019 10-K)6, 2020 (“Fiscal 2020 10-K”).
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We do not own, develop, or mine the properties on which we hold stream or royalty interests. Certain information provided in this Quarterly Report on Form 10-Q about operating properties in which we hold interests, including information about reserves, historical production, production estimates, property descriptions, and property developments, was provided to us by the operators of those properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC. We have not verified, and are not in a position to verify, and expressly disclaim any responsibility for the accuracy, completeness, or fairness of, this third-party information and refer the reader to the public reports filed by the operators for information regarding those properties.
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 20192020 10-K.
Statement Regarding Third Party InformationOverview of Our Business
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 our Fiscal 2019 10-K. Certain information provided in this report, including the Operator’s Production Estimates by StreamWe acquire and Royalty Interest for Calendar 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 managingmanage precious 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, 2019, we owned seven stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for approximately 72% and 69% of our total revenue for the three and six months ended December 31, 2019 and 2018, respectively. We expect stream interests to continue representing a significant proportion of our total revenue.
● | 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, 2020, we owned eight stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for approximately 68% and 70% of our total revenue for the three and six months ended December 31, 2020, respectively, and 72% and 73% for the three and six months ended December 31, 2019, respectively. We expect stream interests to continue representing a significant portion 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, 2020, we owned royalty interests on 35 producing properties, 15 development stage properties and 131 exploration stage properties, of which we consider 49 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. Royalty interests accounted for approximately 32% and 30% of our total revenue for the three and six months ended December 31, 2020, respectively, and 28% and 27% for the three and six months ended December 31, 2019, respectively. |
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, 2019, we owned royalty interests on 37 producing properties, 13 development stage properties and 129 exploration stage properties, of which we consider 47 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 28% and 31% of our total revenue for the three and six months ended December 31, 2019 and 2018, 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.
2019
In the ordinary course of business, we engage in a continual review ofWe are continually reviewing opportunities to acquiregrow our portfolio, whether through the creation or acquisition of new or existing stream andor royalty interests to establish new streams and royalties on operating mines, to create new stream and royalty interests through the financing of mine development or exploration, or to acquire companies that hold stream and royalty interests.other acquisition activity. We currently, and generally at any time, have acquisition opportunities in various stages of activereview. Our review including,process may include, for example, our engagement ofengaging consultants and advisors to analyze particular opportunities, ouran opportunity; analysis of technical, financial, legal, and other confidential information of particular opportunities,an opportunity; submission of indications of interest and term sheets,sheets; participation in preliminary discussions and negotiationsnegotiations; and involvement as a bidder in competitive processes.
Business Trends and Uncertainties
Metal Prices
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 hasmetals. Metal prices have fluctuated widely in recent years.years and we expect this volatility to continue. The marketability and the price of metals are influenced by numerous factors beyond theour control, of the Company and significant declineschanges in the price of gold, silver or copper couldmetal prices can have a material and adverse effect on the Company’s results of operations and financial condition.our revenue.
For the three and six months ended December 31, 2020 and 2019, average metal prices and 2018, gold, silver and copper price averages and percentagepercentages of revenue by metal were as follows:
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| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 | | | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | December 31, 2019 | ||||||||||||||||||||||||
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Gold ($/ounce) | | $ | 1,481 | | 74% | | $ | 1,226 | | 75% | | $ | 1,477 | | 76% | | $ | 1,220 | | 76% | | | $ | 1,874 | | 76% | | $ | 1,481 | | 74% | | $ | 1,892 | | 76% | | $ | 1,477 | | 76% |
Silver ($/ounce) | | $ | 17.32 | | 10% | | $ | 14.54 | | 10% | | $ | 17.15 | | 9% | | $ | 14.78 | | 10% | | | $ | 24.39 | | 10% | | $ | 17.32 | | 10% | | $ | 24.32 | | 10% | | $ | 17.15 | | 9% |
Copper ($/pound) | | $ | 2.67 | | 13% | | $ | 2.80 | | 11% | | $ | 2.65 | | 10% | | $ | 2.78 | | 8% | | | $ | 3.25 | | 11% | | $ | 2.67 | | 13% | | $ | 3.10 | | 11% | | $ | 2.65 | | 10% |
Other | | | N/A | | 3% | | | N/A | | 4% | | | N/A | | 5% | | | N/A | | 6% | | | | N/A | | 3% | | | N/A | | 3% | | | N/A | | 3% | | | N/A | | 5% |
Recent Business DevelopmentsCOVID-19 and the Current Economic Environment
Throughout 2020 and into 2021, several of our operating counterparties have instituted temporary operational curtailments due to the ongoing COVID-19 pandemic. In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance. For the most part, our results of operations and financial condition have not been materially impacted by these measures to date. However, the effects of the pandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19. As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition. We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis.
Leadership changes
As previously announced, we recently made several key leadership changes as a resultSale of our ongoing management succession planning. After a thorough search process, our Board of Directors appointed William Heissenbuttel as our President and Chief Executive Officer and a member of the Board of Directors, effective January 2, 2020. Mr. Heissenbuttel most recently served as our Chief Financial Officer and Vice President Strategy. In addition, the Board of Directors promoted the following executives effective January 2, 2020: Mark Isto, Executive Vice President and Chief Operating Officer; Paul Libner, Chief Financial Officer and Treasurer; and Randy Shefman, Vice President and General Counsel.
Alturas royalty acquisitionPeak Gold JV Interest
On January 29,September 30, 2020, a wholly-owned subsidiary of the Company entered intowe announced an agreement with various private individualsKinross Gold Corporation to sell our interest in the Peak Gold Project and our common share position in Contango Ore, Inc. (“Contango”), our partner in Peak Gold, LLC, the owner of the Peak Gold Project. Consideration received for the acquisitionsale of athese interests included cash of $61.3 million, an incremental 28% net smelter return (“NSR”) royalty on silver produced from an area of upinterest which includes the current Peak Gold Project resource area, and an incremental 1% net smelter return royalty on certain State of Alaska mining claims acquired by a wholly owned subsidiary of Contango in the transaction. Peak Gold, LLC, retains the right to 1.06% (gold) and up to 1.59% (copper) on mining concessions as partacquire 50% of the Alturas project, which is located within the Coquimbo Region of Chile and held by a subsidiary of Barrick Gold Corporation (“Barrick”), Compañia Minera Salitrales Limitada (“CMSL”). Total considerationincremental 28% net smelter return royalty on silver for the royalty is up to $41 million, of which $11 million was paid on January 29, 2020. A future payment of up to $20 million is conditional based on a project construction decision by Barrick and the size of the minable mineralized material on the date of the construction decision. A further future payment of $10 million will be made to the private individuals upon first production from the mining concessions. $4 million.
Castelo de Sonhos royalty acquisition
In August 2019, a subsidiaryAfter this transaction, our interests in the Peak Gold Project and State of the Company entered into an agreement with TriStar Gold Inc. and its subsidiaries (together “TriStar”) to acquire (i) up to a 1.5% NSR royalty on the Castelo de Sonhos gold project (“CDS”), located in Brazil, and (ii) warrants to purchase up to 19,640,000 common sharesAlaska mining claim property owned by Contango consist solely of TriStar. Total consideration is $7.5 million and is payable over three payments, of which $4.5 million was paid in August 2019 and $1.5 million was paid in November 2019. The final payment of $1.5 million is subject to satisfaction of certain conditions and is payable by March 31, 2020. The NSR
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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.
Aggregate funds invested by the Company will be used by TriStar primarily to advance CDS to the feasibility 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 2.0 million ounces of mineralized material at an average grade of approximately 1.0 gram per tonne.net smelter return royalties. Refer to Note 2 of our notes to consolidated financial statements for further discussion.
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 baseddiscussion on a numberthe sale 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 2019 10-K for further discussion of our principal producing stream and royalty interests.Peak Gold JV interest.
Principal Producing PropertiesSeparation of the Wassa and Prestea/Bogoso Stream Agreement
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On October 1, 2020, we announced the separation of the Wassa and Prestea/Bogoso gold stream agreement into separate stream agreements effective September 30, 2020. This separation was completed to facilitate the sale by Golden Star Resources Ltd. (“Golden Star”) of the Prestea/Bogoso mines to Future Global Resources (“FGR”).
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The Wassa stream agreement, which remains with Golden Star, continues to provide us the right to purchase 10.5% of the gold produced from the Wassa mine until the delivery of 240,000 ounces, after which the stream percentage will decrease to 5.5%. The cash purchase price for gold remains at 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter. As of December 31, 2020, approximately 110,200 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.
The Prestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 20192020
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 theirits original calendar year guidance throughout the year. The following table shows current production estimates for our principal producing properties for calendar 20192020, as well as the actual production through December 31, 2020, for our principal properties as reported to us by the various operators through December 31, 2019. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information. Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing and development stage properties.operators.
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 20192020
Principal Producing Properties
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| | Calendar 2019 Operator’s Production | | Calendar 2019 Operator’s Production | | Calendar 2020 Operator’s Production | | Calendar 2020 Operator’s Production | ||||||||||||||||
| | Estimate(1) | | Actual(2) | | Estimate(1) | | Actual(2) | ||||||||||||||||
| | Gold | | Silver | | Base Metals | | Gold | | Silver | | Base Metals | | Gold | | Silver | | Base Metals | | Gold | | Silver | | Base Metals |
Stream/Royalty |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
Stream: | | | | | | | | | | | | | | | | | | | | | | | | |
Andacollo(3) |
| 62,000 |
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| 46,800 |
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| 53,000 |
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| 49,200 |
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Mount Milligan(4) |
| 155,000 - 175,000 |
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| 137,100 |
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| 140,000 - 160,000 |
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| 161,900 |
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Copper |
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| | | 65 - 75 million |
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| 53.1 million |
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| | | 80 - 90 Million |
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| 82.8 Million |
Pueblo Viejo(5) | | 550,000 - 600,000 | | N/A | | | | 590,000 | | N/A | | | | 530,000 - 580,000 | | N/A | | | | 542,000 | | N/A | | |
Rainy River(6) | | 245,000 - 270,000 | | 245,000 - 270,000 | | | | 253,800 | | 282,100 | | | ||||||||||||
Wassa(7) | | 150,000 - 160,000 | | | | | | 156,000 | | | | | ||||||||||||
Wassa(6) | | 165,000 - 170,000 | | | | | | 168,000 | | | | | ||||||||||||
Royalty: |
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Cortez GSR1 |
| 115,500 |
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| 91,400 |
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| 66,900 |
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| 101,700 |
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Cortez GSR2 |
| 70,200 |
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| 41,200 |
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| 109,600 |
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| 103,900 |
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Cortez GSR3 |
| 183,700 |
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| 131,600 |
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| 146,300 |
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| 161,100 |
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Cortez NVR1 |
| 156,900 |
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| 116,200 |
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| 113,500 |
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| 121,600 |
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Cortez NVR (Crossroads) | | 2,000 | | | | | | 1,100 | | | | | ||||||||||||
Peñasquito(8) |
| 165,000 |
| 25 million |
| | | 71,000 | | 9.2 million |
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Cortez NVR1C | | 30,100 | | | | | | 44,500 | | | | | ||||||||||||
Peñasquito(7) |
| 510,000 | | 28 million |
| | | 343,000 | | 20.4 Million |
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Lead |
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| 180 million | | | | |
| 63 million |
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| 190 million | | | | |
| 130 Million |
Zinc |
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| 245 million | | | | |
| 108 million |
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| 360 million | | | | |
| 281 Million |
(1) | Production estimates received from our operators are for calendar |
(2) | Actual production figures |
(3) | The estimated and actual production figures shown for Andacollo are contained gold in concentrate. |
(4) | The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate. |
(5) | The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo. The operator did not provide estimated or actual silver production. |
(6) | The estimated and actual production figures shown for |
The estimated and actual gold and silver production figures shown for Peñasquito are payable gold and silver in concentrate and doré. The estimated and actual lead and zinc production figures shown are payable lead and zinc in concentrate. The estimated production figures shown are for the period |
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period |
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Property Developments
The following property development information is providedThis section provides recent updates for our principal properties as reported by the operators, of the properties, either directly to Royal Goldus or in various documents madetheir publicly available.available documents.
Stream Interests
Stream InterestsAndacollo
Andacollo
Gold stream deliveries from Andacollo were approximately 18,60010,700 ounces of gold for the three months ended December 31, 2019,2020, compared to approximately 10,70018,600 ounces of gold for the three months ended December 31, 2018. Increased2019. Decreased deliveries during the current period resulted from operational impacts due to COVID-19 in July 2020, in addition to differences in the timing of shipments and settlements during the periods.
On October 13, 2019, Teck reported theexpects grades to continue to decline towards reserve grades. The current life of mine for Andacollo is expected to continue until calendar year 2035. According to Teck, Carmen de Andacollo Workers Union gave notice that a strike would commence on October 14, 2019. Operations were suspended with the exception of essential activitiesadditional permits or permit amendments will be required to maintain safety andexecute the environment. On December 5, 2019, Teck reported the Workers Union ratified a new 36-month collective agreement and operations had resumed. We anticipate the impactlife of the strike to be reflected in our financial results beginning with the quarter ended June 30, 2020, as we generally receive gold deliveries from Andacollo within six months of concentrate shipment.mine plan.
Khoemacau Copper Silver ProjectKhoemacau
According to Khoemacau Copper Mining (Pty.) Limited (“KCM”), progress continued at the Khoemacau Project (“Khoemacau”) in Botswana. According to KCM,during the three months ended December 31, 2020, and the project reached approximately 26%85% of construction completion at the endas of December 31, 2020. According to KCM, activities are focused on refurbishment and upgrading of the December 2019 quarter with 77% of the capital committed. Also, according to KCM, there are approximately 1,400 workers currently on site, with activities focused on completing excavation of the boxcuts, constructionBoseto mill, underground development, completion of accommodation, power and water infrastructure at Zone 5 completing constructionand completion of the accesshaul road surfacing between Zone 5 and the Boseto mill, and refurbishment of the Boseto mill. The mining contractor has been mobilized and much of theAlso, according to KCM, underground mining fleet has arrived on site and is being commissioned, with handover of the first boxcut from KCM to the contractor scheduled to begin in early February 2020, which is delayed from previous estimates due to a slower than planned excavation advance, partially caused by excess surface water accumulationdevelopment had cumulatively advanced 8,311 meters in the boxcuts duringthree mines and approximately 70,000 tonnes of ore were stockpiled on surface at the current rainy season.end of December 2020.
Royal Gold has made two advance payments underThe six-month state of emergency declared by the Government of Botswana in March 2020 to help prevent the spread of COVID-19 was extended on September 28, 2020, for an additional six months through March 2021. Mining remains designated as an “essential service” and KCM reports that general development activity at Khoemacau is continuing without significant impact. In line with previous reporting, and barring any potential further impacts caused by COVID-19 considerations, KCM is targeting to begin commissioning activities late in the second calendar quarter of 2021 with first shipment of concentrate to occur late in the third calendar quarter of 2021.
On January 6, 2021, Royal Gold made the sixth advance payment of $32.6 million, which brings the total contribution to $212 million and completes the advance payment required to earn the full base silver stream. For any remaining funding required to complete construction, KCM may elect under the stream agreement: $65.8 million on November 5, 2020, and $22 million on February 5, 2020. Royal Gold’s remaining commitment ranges from $124.2 million for the base stream of 80% of payable silveragreement to draw up to $177.2$53 million should KCM electin additional stream financing, earning Royal Gold up to increase thean additional 20% option silver stream, draw up to $25 million under a subordinated debt facility provided by Royal Gold, and/or seek at least $25 million in equity from 80% to 100%project sponsors. The subordinated debt facility has a term of payable silver. Further payments are subject toseven years, carries interest at a rate of LIBOR +11%, and requires mandatory repayment upon certain conditions and are scheduled to be made on a quarterly basis using an agreed formula and certification process as project spending progresses.events.
KCM continuescurrently anticipates that up to expect$50 million of this additional funding is required to complete construction and ramp up of Khoemacau to commercial production, largely a result of previously reported schedule impacts caused by COVID-19 considerations. The added funding mechanisms built into the first shipmentstream agreement allow KCM to seamlessly access the additional capital required. KCM is currently reviewing its funding options in advance of concentrate by mid-calendar 2021.the next funding draw, which may occur as early as April 2021, and does not anticipate requiring any further funding after this date to reach commercial production.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 18,8009,700 ounces of gold for the three months ended December 31, 2019,2020, compared to approximately 10,30018,800 ounces of gold for the three months ended December 31, 2018. Increased2019. Decreased deliveries resultedwere primarily a result of lower processed gold grades partially resulting from reduced open pit operations due to COVID-19 during the three months ended June 30, 2020, in addition to differences in the timing of shipments.shipments and settlements during the periods.
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Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds during the three months ended December 31, 2020, compared to approximately 4.4 million pounds during the three months ended December 31, 2019, compared to approximately 2.5 million pounds during the three months ended December 31, 2018. Increased2019. Decreased deliveries resulted from differences in the timing of shipments.shipments and settlements during the periods.
On October 30, 2019,January 14, 2021, Centerra reported it is preparing an updated 43-101 technical report on thethat Mount Milligan mineproduced approximately 161,900 ounces of gold during calendar 2020, above previously issued gold production guidance of between 140,000 and 160,000 ounces. Centerra also reported that will incorporate changes to long-term gold recoveries, operating costs, optimization studiescopper production for calendar year 2020 was 82.8 million pounds, in line with previously issued copper production guidance of between 80 and exploration drilling. The expected timing for publication of this report is within the coming months. Centerra expects a material reduction in the mineral reserves and mineralized material at Mount Milligan, although it has acknowledged that the extent of any
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changes in reserves and mineralized material cannot be precisely determined until all relevant studies and modeling have been completed. 90 million pounds.
A significant reduction in reserves and mineralized material could be an indicator of potential impairment for Royal Gold’s stream interest. The financial impairment taken by Centerra does not impact the mine operating 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 ($402 per ounce of gold and $0.81 per pound of copper) for the Mount Milligan stream interest. It is unclear at this point what impact, if any, the results of Centerra’s updated 43-101 technical report 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.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 13,20010,500 ounces of gold for the three months ended December 31, 2019,2020, compared to approximately 10,40013,200 ounces of gold for the three months ended December 31, 2018. Lower2019. The decrease in deliveries resulted from lower grade and recovery rates. On January 14, 2021, Barrick reported that its 60% share of Pueblo Viejo gold production during calendar year 2020 was 542,000 ounces, in the December 2018 quarter were due to a change from deliveries based on provisional assays from the refinery to final assays.line with previously issued guidance of between 530,000 and 580,000 ounces.
Silver stream deliveries were approximately 417,700418,200 ounces of silver for the three months ended December 31, 2019,2020, compared to approximately 469,000417,800 ounces of silver for the three months ended December 31, 2018. Lower deliveries were primarily the result of lower silver grades during the current quarter.2019.
Barrick has been advancing a plant expansion pre-feasibility studyreported continued progress at Pueblo Viejo including a fatal flaw analysis for additionalduring the quarter to expand the process plant and tailings capacity, and targeted completion ofstorage facilities. Barrick estimates that the study for the end of calendar 2019. If positive, a feasibility study of the expansion is expected to be completed during calendar 2020. Barrick expects the plant expansion project could significantly increase throughput and allow the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022 (on a 100% basis), and that the increase in tailings storage capacity has the potential to convert approximately 11 million ounces of mineralized material to reserves (on a 100% basis).
Rainy RiverAs reported by Barrick, the Environmental Impact Assessment for the process plant expansion has been approved and an amended environmental license has been issued, and progress continued with engineering, procurement of long lead equipment packages, earthworks and tendering of contracts for construction activities. Barrick also reported that studies and permitting discussions to support additional tailings capacity continued to progress.
Gold stream deliveries from Rainy River were approximately 4,200 ounces of gold for the three months ended December 31, 2019, compared to approximately 4,500 ounces of gold for the three months ended December 31, 2018.
Wassa
Silver stream deliveries were approximately 48,100 ounces of silver for the three months ended December 31, 2019, compared to approximately 41,700 ounces of silver for the three months ended December 31, 2018.
New Gold reported total gold production of 51,000 ounces for the current quarter and average mill throughput of approximately 22,500 tonnes per day for the December 2019 quarter, including average throughput of approximately 24,800 tonnes per day for November and December 2019, exceeding the target range of 24,000 tonnes per day and original design of 21,000 tonnes per day. New Gold also reported that mill availability averaged 89% for the current quarter and gold recovery averaged 91%, in line with plan.
During the quarter ended December 31, 2019, New Gold reported that it continued to advance a comprehensive mine optimization study that includes a review of alternative open pit and underground mining scenarios, and it expects to release the results of this study on February 13, 2020. A significant reduction in reserves and mineralized material could be an indicator of potential impairment for Royal Gold’s stream interest. It is unclear at this point what impact, if any, the results of New Gold’s optimization study and any updates to the reserves and mineralized material at Rainy River will have on the carrying value of our stream interest. As of December 31, 2019, the Company’s depletion rate for its interest at Rainy River was $591 per ounce of gold and $6.34 per ounce of silver production. The Company will continue to monitor these developments.
Wassa
Gold stream deliveries from Wassa were approximately 4,9004,700 ounces of gold for the three months ended December 31, 2019,2020, compared to approximately 3,6004,900 ounces of gold for the three months ended December 31, 2018. The improvement in deliveries is related to improved gold grades. Wassa delivered grades of 3.78 grams per tonne during the current quarter,
25
which was 33% higher than the September 2019 quarter. Wassa continued to deliver mining rates in excess of 4,000 tonnes per day during the current quarter.2019.
On November 13, 2019,January 20, 2021, Golden Star reported that it continuesfull calendar year 2020 gold production from Wassa of 168,000 ounces, within the revised guidance range of 165,000 to intersect significant higher grade170,000 ounces, and a 7% increase over 2019 production. Golden Star also provided full calendar year 2021 gold mineralization from infill and step out surface drillingproduction guidance of 165,000 to 175,000 ounces.
Also according to Golden Star, work on a preliminary economic assessment of the southern extensionsexpansion of the Wassa deposit. A better understandingmine into the southern extension of the mineralization at depth resultingWassa ore body is nearing completion, with release of the study results in conjunction with an updated reserve and resource estimate expected from this drilling will be incorporated into the ongoing geological interpretation update that will be the basis for Golden Star’s calendar 2019 year-end mineralized material estimation.Star in February 2021.
For calendar 2020, Golden Star expects Wassa to produce between 155,000 and 165,000 ounces, compared to 156,000 gold ounces for calendar 2019. Golden Star expects mining rates to average in excess of 4,000 tonnes per day, as a result of the ongoing development and definition drilling and additional mining fleet.Royalty Interests
Royalty InterestsCortez
Cortez
Production attributable to our royalty interest at Cortez increasedwas approximately 57,600 ounces of gold for the three months ended December 31, 2020, compared to approximately 28,000 ounces of gold for the three months ended December 31, 2019 compared2019.
Barrick expects production in calendar year 2021 to 19,900 ouncesincrease from calendar year 2020 primarily due to higher contribution from the Crossroads deposit, which is expected to ramp up through calendar year 2023 and offset declining production from the other royalty regions.
23
Peñasquito
Production attributable to our royalty interest at Peñasquito for the three months ended December 31, 2018. The increase was a result of production ramping up at the Crossroads deposit, which is subject to our NVR1C, GSR22020, increased by approximately 120% for gold and portions of our NVR130% for zinc, and GSR3 royalty interests.
Barrick reported that Crossroads transitioned from pre-production in the June 2019 quarter to production status in the September 2019 quarter, and leach production has increased as mining and placement of ore from Crossroads has ramped up and more tonnes are placed under solution.
Peñasquito
Gold,decreased approximately 7% for silver and 15% for lead production attributable to our royalty interest at Peñasquito increased approximately 79%, 85% and 71%, respectively, while zinc production decreased approximately 13% when compared to the prior year quarter. Royalty revenue for the quarter was impacted by a shutdown of mine operations resulting from a blockade of the mine by a trucking contractor and members of the San Juan de Cedros community (one of 25 neighboring communities) that started on September 14, 2019.
Newmont reported that the blockade of the Peñasquito mine was lifted on October 8, 2019, with concentrate shipments resuming immediately thereafter. Newmont further reported that Peñasquito returned to full operations after a 10-day restart process, which commenced on October 22, 2019. On December 13, 2019, Newmont also announced that the Peñasquito mine and the San Juan de Cedros community had agreed to a 30-year infrastructure solution securing sustainable water availability for the community’s domestic and agricultural uses, which represents a significant milestone and an important step in the ongoing negotiations between the parties.
For calendarIn December 2020, Newmont expects aprovided full year of operations at2021 production guidance for Peñasquito with higher grades, leading to production of an estimated 575,000660,000 ounces of gold, 30 million ounces of silver, 425475 million pounds of zinc, and 200190 million pounds of lead, compared to calendar 2020 production guidance, as reported by Newmont in July 2020, of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc and 190 million pounds of lead.
Results of Operations
Quarter Ended December 31, 20192020, Compared to Quarter Ended December 31, 20182019
For the quarter ended December 31, 2019,2020, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $41.3$59.9 million, or $0.63$0.91 per basic and diluted share, as compared to net income and comprehensive income attributable to Royal Gold stockholders of $23.6$41.3 million, or $0.36$0.63 per basic and diluted share, for the quarter ended December 31, 2018.2019. The increase in our earnings per sharenet income was primarily attributable to an increase in revenue, and a decreasediscussed below. These increases were partially offset by an increase in our interestcost of sales and an increase in depreciation, depletion and amortization expense, each discussed further below.
For the quarter ended December 31, 2019,2020, we recognized total revenue of $158.4 million, comprised of stream revenue of $107.7 million and royalty revenue of $50.7 million at an average gold price of $1,874 per ounce, an average silver price of $24.39 per ounce and an average copper price of $3.25 per pound. This is compared to total revenue of $123.6 million which isfor the three months ended December 31, 2019, comprised of stream revenue of $89.6 million and royalty revenue of $34.0 million, at an average gold price of $1,481 per ounce, an average silver price of $17.32 per ounce and an average copper price of $2.67 per pound. This is compared to total revenue of
26
$97.6 million for the three months ended December 31, 2018, which was comprised of stream revenue of $67.7 million and royalty revenue of $29.9 million, at an average gold price of $1,226 per ounce, an average silver price of $14.54 per ounce and an average copper price of $2.80 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended December 31, 20192020, compared to the quarter ended December 31, 20182019, are as follows:
24
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended December 31, 20192020 and 20182019
(Amounts in thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Three Months Ended | | | | Three Months Ended | | Three Months Ended | ||||||||||||||||
| | | | December 31, 2019 | | December 31, 2018 | | | | December 31, 2020 | | December 31, 2019 | ||||||||||||||||
| | | | | | Reported | | | | Reported | | | | | | Reported | | | | Reported | ||||||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||||||
Stream(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mount Milligan | | | | $ | 30,629 | | | | | $ | 28,169 | | | | | | | $ | 44,713 | | | | | $ | 30,629 | | | |
| | Gold | | | | | 12,900 | oz. | | | | | 17,700 | oz. | | Gold | | | | | 16,900 | oz. | | | | | 12,900 | oz. |
| | Copper | | | | | 4.3 | Mlbs. | | | | | 2.4 | Mlbs. | | Copper | | | | | 4.1 | Mlbs. | | | | | 4.3 | Mlbs. |
Pueblo Viejo | | | | $ | 23,614 | | | | | $ | 18,230 | | | | | | | $ | 27,554 | | | | | $ | 23,614 | | | |
| | Gold | | | | | 10,500 | oz. | | | | | 8,900 | oz. | | Gold | | | | | 9,400 | oz. | | | | | 10,500 | oz. |
| | Silver | | | | | 462,400 | oz. | | | | | 509,500 | oz. | | Silver | | | | | 408,600 | oz. | | | | | 462,400 | oz. |
Andacollo | | Gold | | $ | 20,665 | | 13,900 | oz. | | $ | 7,635 | | 6,200 | oz. | | Gold | | $ | 17,766 | | 9,500 | oz. | | $ | 20,665 | | 13,900 | oz. |
Rainy River | | | | $ | 7,562 | | | | | $ | 4,095 | | | | ||||||||||||||
Wassa | | Gold | | $ | 6,761 | | 3,600 | oz. | | $ | 4,794 | | 3,300 | oz. | ||||||||||||||
Other(3) | | | | $ | 10,925 | | | | | $ | 9,923 | | | | ||||||||||||||
| | Gold | | | | | 4,500 | oz. | | | | | 2,900 | oz. | | Gold | | | | | 5,100 | oz. | | | | | 6,100 | oz. |
| | Silver | | | | | 51,100 | oz. | | | | | 36,000 | oz. | | Silver | | | | | 52,000 | oz. | | | | | 20,500 | oz. |
Wassa | | Gold | | $ | 4,794 | | 3,300 | oz. | | $ | 6,459 | | 5,300 | oz. | ||||||||||||||
Other(3) | | Gold | | $ | 2,361 | | 1,600 | oz. | | $ | 3,091 | | 2,500 | oz. | ||||||||||||||
Total stream revenue | | | | $ | 89,625 | | | | | $ | 67,679 | | | | | | | $ | 107,719 | | | | | $ | 89,625 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 7,577 | | | | | $ | 4,660 | | | | | | | $ | 12,952 | | | | | $ | 7,577 | | | |
| | Gold | | | | | 95,800 | oz. | | | | | 53,400 | oz. | | Gold | | | | | 210,600 | oz. | | | | | 95,800 | oz. |
| | Silver | | | | | 9.3 | Moz. | | | | | 5.0 | Moz. | | Silver | | | | | 8.7 | Moz. | | | | | 9.3 | Moz. |
| | Lead | | | | | 61.5 | Mlbs. | | | | | 36.1 | Mlbs. | | Lead | | | | | 52.1 | Mlbs. | | | | | 61.5 | Mlbs. |
| | Zinc | | | | | 72.1 | Mlbs. | | | | | 83.1 | Mlbs. | | Zinc | | | | | 93.8 | Mlbs. | | | | | 72.1 | Mlbs. |
Cortez | | Gold | | $ | 3,292 | | 28,000 | oz. | | $ | 2,335 | | 19,900 | oz. | | Gold | | $ | 8,128 | | 57,600 | oz. | | $ | 3,292 | | 28,000 | oz. |
Other(3) | | Various | | $ | 23,149 | | N/A | | | $ | 22,918 | | N/A | | | Various | | $ | 29,561 | | N/A | | | $ | 23,149 | | N/A | |
Total royalty revenue | | | | $ | 34,018 | | | | | $ | 29,913 | | | | | | | $ | 50,641 | | | | | $ | 34,018 | | | |
Total Revenue | | | | $ | 123,643 | | | | | $ | 97,592 | | | | | | | $ | 158,360 | | | | | $ | 123,643 | | | |
(1) | Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended December 31, |
(2) | Refer to “Property Developments” above for |
(3) | Individually, except for Rainy River which contributed 6% of total revenue for the three months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category |
The increase in our total revenue for the three months ended December 31, 2019, compared with the three months ended December 31, 2018, resulted primarily from an increase in our stream revenuethe average gold, silver and copper prices compared to the prior period and an increase in the average goldproduction within our royalty segment. Gold and silver prices. The increase in our stream revenue was primarily attributable to an increase in gold sales at Andacollo, Pueblo Viejoounces and Rainy River and higher copper sales at Mount Milligan. These increases were partially offset by lower gold sales at Mount Milligan primarily due to 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.
pounds
2725
Gold and silver ounces and copper pounds purchased and sold during the three months ended December 31, 20192020 and 2018,2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2019,2020, and June 30, 2019,2020, for our streaming interests were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | | Three Months Ended | | Three Months Ended | | As of | | As of | ||||||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan | | 18,800 | | 12,900 | | 10,300 | | 17,700 | | 10,300 | | 7,100 | | 9,700 | | 16,900 | | 18,800 | | 12,900 | | 3,800 | | 3,300 |
Pueblo Viejo | | 13,200 | | 10,500 | | 10,400 | | 8,900 | | 13,200 | | 9,500 | | 10,500 | | 9,400 | | 13,200 | | 10,500 | | 10,500 | | 100 |
Andacollo | | 18,600 | | 13,900 | | 10,700 | | 6,200 | | 4,700 | | 4,300 | | 10,700 | | 9,500 | | 18,600 | | 13,900 | | 2,900 | | 11,100 |
Wassa | | 4,900 | | 3,300 | | 3,600 | | 5,300 | | 2,400 | | 1,500 | | 4,700 | | 3,600 | | 4,900 | | 3,300 | | 3,100 | | 2,900 |
Rainy River | | 4,200 | | 4,500 | | 4,500 | | 2,900 | | 1,300 | | 1,800 | ||||||||||||
Other | | 1,400 | | 1,600 | | 1,100 | | 2,600 | | 400 | | 400 | | 4,500 | | 5,100 | | 5,600 | | 6,100 | | 1,200 | | 1,500 |
Total | | 61,100 | | 46,700 | | 40,600 | | 43,600 | | 32,300 | | 24,600 | | 40,100 | | 44,500 | | 61,100 | | 46,700 | | 21,500 | | 18,900 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | | Three Months Ended | | Three Months Ended | | As of | | As of | ||||||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo | | 417,700 | | 462,400 | | 469,000 | | 509,500 | | 417,800 | | 475,600 | | 418,200 | | 408,600 | | 417,700 | | 462,400 | | 418,200 | | 451,200 |
Rainy River | | 48,100 | | 51,100 | | 41,700 | | 36,000 | | 48,400 | | 36,500 | ||||||||||||
Other | | 65,400 | | 52,000 | | 48,100 | | 51,100 | | 66,300 | | 23,400 | ||||||||||||
Total | | 465,800 | | 513,500 | | 510,700 | | 545,500 | | 466,200 | | 512,100 | | 483,600 | | 460,600 | | 465,800 | | 513,500 | | 484,500 | | 474,600 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | | Three Months Ended | | Three Months Ended | | As of | | As of | ||||||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan | | 4.4 | | 4.3 | | 2.5 | | 2.4 | | 0.9 | | 0.8 | | 2.5 | | 4.1 | | 4.4 | | 4.3 | | 1.0 | | 0.8 |
Cost of sales, which excludes depreciation, depletion and amortization, increased to $24.9 million for the three months ended December 31, 2020, from $21.1 million for the three months ended December 31, 2019 from $18.2 million for the three months ended December 31, 2018.2019. The increase was primarily due to increasedan increase in the gold, sales at Andacollosilver and increased gold and silvercopper prices when compared to the prior year quarter.period. Cost of sales is specific to our stream agreements and is the result of RGLDour 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.
Exploration costs decreased to zero for the three months ended December 31, 2020, from $1.5 million for the three months ended December 31, 2019. Exploration costs were specific to the exploration and advancement of the Peak Gold AG’sJV. On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 2 of our notes to consolidated financial statements.
Depreciation, depletion and amortization increased to $47.9 million for the three months ended December 31, 2020, from $40.1 million for the three months ended December 31, 2019. The increase was primarily due to higher gold sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K. These increases were partially offset by a decrease in gold sales at Andacollo when compared to the prior period.
Interest and other expense decreased to $1.6 million for the three months ended December 31, 2020, from $2.2 million for the three months ended December 31, 2019. The decrease was primarily attributable to lower interest expense as a result of lower interest rates on our outstanding debt when compared to the prior period. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.
For the three months ended December 31, 2020, we recorded income tax expense totaling $16.0 million, compared with income tax expense of $11.1 million for the three months ended December 31, 2019. The income tax expense resulted in an effective tax rate of 21.1% in the current period, compared with 21.6% for the three months ended December 31, 2019.
Six Months ended December 31, 2020, Compared to Six Months Ended December 31, 2019
For the six months ended December 31, 2020, we recorded net income of $166.8 million, or $2.55 per basic share and $2.54 per diluted share, as compared to net income of $111.8 million, or $1.70 per basic and diluted share, for the six months ended December 31, 2019. The increase in our earnings per share was primarily attributable to an increase in revenue, a one-time gain attributable to the sale of our Peak Gold JV interest during the September 2020 quarter and various discrete income tax benefits recognized during the September 2020 quarter. Each item contributing to the increase
26
in our earnings per share during the period is discussed below. These increases were partially offset by an increase in our cost of sales and an increase in depreciation, depletion and amortization expense, each discussed below.
For six months ended December 31, 2020, we recognized total revenue of $305.2 million, comprised of stream revenue of $214.2 million and royalty revenue of $91.0 million at an average gold price of $1,892 per ounce, an average silver price of $24.32 per ounce and an average copper price of $3.10 per pound. This is compared to total revenue of $242.4 million for the six months ended December 31, 2019, comprised of stream revenue of $176.6 million and royalty revenue of $65.8 million, at an average gold price of $1,477 per ounce, an average silver price of $17.15 per ounce and an average copper price of $2.65 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Six Months Ended December 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | |
| | | | Six Months Ended | | Six Months Ended | ||||||||
| | | | December 31, 2020 | | December 31, 2019 | ||||||||
| | | | | | | Reported | | | | | Reported | ||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): | | | | | | | | | | | | | | |
Mount Milligan | | | | $ | 79,332 | | | | | $ | 61,126 | | | |
| | Gold | | | | | 28,800 | oz. | | | | | 29,500 | oz. |
| | Copper | | | | | 8.2 | Mlbs. | | | | | 6.7 | Mlbs. |
Pueblo Viejo | | | | $ | 58,824 | | | | | $ | 45,232 | | | |
| | Gold | | | | | 20,500 | oz. | | | | | 20,000 | oz. |
| | Silver | | | | | 859,800 | Moz. | | | | | 938,000 | oz. |
Andacollo | | Gold | | $ | 41,275 | | 21,600 | oz. | | $ | 41,269 | | 27,900 | oz. |
Wassa | | Gold | | $ | 15,870 | | 8,500 | oz. | | $ | 10,113 | | 6,900 | oz. |
Other(3) | | | | $ | 18,921 | | | | | $ | 18,866 | | | |
| | Gold | | | | | 9,200 | oz. | | | | | 11,900 | oz. |
| | Silver | | | | | 75,100 | oz. | | | | | 85,600 | oz. |
Total stream revenue | | | | $ | 214,222 | | | | | $ | 176,606 | | | |
| | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 23,161 | | | | | $ | 11,997 | | | |
| | Gold | | | | | 341,300 | oz. | | | | | 131,300 | oz. |
| | Silver | | | | | 15.1 | Moz. | | | | | 13.9 | Moz. |
| | Lead | | | | | 93.7 | Mlbs. | | | | | 91.2 | Mlbs. |
| | Zinc | | | | | 191.8 | Mlbs. | | | | | 179.2 | Mlbs. |
Cortez | | Gold | | $ | 13,812 | | 95,300 | oz. | | $ | 7,709 | | 63,100 | oz. |
Other(3) | | Various | | $ | 54,045 | | N/A | | | $ | 46,105 | | N/A | |
Total royalty revenue | | | | $ | 91,018 | | | | | $ | 65,811 | | | |
Total revenue | | $ | 305,240 | | | | | $ | 242,417 | | | |
(1)Reported production relates to the amount of metal sales subject to our stream and royalty interests for the six months ended December 31, 2020, and 2019, and may differ from the operators’ public reporting.
(2) | Refer to “Property Developments” above for a discussion of recent developments at principal properties. |
(3) | Individually, except for Rainy River which contributed 6% of total revenue for the six months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period. |
The increase in our total revenue for the six months ended December 31, 2020 resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within the royalty segment.
27
Gold and silver ounces and copper pounds purchased and sold during the six months ended December 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2020 and June 30, 2020 for our streaming interests were as follows:
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan | | 29,300 | | 28,800 | | 32,800 | | 29,500 | | 3,800 | | 3,300 |
Andacollo | | 24,400 | | 21,600 | | 28,300 | | 27,900 | | 2,900 | | 100 |
Pueblo Viejo | | 19,900 | | 20,500 | | 23,700 | | 20,000 | | 10,500 | | 11,100 |
Wassa | | 8,700 | | 8,500 | | 7,800 | | 6,900 | | 3,100 | | 2,900 |
Other | | 8,900 | | 9,200 | | 11,400 | | 11,900 | | 1,200 | | 1,500 |
Total | | 91,200 | | 88,600 | | 104,000 | | 96,200 | | 21,500 | | 18,900 |
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo | | 826,800 | | 859,800 | | 880,200 | | 938,000 | | 418,200 | | 451,200 |
Other | | 118,000 | | 75,100 | | 97,500 | | 85,600 | | 66,300 | | 23,400 |
Total | | 944,800 | | 934,900 | | 977,700 | | 1,023,600 | | 484,500 | | 474,600 |
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | June 30, 2020 | ||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan | | 8.3 | | 8.2 | | 6.8 | | 6.7 | | 1.0 | | 0.8 |
Cost of sales, which excludes depreciation, depletion and amortization, increased to $46.8 million for the six months ended December 31, 2020, from $41.2 million for the six months ended December 31, 2019. The increase was primarily due to an increase in the gold, silver and copper prices and an increase in copper sales at Mount Milligan when compared to the prior period. Cost of sales is specific to our stream agreements and is the result of our 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.
Exploration costs decreased to $0.6 million for the six months ended December 31, 2020, from $4.1 million for the six months ended December 31, 2019. Exploration costs were specific to the exploration and advancement of the Peak Gold JV. On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 2 of our notes to consolidated financial statements.
Depreciation, depletion and amortization increased to $94.2 million for the six months ended December 31, 2020, from $78.8 million for the six months ended December 31, 2019. The increase was primarily due to higher copper sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K. The increase was partially offset by a decrease in gold sales at Andacollo when compared to the prior period.
We recognized an increase in fair value changes in equity securities of $2.2 million for the six months ended December 31, 2020 compared to a decrease of $1.2 million for the six months ended December 31, 2019. The increase was primarily due to a $3.6 million mark-to-market increase on the sale of 809,744 Contango common shares as part of the sale of our interest in the Peak Gold JV during the September 2020 quarter. Refer to Note 4 of our notes to consolidated financial statements for further discussion on our marketable equity securities.
Interest and other expense decreased to $2.2$3.5 million for the threesix months ended December 31, 2019,2020, from $7.4$5.1 million for the threesix months ended December 31, 2018.2019. The decrease was primarily attributable to lower interest expense as a result of a decrease in averagelower interest rates on our outstanding debt amounts outstanding when compared to the 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 matured in June 2019. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.
During the three months ended December 31, 2019, we recognized an income tax expense totaling $11.1 million, compared with an income tax benefit of $2.1 million during the three months ended December 31, 2018. The income tax expense resulted in an effective tax rate of 21.6% in the current period, compared with (10.3%) in the quarter ended December 31, 2018. The three months ended December 31, 2019 reflected the impacts of additional tax benefits resulting from Swiss Tax Reform. The lower effective tax rate for the three months ended December 31, 2018 was primarily attributable to the Company’s updated analysis of the tax impacts of the Tax Cuts and Jobs Act (the “Act”), considering new U.S. Treasury regulations and IRS guidance released during the period.
Six Months Ended December 31, 2019, Compared to Six Months Ended December 31, 2018
For the six months ended December 31, 2019, we recorded net income and comprehensive income attributable to Royal Gold stockholders of $111.8 million, or $1.70 per basic and diluted share, as compared to net income and comprehensive income attributable to Royal Gold stockholders of $38.6 million, or $0.59 per basic and diluted share, for the six months ended December 31, 2018. The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a decrease in our interest expense and (iii) discrete income tax benefits recognized, primarily attributable to recent Swiss tax reform during the quarter ended September 30, 2019. Each are discussed further below.
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For the six months ended December 31, 2019, we recognized total revenue of $242.4 million, which is comprised of stream revenue of $176.6 million and royalty revenue of $65.8 million at an average gold price of $1,477 per ounce, an average silver price of $17.15 per ounce and an average copper price of $2.65 per pound. This is compared to total revenue of $197.6 million for the six months ended December 31, 2018, which was 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. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2019 compared to the six months ended December 31, 2018 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Six Months Ended December 31, 2019 and 2018
(Amounts in thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | |
| | | | Six Months Ended | | Six Months Ended | ||||||||
| | | | December 31, 2019 | | December 31, 2018 | ||||||||
| | | | | | | Reported | | | | | Reported | ||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): | | | | | | | | | | | | | | |
Mount Milligan | | | | $ | 61,126 | | | | | $ | 37,015 | | | |
| | Gold | | | | | 29,500 | oz. | | | | | 23,300 | oz. |
| | Copper | | | | | 6.7 | Mlbs. | | | | | 3.2 | Mlbs. |
Pueblo Viejo | | | | $ | 45,232 | | | | | $ | 37,717 | | | |
| | Gold | | | | | 20,000 | oz. | | | | | 18,100 | oz. |
| | Silver | | | | | 938,000 | oz. | | | | | 1.0 | Moz. |
Andacollo | | Gold | | $ | 41,269 | | 27,900 | oz. | | $ | 35,378 | | 28,900 | oz. |
Rainy River | | | | $ | 14,728 | | | | | $ | 9,995 | | | |
| | Gold | | | | | 9,100 | oz. | | | | | 7,400 | oz. |
| | Silver | | | | | 85,600 | oz. | | | | | 67,500 | oz. |
Wassa | | Gold | | $ | 10,113 | | 6,900 | oz. | | $ | 11,784 | | 9,600 | oz. |
Other(3) | | Gold | | $ | 4,138 | | 2,800 | oz. | | $ | 5,827 | | 4,800 | oz. |
Total stream revenue | | | | $ | 176,606 | | | | | $ | 137,716 | | | |
| | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 11,997 | | | | | $ | 8,297 | | | |
| | Gold | | | | | 131,300 | oz. | | | | | 103,700 | oz. |
| | Silver | | | | | 13.9 | Moz. | | | | | 9.2 | Moz. |
| | Lead | | | | | 91.2 | Mlbs. | | | | | 65.9 | Mlbs. |
| | Zinc | | | | | 179.2 | Mlbs. | | | | | 147.3 | Mlbs. |
Cortez | | Gold | | $ | 7,709 | | 63,100 | oz. | | $ | 2,939 | | 26,900 | oz. |
Other(3) | | Various | | $ | 46,105 | | N/A | | | $ | 48,633 | | N/A | |
Total royalty revenue | | | | $ | 65,811 | | | | | $ | 59,869 | | | |
Total revenue | | $ | 242,417 | | | | | $ | 197,585 | | | |
The increase in our total revenue for the six months ended December 31, 2019, compared with the six months ended December 31, 2018, resulted primarily from an increase in our stream revenue and an increase in the average gold and silver prices. The increase in our stream revenue was primarily attributable to an increase in gold and copper sales at Mount Milligan. These increases were partially offset by lower metal sales at Wassa.
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Gold and silver ounces and copper pounds purchased and sold during the six months ended December 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of December 31, 2019, and June 30, 2019, for our streaming interests were as follows:
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan | | 32,800 | | 29,500 | | 23,000 | | 23,300 | | 10,300 | | 7,100 |
Andacollo | | 28,300 | | 27,900 | | 26,000 | | 28,900 | | 4,700 | | 4,300 |
Pueblo Viejo | | 23,700 | | 20,000 | | 19,300 | | 18,100 | | 13,200 | | 9,500 |
Wassa | | 7,800 | | 6,900 | | 7,700 | | 9,600 | | 2,400 | | 1,500 |
Rainy River | | 8,600 | | 9,100 | | 8,100 | | 7,400 | | 1,300 | | 1,800 |
Other | | 2,800 | | 2,800 | | 3,500 | | 4,700 | | 400 | | 400 |
Total | | 104,000 | | 96,200 | | 87,600 | | 92,000 | | 32,300 | | 24,600 |
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo | | 880,200 | | 938,000 | | 978,400 | | 1,049,700 | | 417,800 | | 475,600 |
Rainy River | | 97,500 | | 85,600 | | 76,900 | | 67,400 | | 48,400 | | 36,500 |
Total | | 977,700 | | 1,023,600 | | 1,055,300 | | 1,117,100 | | 466,200 | | 512,100 |
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | As of | | As of | ||||
| | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | June 30, 2019 | ||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan | | 6.8 | | 6.7 | | 4.2 | | 3.2 | | 0.9 | | 0.8 |
Cost of sales increased to $41.2 million for the six months ended December 31, 2019 from $34.7 million for the six months ended December 31, 2018. The increase was primarily due to increased gold and copper sales from Mount Milligan, higher gold sales from Pueblo Viejo and Rainy River, and an increase in gold and silver prices over the prior year quarter. ��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.
Interest and other expense decreased to $5.1 million for the six months ended December 31, 2019, from $15.3 million for the six months ended December 31, 2018. The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding when compared to the 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 matured in June 2019. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.
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DuringFor the six months ended December 31, 2020, we recorded income tax expense totaling $13.7 million, compared with an income tax benefit of $12.4 million for the six months ended December 31, 2019. The income tax expense resulted in an effective tax rate of 7.6% in the current period, compared with (12.8%) for the six months ended December 31, 2019. The six months ended December 31, 2020 effective tax rate included income tax benefits of $24.5 million resulting primarily from the release of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change to the realizability of certain deferred tax assets, both of which were recorded during the three months ended September 30, 2020. For the six months ended December 31, 2019, we recognizedthe effective tax rate included an income tax benefit totaling $12.4of $32.3 million compared with an income tax expense of $2.0 million during the six months ended December 31, 2018. This resulted in an effective tax rate of (12.8%) in the current period, compared with 5.3% during the six months ended December 31, 2018. The decrease in the effective tax rate for the six months ended December 31, 2019 was primarily related to the remeasurement of certain deferred tax assets and a net step-up in the basis of tax assets due to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform). The effective tax rate for the six months ended December 31, 2018 included an income tax benefit related to the transition tax as part of the Act, which was due to consideration of new U.S. Treasury regulations and IRS guidance released during the period.
Liquidity and Capital Resources
Overview
At December 31, 2019,2020, we had current assets of $136.4$450.5 million compared to current liabilities of $44.1$57.2 million, resultingwhich resulted in working capital of $92.3$393.3 million and a current ratio of 38 to 1. This compares to current assets of $154.7$362.2 million and current liabilities of $33.6$43.6 million at June 30, 2019,2020, resulting in working capital of $121.1$318.6 million and a current ratio of approximately 58 to 1. The increase in working capital was primarily due to proceeds from the sale of our Peak Gold JV interest and increased revenue.
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During the six months ended December 31, 2019,2020, liquidity needs were met from $149.5$194.1 million in net cash provided by operating activities and our available cash resources. During the six months ended December 31, 2019, the Company repaid $85 million of the outstanding borrowings under the revolving credit facility. As of December 31, 2019, the Company2020, we had $135$800 million available and $200 million outstanding and $865 million available under itsour revolving credit facility. Working capital, combined with the Company’s undrawnavailable capacity under our revolving credit facility, resulted in approximately $1$1.2 billion of total liquidity at December 31, 2019. The Company was2020. We were in compliance with each financial covenant under the revolving credit facility as of December 31, 2019.2020. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt. On January 4, 2021, we repaid $50 million of the outstanding borrowings under the credit facility. This increased the amount available under our revolving credit facility to $850 million and decreased the amount outstanding to $150 million.
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, including the conditional funding schedule in connection with the Khoemacau silver stream acquisition.stream. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The CompanyWe currently, and generally at any time, hashave acquisition opportunities in various stages of active review. In the event of one or more substantial stream or royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary. We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 20192020 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’sour liquidity and capital resources.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $194.1 million for the six months ended December 31, 2020, compared to $149.5 million for the six months ended December 31, 2019, compared to $103.5 million for the six months ended December 31, 2018.2019. The increase iswas primarily due to an increase in proceeds received from our stream and royalty interests, net of cost of sales and production taxes, of approximately $27.1 million and lower$49.9 million. The increase was partially offset by an increase in income taxes paid of $10.3 million over the prior period.million.
Investing Activities
Net cash provided by investing activities totaled $12.1 million for the six months ended December 31, 2020, compared to net cash used in investing activities totaledof $68.1 million for the six months ended December 31, 2019, compared2019. The increase was primarily due to net cash used in investing activities$49.2 million received for the sale of $3.7our Peak Gold JV investment and $12.1 million for the six months ended December 31, 2018. Thesale of our Contango shares. This increase in cash used in investing activities is primarily due to an increase in the acquisition of stream and royalty interests. In November 2019, the Company made its firstwas partially offset by advance payment of $65.8payments totaling $43.6 million as part offor the Khoemacau silver stream acquisition.acquisition during the current period.
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Financing Activities
Net cash used in financing activities totaled $120.4$143.4 million for the six months ended December 31, 2019,2020, compared to $32.0$120.4 million for the six months ended December December��31, 2018.2019. The increase in cash used in financing activities iswas primarily due to an increase in repayments on our revolving credit facility. The CompanyWe repaid $85.0$105.0 million on our revolving credit facility during the six months ended December 31, 2020, compared to $85.0 million during the six months ended December 31, 2019.
Recent Liquidity and Capital Resource Development
Dividend Increase
On November 17, 2020, we announced an increase in our annual dividend for calendar 2021 from $1.12 to $1.20, payable on a quarterly basis of $0.30 per share. The newly declared dividend is 7% higher than the dividend paid during calendar 2020. We have steadily increased our annual dividend for 20 years, or since calendar 2001.
Recently Adopted Accounting Standards and Critical Accounting Policies
Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently adopted accounting standards. Refer to our Fiscal 20192020 10-K for discussion on our critical accounting policies.
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Forward-Looking Statements
Cautionary “Safe Harbor” Statement underThis report and our other public communications include “forward-looking statements” within the Private Securities Litigation Reform Actmeaning of 1995: With the exceptionU.S. federal securities laws. Forward-looking statements are any statements other than statements of historical matters, the matters discussed in this Quarterly Report on Form 10-Qfact. Forward-looking statements are forward-looking statements that involve risksnot guarantees of future performance, and uncertainties that could cause actual results tomay differ materially from projections or estimates contained herein. Such forward-lookingthese statements.
Forward-looking statements include, without limitation, statements regarding the 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 experiencedare often identified by operators of certain producing stream and royalty properties; available water sources, success in groundwater exploration, expectations for production during 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 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 volume of production from the operators of properties where we hold stream and royalty 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; anticipated impact to the Company of the suspension and subsequent resumption of operations at Andacollo; 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, 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; projected tax benefits; 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 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 aswords like “will,” “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” and variationsor negatives of these words comparable wordsor similar expressions. Forward-looking statements include, among others, the following: statements about our expected financial performance, including revenue, expenses, earnings or cash flow; operators’ expected operating and similar expressions generally indicate forward-looking statements, which speak only asfinancial performance, including production, deliveries, mine plans and reserves, development, cash flows and capital expenditures; planned and potential acquisitions or dispositions, including funding schedules and conditions; liquidity, financing and dividends; our overall investment portfolio; macroeconomic and market conditions including the impacts 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 expressedCOVID-19; prices for gold, silver, copper, nickel and other metals; potential impairments; or implied by these forward-looking statements. tax changes.
Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
32
properties on which we hold stream or royalty interests, including variations between actual and forecasted performance, operators’ ability to complete projects on schedule and as planned, changes to mine plans and reserves, liquidity needs, mining and environmental hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our stream or royalty agreements, or operational disruptions due to COVID-19; risks associated with doing business in foreign countries; our ability to identify, finance, value and complete acquisitions; adverse economic and market conditions; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; and |
as well as other factors described elsewhere in this report and our other reports filed with the SEC, includingItem 1A. Risk Factors of our Fiscal 2019 10-K and subsequent Quarterly Report on Form 10-Q.2020 10-K. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.
Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any
forward-looking statements, made herein, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper, and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events, and the strength of the U.S. dollar relative to other currencies. Please see the risk factor entitled “VolatilityOur revenue is subject to volatility in gold, silver, copper, nickel and other metal prices, may have an adverse impact on the valuewhich could negatively affect our results 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 decrease in metals prices,operations or cash flow.” under Part I, Item 1A of our Fiscal 20192020 10-K, for more information that can affect gold, silver, copper and otherabout risks associated with metal prices as well as historical gold, silver, copper and nickel prices.price volatility.
During the six months ended December 31, 2019,2020, we reported revenue of $242.4$305.2 million, with an average gold price for the period of $1,477$1,892 per ounce, an average silver price of $17.15$24.32 per ounce, and an average copper price of $2.65$3.10 per pound. Approximately 76%The table below shows the impact that a 10% increase or decrease in the average price of the specified metal would have had on our total reported revenuesrevenue for the six months ended December 31, 2019 were attributable to gold sales from our gold producing stream and royalty interests, as shown within the MD&A. For the six months ended December 31, 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 $19.5 million.2020:
Approximately 10% of our total reported revenues for the six months ended December 31, 2019 were attributable to copper sales from our copper producing stream and royalty interests. For the six months ended December 31, 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 $2.7 million.
| | |
Metal | Percentage of Total Reported Revenue Associated with Specified Metal | Amount by Which Total Reported Revenue Would Have Increased or Decreased If Price of Specified Metal Had Averaged 10% Higher or Lower in Period |
Gold | 76% | $23.8 million |
Copper | 11% | $3.6 million |
Silver | 10% | $3.1 million |
Approximately 9% of our total reported revenues for the six months ended December 31, 2019 were attributable to silver sales from our silver producing stream and royalty interests. For the six months ended December 31, 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 $2.3 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2019,Under the Company’s management,supervision and with the participation of theour management, including our President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Treasurer (the principal financial and accounting officer) of the Company, carried out an evaluation of, we evaluated the effectiveness of the design and operation of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)as of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).December 31, 2020. Based on suchthis evaluation, the Company’sour President and Chief Executive Officer and its Chief Financial Officer and Treasurer have concluded that as of December 31, 2019, the Company’sour disclosure controls and procedures were effective to provideas of December 31, 2020, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended December 31, 2020, that information requiredmaterially affected, or are reasonably likely 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’smaterially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including theour President and Chief Executive Officer and the Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure.
Disclosuredoes not expect that our disclosure controls and procedures involve human diligenceor our internal controls will prevent all error and compliance and are subject to lapses in judgment and breakdowns resulting from human failures. As a result, aall fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the CompanyRoyal Gold 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, 2019 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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ITEM 1A. RISK FACTORS
Information regardingThere have been no material changes to the 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 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 1Athe section entitled “Risk Factors” of our Fiscal 20192020 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.Issuer Purchases of Equity Securities
| | | | |
Period | (a) Total Number of Shares Purchased(1) | (b) Average Price Paid Per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs |
October 2020 | — | — | N/A | N/A |
November 2020 | 158 | $117.36 | N/A | N/A |
December 2020 | — | — | N/A | N/A |
Total | 158 | $117.36 | N/A | N/A |
(1) | Represents shares of common stock withheld by us as payment of withholding taxes due upon the vesting of restricted stock held by our employees. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.None.
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ITEM 6. EXHIBITS
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Exhibit |
| Description | |||
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31.1* | | ||||
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31.2* | | ||||
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32.1‡ | | ||||
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32.2‡ | | ||||
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| | The following financial statements from Royal Gold, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, formatted in Inline | |||
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| | The cover page from Royal Gold, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, formatted in Inline XBRL | |||
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* | Filed herewith. |
‡ | Furnished herewith. |
33
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: February | | |
| By: | /s/ William Heissenbuttel |
| | William Heissenbuttel |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: February | By: | /s/ Paul Libner |
| | Paul Libner |
| | Chief Financial Officer and Treasurer |
| | (Principal Financial and Accounting Officer) |
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