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 MarchDecember 31, 2020
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
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 65,581,08365,606,496 shares of the Company’s common stock, par value $0.01 per share, outstanding as of April 30, 2020. January 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)
| | | | | | |
|
| March 31, |
| June 30, | ||
|
| 2020 | | 2019 | ||
ASSETS | | | | | | |
Cash and equivalents | | $ | 93,715 | | $ | 119,475 |
Royalty receivables | | | 32,322 | | | 20,733 |
Income tax receivable | | | 11,361 | | | 2,702 |
Stream inventory | | | 11,947 | | | 11,380 |
Prepaid expenses and other | | | 1,232 | | | 389 |
Total current assets | | | 150,577 | | | 154,679 |
Stream and royalty interests, net (Note 3) | | | 2,317,413 | | | 2,339,316 |
Other assets | | | 81,874 | | | 50,156 |
Total assets | | $ | 2,549,864 | | $ | 2,544,151 |
LIABILITIES | | | | | | |
Accounts payable | | $ | 1,501 | | $ | 2,890 |
Dividends payable | | | 18,359 | | | 17,372 |
Income tax payable | | | 21,027 | | | 6,974 |
Other current liabilities | | | 8,943 | | | 6,374 |
Total current liabilities | | | 49,830 | | | 33,610 |
Debt (Note 5) | | | 100,154 | | | 214,554 |
Deferred tax liabilities | | | 86,776 | | | 88,961 |
Uncertain tax positions | | | 36,441 | | | 36,573 |
Other long-term liabilities | | | 6,128 | | | - |
Total liabilities | | | 279,329 | | | 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 65,512,248 and 65,440,492 shares outstanding, respectively | | | 655 | | | 655 |
Additional paid-in capital | | | 2,209,098 | | | 2,201,773 |
Accumulated earnings (losses) | | | 30,483 | | | (65,747) |
Total Royal Gold stockholders’ equity | | | 2,240,236 | | | 2,136,681 |
Non-controlling interests | | | 30,299 | | | 33,772 |
Total equity | | | 2,270,535 | | | 2,170,453 |
Total liabilities and equity | | $ | 2,549,864 | | $ | 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 | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue (Note 6) | | $ | 136,437 | | $ | 109,778 | | $ | 378,853 | | $ | 307,362 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales (excludes depreciation, depletion and amortization) | | | 21,961 | | | 19,075 | | | 63,149 | | | 53,764 |
General and administrative | | | 9,551 | | | 6,798 | | | 23,658 | | | 24,147 |
Production taxes | | | 851 | | | 1,006 | | | 2,934 | | | 3,206 |
Exploration costs | | | 565 | | | 330 | | | 4,705 | | | 5,534 |
Depreciation, depletion and amortization | | | 51,228 | | | 39,368 | | | 130,038 | | | 120,726 |
Total costs and expenses | | | 84,156 | | | 66,577 | | | 224,484 | | | 207,377 |
| | | | | | | | | | | | |
Operating income | | | 52,281 | | | 43,201 | | | 154,369 | | | 99,985 |
| | | | | | | | | | | | |
Fair value changes in equity securities | | | (3,819) | | | 1,781 | | | (4,972) | | | (3,318) |
Interest and other income | | | 620 | | | 499 | | | 1,621 | | | 1,089 |
Interest and other expense | | | (2,088) | | | (7,499) | | | (7,139) | | | (22,786) |
Income before income taxes | | | 46,994 | | | 37,982 | | | 143,879 | | | 74,970 |
| | | | | | | | | | | | |
Income tax (expense) benefit | | | (8,702) | | | (9,388) | | | 3,700 | | | (11,355) |
Net income and comprehensive income | | | 38,292 | | | 28,594 | | | 147,579 | | | 63,615 |
Net loss and comprehensive loss attributable to non-controlling interests | | | 262 | | | 178 | | | 2,750 | | | 3,753 |
Net income and comprehensive income attributable to Royal Gold common stockholders | | $ | 38,554 | | $ | 28,772 | | $ | 150,329 | | $ | 67,368 |
Net income per share available to Royal Gold common stockholders: | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.59 | | $ | 0.44 | | $ | 2.30 | | $ | 1.03 |
Basic weighted average shares outstanding | | | 65,511,878 | | | 65,398,369 | | | 65,501,678 | | | 65,389,499 |
Diluted earnings per share | | $ | 0.59 | | $ | 0.44 | | $ | 2.29 | | $ | 1.03 |
Diluted weighted average shares outstanding | | | 65,600,770 | | | 65,515,234 | | | 65,626,400 | | | 65,494,902 |
Cash dividends declared per common share | | $ | 0.28 | | $ | 0.265 | | $ | 0.825 | | $ | 0.78 |
| | | | | | | | | | | | |
| | 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 December 31, 2019 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | — | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 | |||||||||||||||||
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 |
| 16,244 | |
| — |
|
| 3,134 | |
| — | |
| — | |
| — | |
| 3,134 |
| 17,127 | |
| 1 |
|
| 1,476 | |
| — | |
| — | |
| 1,477 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 600 | |
| — | |
| — | |
| (344) | |
| 256 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 38,554 | |
| (262) | |
| 38,292 | |||||||||||||||||
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 |
| — | |
| — |
|
| — | |
| — | |
| (18,361) | |
| — | |
| (18,361) |
| — | |
| — |
|
| — | |
| (38,051) | |
| — | |
| (38,051) |
Balance at March 31, 2020 |
| 65,512,248 | | $ | 655 |
| $ | 2,209,098 | | $ | — | | $ | 30,483 | | $ | 30,299 | | $ | 2,270,535 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
| | 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 December 31, 2018 |
| 65,396,339 | | $ | 654 |
| $ | 2,197,254 | | $ | — | | $ | (86,238) | | $ | 35,300 | | $ | 2,146,970 | |||||||||||||||||
Stock-based compensation and related share issuances |
| 3,965 | |
| — |
|
| 1,675 | |
| — | |
| — | |
| — | |
| 1,675 | |||||||||||||||||
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 420 | |
| — | |
| — | |
| (201) | |
| 219 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 28,772 | |
| (178) | |
| 28,594 | |||||||||||||||||
Other |
| — | |
| — |
|
| — | |
| — | |
| 266 | |
| — | |
| 266 | |||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (17,363) | |
| — | |
| (17,363) | |||||||||||||||||
Balance at March 31, 2019 |
| 65,400,304 | | $ | 654 |
| $ | 2,199,349 | | $ | — | | $ | (74,563) | | $ | 34,921 | | $ | 2,160,361 | |||||||||||||||||
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 |
| 71,756 | |
| — |
|
| 4,025 | |
| — | |
| — | |
| — | |
| 4,025 |
| 55,512 | |
| — |
|
| 891 | |
| — | |
| — | |
| 891 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 3,300 | |
| — | |
| — | |
| (723) | |
| 2,577 | | — | |
| — |
|
| 2,700 | |
| — | |
| (379) | |
| 2,321 |
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 150,329 | |
| (2,750) | |
| 147,579 | |||||||||||||||||
Net income (loss) and comprehensive income (loss) |
| — | |
| — |
|
| — | |
| 111,774 | |
| (2,488) | |
| 109,286 | ||||||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (54,099) | |
| — | |
| (54,099) |
| — | |
| — |
|
| — | |
| (35,737) | |
| — | |
| (35,737) |
Balance at March 31, 2020 |
| 65,512,248 | | $ | 655 |
| $ | 2,209,098 | | $ | — | | $ | 30,483 | | $ | 30,299 | | $ | 2,270,535 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
| | Royal Gold Stockholders | | | | | | | |||||||||||||||||||||||||||||
| | | | | | | | | | Accumulated | | | | | | | | | | ||||||||||||||||||
| | | | | | | Additional | | Other | | | | | | | | | | |||||||||||||||||||
| | Common Shares | | Paid-In | | Comprehensive | | Accumulated | | Non-controlling | | Total | |||||||||||||||||||||||||
| | Shares | | Amount | | Capital | | Income (Loss) | | (Losses) Earnings | | Interests | | Equity | |||||||||||||||||||||||
Balance at June 30, 2018 |
| 65,360,041 | | $ | 654 |
| $ | 2,192,612 | | $ | (1,201) | | $ | (89,898) | | $ | 39,102 | | $ | 2,141,269 | |||||||||||||||||
Stock-based compensation and related share issuances |
| 40,263 | |
| — |
|
| 3,527 | |
| — | |
| — | |
| — | |
| 3,527 | |||||||||||||||||
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 3,210 | |
| — | |
| — | |
| (428) | |
| 2,782 | |||||||||||||||||
Net income and comprehensive income |
| — | |
| — |
|
| — | |
| — | |
| 67,368 | |
| (3,753) | |
| 63,615 | |||||||||||||||||
Other comprehensive income (loss) |
| — | |
| — |
|
| — | |
| 1,201 | |
| (1,201) | |
| — | |
| — | |||||||||||||||||
Other | | — | |
| — |
|
| — | |
| — | |
| 266 | |
| — | |
| 266 | |||||||||||||||||
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (51,098) | |
| — | |
| (51,098) | |||||||||||||||||
Balance at March 31, 2019 |
| 65,400,304 | | $ | 654 |
| $ | 2,199,349 | | $ | — | | $ | (74,563) | | $ | 34,921 | | $ | 2,160,361 | |||||||||||||||||
Balance at December 31, 2019 |
| 65,496,004 | | $ | 655 |
| $ | 2,205,364 | | $ | 10,290 | | $ | 30,905 | | $ | 2,247,214 |
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)
| | | | | | |
| | Nine Months Ended | ||||
| | March 31, | | March 31, | ||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: | | | | | | |
Net income and comprehensive income | | $ | 147,579 | | $ | 63,615 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| | | | | | |
Depreciation, depletion and amortization | | | 130,038 | | | 120,726 |
Amortization of debt discount and issuance costs | | | 851 | | | 11,882 |
Non-cash employee stock compensation expense | | | 8,283 | | | 5,510 |
Fair value changes in equity securities | | | 4,972 | | | 3,318 |
Deferred tax benefit | | | (37,117) | | | (5,329) |
Other | | | (148) | | | — |
Changes in assets and liabilities: | | | | | | |
Royalty receivables | | | (11,589) | | | (1,198) |
Stream inventory | | | (567) | | | (3,102) |
Income tax receivable | | | (8,658) | | | (8,750) |
Prepaid expenses and other assets | | | (5,771) | | | 2,474 |
Accounts payable | | | (1,295) | | | (4,326) |
Income tax payable | | | 14,054 | | | (2,002) |
Uncertain tax positions | | | (132) | | | 3,130 |
Other liabilities | | | 8,695 | | | (5,039) |
Net cash provided by operating activities | | $ | 249,195 | | $ | 180,909 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of stream and royalty interests | | | (107,855) | | | (1,055) |
Purchase of equity securities | | | (461) | | | (3,573) |
Other | | | 3,227 | | | (157) |
Net cash used in investing activities | | $ | (105,089) | | $ | (4,785) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repayment of debt | | | (115,000) | | | — |
Net payments from issuance of common stock | | | (4,257) | | | (1,982) |
Common stock dividends | | | (53,111) | | | (50,114) |
Contributions from non-controlling interest | | | 3,300 | | | 3,210 |
Other | | | (798) | | | 8 |
Net cash used in financing activities | | $ | (169,866) | | $ | (48,878) |
Net (decrease) increase in cash and equivalents | | | (25,760) | | | 127,246 |
Cash and equivalents at beginning of period | | | 119,475 | | | 88,750 |
Cash and equivalents at end of period | | $ | 93,715 | | $ | 215,996 |
| | | | | | |
| | 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 ninesix months ended MarchDecember 31, 2020 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:
7
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
In addition, the Company has elected to use the following practical expedients at and subsequent to adoption in accordance with ASU 2016-02:
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 the 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 March 31, 2020 (amounts in thousands):
| | | | | |
| | Classification | | March 31, 2020 | |
Operating Leases | | | | | |
Right-of-use assets - current |
| Prepaid expenses and other |
| $ | 608 |
Right-of-use assets - non-current | | Other assets | | | 5,065 |
Total right-of-use assets | | | | $ | 5,673 |
| | | | | |
Lease liabilities - current | | Other current liabilities | | $ | 549 |
Lease liabilities - non-current | | Other long-term liabilities | | | 6,128 |
Total operating lease liabilities | | | | $ | 6,677 |
Maturities of operating lease liabilities at March 31, 2020 were as follows (amounts in thousands):
| | | |
Fiscal Years: | | Operating Leases | |
2020 | | $ | 93 |
2021 | | | 826 |
2022 | | | 823 |
2023 | | | 811 |
2024 | | | 822 |
Thereafter | | | 4,149 |
Total lease payments | | $ | 7,524 |
Less imputed interest | | | (847) |
Total | | $ | 6,677 |
Other information pertaining to leases consist of the following:
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not have any finance leases as of March 31, 2020. 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
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 March 31, 2020, 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. ACQUISITIONSSALE OF PEAK GOLD JV INTEREST
Alturas royalty acquisition
On January 29,September 30, 2020, a wholly-owned subsidiary of the Companywe entered into an agreement with various private individuals for the acquisitionan affiliate of a net smelter return (“NSR”) royalty of up to 1.06% (gold) and up to 1.59% (copper) on mining concessions included as part of the Alturas project, which is located within the Coquimbo Region of Chile and held by a subsidiary of BarrickKinross Gold Corporation to sell our 40% membership interest in the Peak Gold Project for cash consideration of $49.2 million and to sell our 809,744 common shares in Contango Ore, Inc. (“Barrick”Contango”), Compañia Minera Salitrales Limitada. Totalour partner in Peak Gold, LLC, for cash consideration forof $12.1 million.
In addition to the total cash consideration of $61.3 million, we received the following royalty is up to $41 million, of which $11 million was paid on January 29, 2020. 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 $11 million paid as part of the funding schedule, plus direct acquisition costs, have beenroyalties were recorded as an exploration stage royalty interest withininterests in Stream and royalty interests, net onin our consolidated balance sheets. A future paymentsheet as of up to $20December 31, 2020 and were assigned a combined value of approximately $4.4 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 paymenttransaction.We recorded a gain of up to $10$33.9 million will be made to the private individuals upon first production from the mining concessions.
Castelo de Sonhos royalty acquisition
In August 2019, a subsidiary of the Company entered into an agreement with TriStar Gold Inc. and its subsidiaries (together “TriStar”) to acquire (i) up to a 1.5% NSR royalty on the Castelo de Sonhos gold project (“CDS”), locatedsale of our 40% membership interest in Brazil, and (ii) warrants to purchase up to 19,640,000the 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 of TriStar. Total considerationin Contango is $7.5 million and is payable over 3 payments, of which $4.5 million was paidincluded in August 2019, $1.5 million was paid in November 2019, and the final payment of $1.5 million was paid on March 30, 2020.
The CDS royalty acquisition has been accounted for as an asset acquisition. The $7.5 million paid as part of the aggregate funding schedule, plus direct acquisition costs, have been recorded as an exploration stage royalty interest within Stream and royalty interests, net on our consolidated balance sheets.
The warrants have been recorded within Other assets on our consolidated balance sheets and have a carrying value of approximately $0.3 million as of March 31, 2020. The warrants have been classified as a financial asset instrument and are recorded at fair value at each reporting date using the Black-Scholes model. Any change in fair value of the warrants at subsequent reporting periods will be recorded within Fair value changes in equity securitieson our consolidated statements of operations and comprehensive income. As of March 31, 2020,income and was recognized during the Company holds 19,640,000 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 MarchDecember 31, 2020 and June 30, 2019.2020.
| | | | | | | | | | | | | | | | | | |
As of March 31, 2020 (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 | | $ | 790,635 | | $ | (218,378) | | $ | 572,257 | | $ | 790,635 | | $ | (270,370) | | $ | 520,265 |
Pueblo Viejo | | | 610,404 | | | (193,109) | | | 417,295 | | | 610,405 | | | (226,083) | | | 384,322 |
Andacollo | | | 388,182 | | | (107,501) | | | 280,681 | | | 388,182 | | | (120,847) | | | 267,335 |
Rainy River | | | 175,727 | | | (23,176) | | | 152,551 | | | 175,727 | | | (34,820) | | | 140,907 |
Wassa and Prestea | | | 146,475 | | | (65,746) | | | 80,729 | |||||||||
Wassa | | | 146,475 | | | (72,839) | | | 73,636 | |||||||||
Total production stage stream interests | | | 2,111,423 | | | (607,910) | | | 1,503,513 | | | 2,111,424 | | | (724,959) | | | 1,386,465 |
Production stage royalty interests: | | | | | | | | | | | | | | | | | | |
Voisey's Bay | | | 205,724 | | | (100,140) | | | 105,584 | | | 205,724 | | | (104,850) | | | 100,874 |
Peñasquito | | | 99,172 | | | (43,744) | | | 55,428 | | | 99,172 | | | (47,263) | | | 51,909 |
Holt | | | 34,612 | | | (23,796) | | | 10,816 | |||||||||
Cortez | | | 80,681 | | | (13,702) | | | 66,979 | | | 80,681 | | | (16,418) | | | 64,263 |
Other | | | 487,224 | | | (399,127) | | | 88,097 | | | 521,289 | | | (433,800) | | | 87,489 |
Total production stage royalty interests | | | 907,413 | | | (580,509) | | | 326,904 | | | 906,866 | | | (602,331) | | | 304,535 |
Total production stage stream and royalty interests | | | 3,018,836 | | | (1,188,419) | | | 1,830,417 | | | 3,018,290 | | | (1,327,290) | | | 1,691,000 |
| | | | | | | | | | | | | | | | | | |
Development stage stream interests: | | | | | | | | | | | | | | | | | | |
Khoemacau | | | 88,641 | | | — | | | 88,641 | | | 180,220 | | | — | | | 180,220 |
Other | | | 12,037 | | | — | | | 12,037 | | | 12,037 | | | — | | | 12,037 |
Development stage royalty interests: | | | | | | | | | | | | | | | | | | |
Other | | | 70,952 | | | — | | | 70,952 | | | 69,780 | | | — | | | 69,780 |
Total development stage stream and royalty interests | | | 171,630 | | | — | | | 171,630 | | | 262,037 | | | — | | | 262,037 |
| | | | | | | | | | | | | | | | | | |
Exploration stage royalty interests: | | | | | | | | | | | | | | | | | | |
Pascua-Lama | | | 177,690 | | | — | | | 177,690 | | | 177,690 | | | — | | | 177,690 |
Other | | | 137,676 | | | — | | | 137,676 | | | 101,253 | | | — | | | 101,253 |
Total exploration stage royalty interests | | | 315,366 | | | — | | | 315,366 | | | 278,943 | | | — | | | 278,943 |
Total stream and royalty interests, net | | $ | 3,505,832 | | $ | (1,188,419) | | $ | 2,317,413 | | $ | 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 Milligan
The Company’s wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), owns the right to purchase 35%Separation of the payable goldWassa and 18.75% of the payable copper produced from the Mount Milligan copper-gold mine in British Columbia, Canada, which is operated by an indirect subsidiary of Centerra Gold Inc. (“Centerra”). The Company’s carrying value for its stream interest at Mount Milligan is $572.3 million as of March 31, 2020.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, 2019, Centerra reported that issues identified2020. 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 Wassa stream agreement, which remains with decreasing long-termGolden Star, continues to provide us the right to purchase 10.5% of the gold recoveriesproduced 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 increased costs30% 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 short-to medium-term led them to record an impairment charge against theiroriginal 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 of the Mount Milligan mine under applicable accounting standards, and that it had begun a comprehensive technical review$73.6 million as of the operation with the objective of publishing an updated National Instrument 43-101 (“NI 43-101”) technical report.December 31, 2020.
On March 26, 2020, Centerra published an updated NI 43-101 technical report for Mount Milligan which provided, among other things, a detailed update to the life of mine plan and reductions to the proven and probable reserves due to increased costs, lower expected productivities and lower process plant throughput.
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for Royal Gold’s stream and royalty interests. As part of the Company’s regular asset impairment analysis, the Company determined that an impairment of our stream interest at Mount Milligan was not necessary as (i) the financial impairment taken by Centerra does not impact the mine operating performance, and (ii) the reduction in reserves and mineralized material at Mount Milligan resulted in gold and copper depletion rates that are well below current and long-term consensus gold and copper prices. As of March 31, 2020, the gold and copper depletion rates at our Mount Milligan stream interest are $764 per ounce of gold and $1.48 per pound of copper. Depletion rates well below current and long-term consensus metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable.
119
Rainy River
RGLD Gold owns the right to purchase 6.50% of the gold produced from the Rainy River mine, 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% of the silver produced from the Rainy River mine until 3.1 million silver ounces have been delivered, and 30% thereafter. As of March 31, 2020, approximately 35,700 ounces of gold and approximately 373,100 ounces of silver have been delivered to RGLD Gold. The Company’s carrying value for its stream interest at Rainy River is $152.6 million as of March 31, 2020.
During the quarter ended December 31, 2019, New Gold reported that it continued to advance a comprehensive mine optimization study that would include a review of alternative open pit and underground mining scenarios at Rainy River On February 13, 2020, New Gold reported the results of the comprehensive optimization study that included an updated mine plan, which resulted in, among other things, a reduction in gold and silver reserves and the potential to extend the underground mine life beyond calendar 2028. New Gold published an updated NI 43-101 technical report for Rainy River on March 27, 2020, reflecting the updated mine plan and reserves.
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for the Company’s stream and royalty interests. As a result of the new information from New Gold, and as part of the Company’s regular asset impairment analysis, the Company determined that an impairment on its Rainy River stream interest was not necessary as of March 31, 2020 as the reduction in gold and silver reserves resulted in depletion rates that are well below current and long-term consensus gold and silver prices. As of March 31, 2020, the gold and silver depletion rates at our Rainy River stream interest are $848 per ounce of gold and $11.27 per ounce of silver. Depletion rates well below current and long-term metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable.
COVID-19 and current economic environment
SeveralThroughout 2020 and into 2021, several of our operating counterparties have recently announcedinstituted temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing COVID-19 pandemic. TheIn addition, the pandemic and resulting economic and societal impacts associated with COVID-19have 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. The Company willWe continue to monitor any furtherthe impact of developments thatassociated with the COVID-19 pandemic may have on stream orand royalty interests as part of our regular asset impairment analysis.
Other
During 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 our royalty interests and the associated carrying value, which is approximately $1.3 million as of March 31, 2020. 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 MarchDecember 31, 2020, the Company’sour marketable equity securities include 809,744 common shares of Contango Ore, Inc., 3,949,575 common shares of Rubicon MineralsBattle North Gold Corporation, and warrants to purchase up to 19,640,000 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 decreased $3.8$0.4 million and $5.0increased $2.2 million for the three and ninesix months ended MarchDecember 31, 2020, respectively, and increased $1.8 million and decreased $3.3 million for the three and nine months ended March 31, 2019, 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 MarchDecember 31, 2020 and June 30, 20192020 was $11.5$7.9 million and $16.0$17.9 million, respectively, and is included in Other assets on the Company’sour consolidated balance sheets.
12
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
5. DEBT
The Company’sOur debt as of MarchDecember 31, 2020 and June 30, 20192020 consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2020 | | 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 | | $ | 105,000 | | $ | (4,846) | | $ | 100,154 | | $ | 220,000 | | $ | (5,446) | | $ | 214,554 | | $ | 200,000 | | $ | (4,017) | | $ | 195,983 | | $ | 305,000 | | $ | (4,561) | | $ | 300,439 |
Total debt | | $ | 105,000 | | $ | (4,846) | | $ | 100,154 | | $ | 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 toAs of December 31, 2020, we had $200 million outstanding and $800 million available under 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.
As of March 31, 2020, the Company had $105 million outstanding and $895 million available under the revolving credit facility. As of March 31, 2020, 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 1.87%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 $1.2$1.0 million and $5.0$2.2 million for the three and ninesix months ended MarchDecember 31, 2020, respectively, and $0.3$1.6 million and $0.9$3.8 million for the three and ninesix months ended MarchDecember 31, 2019, 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 MarchDecember 31, 2020, the Company waswe were in compliance with each financial covenant.
On April 3, 2020,January 4, 2021, we repaid $50 million of the Company drew an additional $200 million on itsoutstanding borrowings under our revolving credit facility at an interest rate of LIBOR plus 1.10% for an all-in rate of 2.54%, resulting in a total of $305 million outstanding and $695 million available. There is no immediate requirement forfacility. This increased the additional funds. However, due to the uncertain environment caused by the COVID-19 pandemic and the impact on certain operations where we hold a stream or royalty interest, we believe the drawdown was a prudent precautionary measure to help ensure cash is readilyamount available to support continued business activities. We occasionally borrow and repay amounts under our revolving credit facility to $850 million and may do so indecreased the future.amount outstanding to $150 million.
10
Royal Gold may repay any borrowings under theour 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.
6.7. 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
13
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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, the Companywe 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 20192020 10-K. For the three and ninesix months ended MarchDecember 31, 2020, royalty revenue that was estimated or was attributable to metal production for a period prior to MarchDecember 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 10.11.
1412
Revenue by metal type attributable to each of our revenue sources is disaggregated as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | ||
| Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended | ||||||||||||||||
| March 31, | | March 31, | | March 31, | | March 31, | December 31, |
| December 31, |
| December 31, |
| December 31, | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Stream revenue: | | | | | | | | | | | | | | | | | | | | | ||
Gold | $ | 78,503 | | $ | 62,856 | | $ | 219,838 | | $ | 175,149 | $ | 83,685 | | $ | 69,111 | | $ | 167,282 | | $ | 141,335 |
Silver | | 8,284 | | 7,908 | | | 25,648 | | 24,512 | | 11,128 | | | 8,929 | | | 22,026 | | | 17,365 | ||
Copper | | 10,673 | | | 7,001 | | | 28,579 | | | 15,819 | | 12,906 | | | 11,585 | | | 24,914 | | | 17,906 |
Total stream revenue | $ | 97,460 | | $ | 77,765 | | $ | 274,065 | | $ | 215,480 | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
Royalty revenue: | | | | | | | | | | | | | | | | | | | | | ||
Gold | $ | 28,792 | | $ | 22,041 | | $ | 72,617 | | $ | 60,251 | $ | 36,471 | | $ | 22,068 | | $ | 63,375 | | $ | 43,825 |
Silver | | 2,666 | | 1,608 | | | 7,860 | | 4,527 | | 4,193 | | | 3,365 | | | 7,634 | | | 5,194 | ||
Copper | | 3,340 | | 3,056 | | | 10,427 | | 11,030 | | 4,395 | | | 4,107 | | | 8,456 | | | 7,087 | ||
Other | | 4,179 | | | 5,308 | | | 13,884 | | | 16,074 | | 5,582 | | | 4,478 | | | 11,553 | | | 9,705 |
Total royalty revenue | $ | 38,977 | | $ | 32,013 | | $ | 104,788 | | $ | 91,882 | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | $ | 136,437 | | $ | 109,778 | | $ | 378,853 | | $ | 307,362 | $ | 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 | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | | | March 31, | | March 31, | | March 31, | | March 31, | | | | December 31, |
| December 31, |
| December 31, |
| December 31, | ||||||||
| | Metal(s) | | 2020 | | 2019 | | 2020 | | 2019 | | Metal(s) | | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Stream revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mount Milligan | | Gold & Copper | | $ | 32,298 | | $ | 26,938 | | $ | 93,423 | | $ | 63,954 | | Gold & Copper | | $ | 44,713 | | $ | 30,629 | | $ | 79,332 | | $ | 61,126 |
Pueblo Viejo | | Gold & Silver | | 28,302 | | | 20,787 | | | 73,534 | | | 58,504 | | Gold & Silver | | | 27,554 | | | 23,614 | | | 58,824 | | | 45,232 | |
Andacollo | | Gold | | | 22,055 | | 15,638 | | 63,324 | | | 51,016 | | Gold | | | 17,766 | | | 20,665 | | | 41,275 | | | 41,269 | ||
Wassa | | Gold | | 8,647 | | | 5,773 | | | 18,760 | | | 17,557 | | Gold | | | 6,761 | | | 4,794 | | | 15,870 | | | 10,113 | |
Rainy River | | Gold & Silver | | 4,838 | | | 7,074 | | | 19,566 | | | 17,067 | |||||||||||||||
Other | | Gold | | | 1,320 | | | 1,555 | | | 5,458 | | | 7,382 | | Gold & Silver | | | 10,925 | | | 9,923 | | | 18,921 | | | 18,866 |
Total stream revenue | | | | $ | 97,460 | | $ | 77,765 | | $ | 274,065 | | $ | 215,480 | | | | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
Royalty revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peñasquito | | Gold, Silver, Lead & Zinc | | $ | 7,425 | | $ | 4,465 | | $ | 19,422 | | $ | 12,763 | | Gold, Silver, Lead & Zinc | | $ | 12,952 | | $ | 7,577 | | $ | 23,161 | | $ | 11,997 |
Cortez | | Gold | | 6,400 | | | 4,127 | | | 14,109 | | | 7,066 | | Gold | | | 8,128 | | | 3,292 | | | 13,812 | | | 7,709 | |
Other | | Various | | | 25,152 | | | 23,421 | | | 71,257 | | | 72,053 | | Various | | | 29,561 | | | 23,149 | | | 54,045 | | | 46,105 |
Total royalty revenue | | | | $ | 38,977 | | $ | 32,013 | | $ | 104,788 | | $ | 91,882 | | | | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | | | | $ | 136,437 | | $ | 109,778 | | $ | 378,853 | | $ | 307,362 | | | | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
Please refer to Note 1011 for the geographical distribution of our revenue by reportable segment.
Contract Receivables8. STOCK-BASED COMPENSATION
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.We recognized stock-based compensation expense as follows:
Under our royalty arrangements, payment is typically due by the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirty to sixty days after the respective quarter-end. Revenue related to production that has occurred as of the reporting date but for which payment has not been received represents a receivable (rather than a contract asset) under ASC 606 as payment by the operator is unconditional upon the production of metal. As of March 31, 2020, and June 30, 2019, our royalty receivables were $32.3 million and $20.7 million, respectively.
| | | | | | | | | | | | |
| | 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 |
Practical Expedients Utilized
Our forward sales contracts related to our metal streaming arrangements are short-termStock-based compensation expense is included within General and administrative expense in nature with a termthe consolidated statements 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.operations and comprehensive income.
1513
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 royalty arrangements generally cover metal production overunvested 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 lifetwo-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
10. INCOME TAXES
| | | | | | | | | | | | |
| | 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%) |
The effective tax rate for the six months ended December 31, 2020, included discrete tax benefits ($24.5 million) attributable to the settlement of an uncertain tax position with a foreign jurisdiction and the release of a mine and, thus, have a contract term that is greater than one year. Under these contracts, variabilityvaluation allowance related to future production volumesdeferred tax assets, both of which were recorded during the three months ended September 30, 2020. The effective tax rate for the six months ended December 31, 2019, included discrete benefits ($32.3 million) attributable to the remeasurement of certain deferred tax assets and market pricing is allocated entirelya net step-up in the basis of tax assets due 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 presentingenactment of 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.
Federal Act on Tax Reform and 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 | | Nine Months Ended | | | As of December 31, 2020 | | As of June 30, 2020 | ||||||||||||||||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | | | | | | | | | Total stream | | | | | | | | Total stream | ||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| | Stream | | Royalty | | and royalty | | Stream | | Royalty | | and royalty | ||||||||||
| | | (Amounts in thousands) | | | (Amounts in thousands) | |
| interest |
| interest |
| interests, net |
| interest |
| interest |
| interests, net | ||||||||||||
Stock options | | $ | 94 | | $ | 33 | | $ | 151 | | $ | 187 | | ||||||||||||||||||
Stock appreciation rights | | | 1,365 | | | 417 | | | 2,237 | | | 1,592 | | ||||||||||||||||||
Restricted stock | | | 2,659 | | | 679 | | | 4,599 | | | 2,636 | | ||||||||||||||||||
Performance stock | | | 526 | | | 311 | | | 1,296 | | | 1,095 | | ||||||||||||||||||
Total stock-based compensation expense | | $ | 4,644 | | $ | 1,440 | | $ | 8,283 | | $ | 5,510 | | ||||||||||||||||||
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 |
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
During the three and nine months ended March 31, 2020, the Company granted the following stock-based compensation awards:
| | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | ||||||
| | | March 31, | | | March 31, | | | March 31, | | | March 31, |
|
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | | (Number of shares) | | | (Number of shares) | ||||||
Stock options | | | — | | | — | | | 1,604 | | | 6,430 |
Stock appreciation rights | | | 6,890 | | | 3,500 | | | 53,616 | | | 72,860 |
Restricted stock | | | 2,050 | | | 1,200 | | | 26,026 | | | 43,460 |
Performance stock (at maximum 200% attainment) | | | 4,280 | | | 2,400 | | | 32,840 | | | 59,820 |
Total equity awards granted | | | 13,220 | | | 7,100 | | | 114,086 | | | 182,570 |
As of March 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 | | | | | | | | $ | 55 | | | 1.6 |
Stock appreciation rights | | | | | | | | | 1,790 | | | 2.0 |
Restricted stock | | | | | | | | | 3,736 | | | 3.2 |
Performance stock | | | | | | | | | 1,795 | | | 2.3 |
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
1615
common share are reduced by an amount allocated to participating securities. UseTable of the two-class method has an immaterial impact on the calculation of basic and diluted earnings per common share.Contents
The following tables summarize the effects of dilutive securities on diluted EPS for the period (amounts in thousands, except share data):
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Net income and comprehensive income available to Royal Gold common stockholders | | $ | 38,554 | | $ | 28,772 | | $ | 150,329 | | $ | 67,368 | |
Weighted-average shares for basic EPS | | | 65,511,878 | | | 65,398,369 | | | 65,501,678 | | | 65,389,499 | |
Effect of other dilutive securities | | | 88,892 | | | 116,865 | | | 124,722 | | | 105,403 | |
Weighted-average shares for diluted EPS | | | 65,600,770 | | | 65,515,234 | | | 65,626,400 | | | 65,494,902 | |
Basic earnings per share | | $ | 0.59 | | $ | 0.44 | | $ | 2.30 | | $ | 1.03 | |
Diluted earnings per share | | $ | 0.59 | | $ | 0.44 | | $ | 2.29 | | $ | 1.03 | |
9. INCOME TAXES
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | (Amounts in thousands, except rate) | | (Amounts in thousands, except rate) | ||||||||
Income tax (expense) benefit | | $ | (8,702) | | $ | (9,388) | | $ | 3,700 | | $ | (11,355) |
Effective tax rate | | | 18.5% | | | 24.7% | | | (2.6%) | | | 15.1% |
The effective tax rate for the nine months ended March 31, 2020, 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 nine months ended March 31, 2019 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.
On April 30, 2020, the Company entered into a settlement agreement with a foreign taxing authority related to an uncertain tax position recorded on our consolidated balance sheets as of March 31, 2020. We continue to analyze the impacts of the settlement on our consolidated financial statements, including the release of uncertain tax positions during our fourth quarter ending June 30, 2020.
17
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 March 31, 2020 | | 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 | | $ | 724,808 | | $ | 191,809 | | $ | 916,617 | | $ | 767,749 | | $ | 200,251 | | $ | 968,000 |
Dominican Republic | | | 417,295 | | | — | | | 417,295 | | | 451,585 | | | — | | | 451,585 |
Chile | | | 280,681 | | | 225,100 | | | 505,781 | | | 301,507 | | | 214,226 | | | 515,733 |
Africa | | | 169,370 | | | 321 | | | 169,691 | | | 89,555 | | | 321 | | | 89,876 |
Mexico | | | — | | | 77,694 | | | 77,694 | | | — | | | 83,748 | | | 83,748 |
United States | | | — | | | 161,223 | | | 161,223 | | | — | | | 163,398 | | | 163,398 |
Australia | | | — | | | 30,376 | | | 30,376 | | | — | | | 31,944 | | | 31,944 |
Rest of world | | | 12,038 | | | 26,698 | | | 38,736 | | | 12,039 | | | 22,993 | | | 35,032 |
Total | | $ | 1,604,192 | | $ | 713,221 | | $ | 2,317,413 | | $ | 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 March 31, 2020 | | 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 | | $ | 97,460 | | $ | 21,961 | | $ | — | | $ | 43,240 | | $ | 32,259 | | $ | 107,719 | | $ | 24,859 | | $ | — | | $ | 40,226 | | $ | 42,634 |
Royalty interests | | | 38,977 | | | — | | | 851 | | | 7,875 | | | 30,251 | | | 50,641 | | | — | | | 1,401 | | | 7,635 | | | 41,605 |
Total | | $ | 136,437 | | $ | 21,961 | | $ | 851 | | $ | 51,115 | | $ | 62,510 | | $ | 158,360 | | $ | 24,859 | | $ | 1,401 | | $ | 47,861 | | $ | 84,239 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | | 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 | | $ | 77,765 | | $ | 19,075 | | $ | — | | $ | 31,061 | | $ | 27,629 | | $ | 89,625 | | $ | 21,077 | | $ | — | | $ | 32,181 | | $ | 36,367 |
Royalty interests | | | 32,013 | | | — | | | 1,006 | | | 8,255 | | | 22,752 | | | 34,018 | | | — | | | 984 | | | 7,801 | | | 25,233 |
Total | | $ | 109,778 | | $ | 19,075 | | $ | 1,006 | | $ | 39,316 | | $ | 50,381 | | $ | 123,643 | | $ | 21,077 | | $ | 984 | | $ | 39,982 | | $ | 61,600 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended March 31, 2020 | | 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 | | $ | 274,065 | | $ | 63,149 | | $ | — | | $ | 106,883 | | $ | 104,033 | | $ | 214,222 | | $ | 46,760 | | $ | — | | $ | 79,253 | | $ | 88,209 |
Royalty interests | | | 104,788 | | | — | | | 2,934 | | | 22,875 | | | 78,979 | | | 91,018 | | | — | | | 2,756 | | | 14,822 | | | 73,440 |
Total | | $ | 378,853 | | $ | 63,149 | | $ | 2,934 | | $ | 129,758 | | $ | 183,012 | | $ | 305,240 | | $ | 46,760 | | $ | 2,756 | | $ | 94,075 | | $ | 161,649 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended March 31, 2019 | | 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 | | $ | 215,480 | | $ | 53,764 | | $ | — | | $ | 91,794 | | $ | 69,922 | | $ | 176,606 | | $ | 41,188 | | $ | — | | $ | 63,643 | | $ | 71,775 |
Royalty interests | | | 91,882 | | | — | | | 3,206 | | | 28,786 | | | 59,890 | | | 65,811 | | | — | | | 2,083 | | | 15,000 | | | 48,728 |
Total | | $ | 307,362 | | $ | 53,764 | | $ | 3,206 | | $ | 120,580 | | $ | 129,812 | | $ | 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 |
1816
A reconciliation of total segment gross profit to the consolidated Income before income taxes is shown below (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | ||||
| | | 2020 | | | 2019 | | | 2020 | | | 2019 |
Total segment gross profit | | $ | 62,510 | | $ | 50,381 | | $ | 183,012 | | $ | 129,812 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
General and administrative expenses | | | 9,551 | | | 6,798 | | | 23,658 | | | 24,147 |
Exploration costs | | | 565 | | | 330 | | | 4,705 | | | 5,534 |
Depreciation and amortization | | | 113 | | | 52 | | | 280 | | | 146 |
Operating income | | | 52,281 | | | 43,201 | | | 154,369 | | | 99,985 |
Fair value changes in equity securities | | | (3,819) | | | 1,781 | | | (4,972) | | | (3,318) |
Interest and other income | | | 620 | | | 499 | | | 1,621 | | | 1,089 |
Interest and other expense | | | (2,088) | | | (7,499) | | | (7,139) | | | (22,786) |
Income before income taxes | | $ | 46,994 | | $ | 37,982 | | $ | 143,879 | | $ | 74,970 |
The Company’sOur revenue by reportable segment for the three and ninesix months ended MarchDecember 31, 2020 and 2019 is geographically distributed as shown in the following table (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | March 31, | | March 31, | | March 31, | | March 31, | | December 31, | | December 31, | | December 31, | | December 31, | ||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Stream interests: | | | | | | | | | | | | | | | | | | | | | | | | |
Canada | | $ | 37,136 | | $ | 34,012 | | $ | 112,990 | | $ | 81,021 | | $ | 54,302 | | $ | 38,191 | | $ | 95,888 | | $ | 75,854 |
Dominican Republic | | | 28,302 | | | 20,787 | | | 73,534 | | | 58,504 | | | 27,554 | | | 23,614 | | | 58,824 | | | 45,232 |
Chile | | | 22,055 | | | 15,638 | | | 63,323 | | | 51,016 | | | 17,766 | | | 20,665 | | | 41,275 | | | 41,269 |
Africa | | | 9,967 | | | 7,328 | | | 24,218 | | | 24,939 | | | 8,097 | | | 7,155 | | | 18,235 | | | 14,251 |
Total stream interests | | $ | 97,460 | | $ | 77,765 | | $ | 274,065 | | $ | 215,480 | | $ | 107,719 | | $ | 89,625 | | $ | 214,222 | | $ | 176,606 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Royalty interests: | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 13,199 | | $ | 9,813 | | $ | 33,813 | | $ | 24,153 | | $ | 17,090 | | $ | 10,012 | | $ | 30,788 | | $ | 20,614 |
Canada | | | 9,126 | | | 8,201 | | | 26,084 | | | 25,918 | ||||||||||||
Mexico | | | 9,160 | | | 8,719 | | | 24,923 | | | 24,551 | | | 15,174 | | | 9,376 | | | 26,751 | | | 15,763 |
Australia | | | 3,714 | | | 3,234 | | | 11,062 | | | 9,451 | | | 8,314 | | | 3,546 | | | 12,856 | | | 7,348 |
Canada | | | 6,047 | | | 8,037 | | | 13,458 | | | 16,958 | ||||||||||||
Africa | | | 925 | | | 161 | | | 2,531 | | | 1,185 | | | 744 | | | 911 | | | 1,494 | | | 1,606 |
Rest of world | | | 2,853 | | | 1,885 | | | 6,375 | | | 6,624 | | | 3,272 | | | 2,136 | | | 5,671 | | | 3,522 |
Total royalty interests | | $ | 38,977 | | $ | 32,013 | | $ | 104,788 | | $ | 91,882 | | $ | 50,641 | | $ | 34,018 | | $ | 91,018 | | $ | 65,811 |
Total revenue | | $ | 136,437 | | $ | 109,778 | | $ | 378,853 | | $ | 307,362 | | $ | 158,360 | | $ | 123,643 | | $ | 305,240 | | $ | 242,417 |
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).
19
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 March 31, 2020 | | 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): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marketable equity securities(1) | | $ | 11,472 | | $ | 11,472 | | $ | 8,345 | | $ | 3,127 | | $ | — | | $ | 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.held. The carrying value of our revolving credit facility (Note 5) approximates fair value as of December 31, 2020. The TriStar Gold Inc. warrants classified within Level 2 of the fair value hierarchy are valued each period usingmodel-derived (Black-Scholes) valuations in which the Black-Scholes model. The warrantssignificant inputs are part of the TriStar transaction (Note 2), and have been classified as a financial asset instrument. The carrying value of the Company’s revolving credit facility (Note 5) approximates fair value as of March 31, 2020.observable in active markets.
17
As of MarchDecember 31, 2020, the Company alsowe 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
Pursuant to itsour Khoemacau silver stream transaction closed in February 2019, RGLD Goldwe made its firstthe following advance payments under our conditional funding schedule:
● | $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 $65.8$212 million on November 5, 2019 and its secondwhich completes the advance payment of $22.0 million on February 2, 2020. As of March 31, 2020,payments for the Company’s conditional funding schedule for $124.2 millionBase Silver Stream. We are further committed to up to $177.2$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 April 3, 2020, RGLD Goldconditions and are scheduled to be made its third advance payment of $47.9 million.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 MarchDecember 31, 2020, the Company’sour 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.
2018
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, 20196, 2020 (“Fiscal 20192020 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 2020 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 March 31, 2020, we owned seven stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for 71% and 72% of our total revenue for the three and nine months ended March 31, 2020, compared to 71% and 70% for the three and nine months ended March 31, 2019. 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 March 31, 2020, we owned royalty interests on 36 producing properties, 14 development stage properties and 129 exploration stage properties, of which we consider 48 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 29% and 28% of our total revenue for the three and nine months ended March 31, 2020, compared to 29% and 30% for the three and nine months ended March 31, 2019.
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.
2119
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 ninesix months ended MarchDecember 31, 2020 and 2019, gold, silveraverage metal prices and copper price averages and percentagepercentages of revenue by metal were as follows:
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| | Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | March 31, 2019 | | ||||||||||||
Metal |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| ||||
Gold ($/ounce) | | $ | 1,583 | | 79% | | $ | 1,304 | | 77% | | $ | 1,512 | | 77% | | $ | 1,248 | | 77% | |
Silver ($/ounce) | | $ | 16.90 | | 8% | | $ | 15.57 | | 9% | | $ | 17.07 | | 9% | | $ | 15.04 | | 9% | |
Copper ($/pound) | | $ | 2.56 | | 10% | | $ | 2.82 | | 9% | | $ | 2.62 | | 10% | | $ | 2.80 | | 9% | |
Other | | | N/A | | 3% | | | N/A | | 5% | | | N/A | | 4% | | | N/A | | 5% | |
Recent Business Developments
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| | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | December 31, 2019 | ||||||||||||
Metal |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage | ||||
Gold ($/ounce) | | $ | 1,874 | | 76% | | $ | 1,481 | | 74% | | $ | 1,892 | | 76% | | $ | 1,477 | | 76% |
Silver ($/ounce) | | $ | 24.39 | | 10% | | $ | 17.32 | | 10% | | $ | 24.32 | | 10% | | $ | 17.15 | | 9% |
Copper ($/pound) | | $ | 3.25 | | 11% | | $ | 2.67 | | 13% | | $ | 3.10 | | 11% | | $ | 2.65 | | 10% |
Other | | | N/A | | 3% | | | N/A | | 3% | | | N/A | | 3% | | | N/A | | 5% |
COVID-19 and current economic environmentthe Current Economic Environment
SeveralThroughout 2020 and into 2021, several of our operating counterparties have recently announcedinstituted temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing COVID-19 pandemic, as discussed more fully in the individual property discussions throughout this MD&A.pandemic. In addition, due to the uncertain environment, in April 2020 we drew an additional $200 million on our revolving credit facility, as discussed more fully in the liquidity section of this MD&A. Thepandemic and resulting economic and societal impacts associated with COVID-19have 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. Please referWe continue to our risk factors included in Part II, Item 1Amonitor the impact of this Quarterly Report on Form 10-Q for more information about risksdevelopments associated with COVID-19.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 included 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. 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
22
on the date of the construction decision. A further future payment of up to $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 was payable over three payments, of which $4.5 million was paid in August 2019, $1.5 million was paid in November 2019, and the final payment of $1.5 million was paid in March 2020.
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. Since August 2019, TriStar has completed reverse circulation drilling, which is being completed to support the preparation of a preliminary feasibility study.net smelter return royalties. Refer to Note 2 of our notes to consolidated financial statements for further discussion.discussion on the sale of the Peak Gold JV interest.
PrincipalSeparation of the Wassa and Prestea/Bogoso Stream Agreement
On October 1, 2020, we announced the separation of the Wassa and Royalty InterestsPrestea/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 Company considers both historical and future potential revenuesPrestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in determining which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from both producing and development properties are based onreturn for a numbercash purchase price of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, metal30% of the spot 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.per ounce delivered.
Please refer to our Fiscal 2019 10-K for further discussion of our principal producing stream and royalty interests.
Principal Producing Properties
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23
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2020
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 2020, as well as the actual production through December 31, 2020, for our principal properties as reported to us by the various operators through March 31, 2020. 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 2020
Principal Producing Properties
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Calendar 2020 Operator’s Production | | Calendar 2020 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) |
| 53,000 |
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| 14,800 |
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| 53,000 |
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| 49,200 |
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Mount Milligan(4) |
| 140,000 - 160,000 |
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| 33,700 |
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| 140,000 - 160,000 |
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| 161,900 |
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Copper |
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| | | 80 - 90 Million |
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| 20.1 Million |
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| | | 80 - 90 Million |
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| 82.8 Million |
Pueblo Viejo(5) | | 530,000 - 580,000 | | N/A | | | | 143,000 | | N/A | | | | 530,000 - 580,000 | | N/A | | | | 542,000 | | N/A | | |
Rainy River(6) | | Withdrawn | | Withdrawn | | | | 50,400 | | 61,300 | | | ||||||||||||
Wassa(7) | | 155,000 - 165,000 | | | | | | Not released yet | | | | | ||||||||||||
Wassa(6) | | 165,000 - 170,000 | | | | | | 168,000 | | | | | ||||||||||||
Royalty: |
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Cortez GSR1 |
| 66,500 |
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| 27,700 |
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| 66,900 |
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| 101,700 |
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Cortez GSR2 |
| 109,000 |
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| 30,000 |
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| 109,600 |
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| 103,900 |
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Cortez GSR3 |
| 145,700 |
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| 17,200 |
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| 146,300 |
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| 161,100 |
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Cortez NVR1 |
| 113,200 |
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| 45,800 |
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| 113,500 |
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| 121,600 |
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Cortez NVR1C | | 29,900 | | | | | | 200 | | | | | | 30,100 | | | | | | 44,500 | | | | |
Peñasquito(8) |
| Withdrawn | | Withdrawn |
| | | 116,000 | | 9.5 Million |
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Peñasquito(7) |
| 510,000 | | 28 million |
| | | 343,000 | | 20.4 Million |
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| Withdrawn | | | | |
| 62 Million |
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| 190 million | | | | |
| 130 Million |
Zinc |
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| Withdrawn | | | | |
| 135 Million |
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| 360 million | | | | |
| 281 Million |
(1) | Production estimates received from our operators are for calendar 2020, unless otherwise noted in footnotes to this table. |
(2) | Actual production figures |
(3) | The estimated and actual production figures shown for Andacollo are contained gold in concentrate. |
(4) |
(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 Wassa are payable gold in doré. |
2421
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 9,50010,700 ounces of gold for the three months ended MarchDecember 31, 2020, compared to approximately 9,90018,600 ounces of gold for the three months ended MarchDecember 31, 2019. 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.
As previously reported by Teck expects grades to continue to decline towards reserve grades. The current life of mine for Andacollo experienced a temporary suspensionis expected to continue until calendar year 2035. According to Teck, additional permits or permit amendments will be required to execute the life of operations during the quarter ended December 31, 2019, due to a workers’ strike. We anticipate the impact 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.
With respect to COVID-19 pandemic impacts, Teck reported they maintained normal production levels while reducing the on-site workforce where possible and working with our contractors and the local communities to ensure adequate preventative measures are in place.Khoemacau
Khoemacau Project
In February 2019, the Company’s wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”) entered into a silver stream withAccording to Khoemacau Copper Mining (Pty.) Limited (“KCM”) for the purchase of silver produced from, progress continued at the Khoemacau projectProject (“Khoemacau” or the “Project”) located in Botswana. Please refer to our Fiscal 2019 10-K for further details on the Khoemacau silver stream acquisition.
According to KCM, progress continued at Khoemacau during the Marchthree months ended December 31, 2020, quarter and the project reached approximately 43%85% of construction completion as of MarchDecember 31, 2020 with 80% of the capital committed.2020. According to KCM, activities are focused on refurbishment and upgrading of the Boseto mill, underground development, boxcut construction, constructioncompletion of accommodation, power and water infrastructure at Zone 5 completing constructionand completion of the haul road surfacing between Zone 5 and the Boseto mill, and refurbishment of the Boseto mill. Also, according to KCM, also reported that underground development had cumulatively advanced 8,311 meters in the three mines and approximately 70,000 tonnes of ore were stockpiled on twosurface at the end of the five planned declines started in early February 2020 and further two started in early MarchDecember 2020.
The 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 April 3, 2020, RGLDJanuary 6, 2021, Royal Gold made its thirdthe sixth advance payment of $47.9$32.6 million, which brings the total contribution to $135.7 million. RGLD Gold expects$212 million and completes the advance payment required to commit approximately $65 million duringearn the remainder of calendar year 2020, andfull base silver stream. For any remaining funding required to complete construction, KCM may elect under the total remaining commitment in calendar year 2021 is expectedstream agreement to range from approximately $11 million for the base stream of 80% of payable silverdraw up to approximately $64$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.
AccordingKCM currently anticipates that up to KCM, although a six-month state$50 million of emergency has been declared by the Governmentthis additional funding is required to complete construction and ramp up of Botswana to help prevent the spread of COVID-19, mining has been designated an “essential service” and activity at Khoemacau is continuing. Barring any potential delaysto commercial production, largely a result of previously reported schedule impacts caused by COVID-19 considerations,considerations. The added funding mechanisms built into the stream agreement allow KCM continues to expectseamlessly access the first shipmentadditional 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 12,1009,700 ounces for the three months ended MarchDecember 31, 2020, compared to approximately 23,10018,800 ounces for the three months ended MarchDecember 31, 2019. Decreased deliveries were 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 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. Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.
Copper stream deliveries fromOn January 14, 2021, Centerra reported that Mount Milligan wereproduced approximately 3.40161,900 ounces of gold during calendar 2020, above previously issued gold production guidance of between 140,000 and 160,000 ounces. Centerra also reported that copper production for calendar year 2020 was 82.8 million pounds, during the three months ended March 31, 2020, compared to approximately 2.46in line with previously issued copper production guidance of between 80 and 90 million pounds during the three months ended March 31, 2019. Increased deliveries resulted from differences in the timing of shipments and settlements during the periods.
25
On March 26, 2020, Centerra published an updated National Instrument 43-101 (“NI 43-101”) technical report for the Mount Milligan mine, which provides a detailed update to the life of mine plan contained in the previous NI 43-101 report for Mount Milligan published by Centerra in calendar 2017. pounds.
Centerra reported a reduction in proven and probable reserves due to increased costs, lower expected productivities, and lower process plant throughput compared to their calendar 2017 report, as well as an update to the resource model and re-estimation of metallurgical recoveries. Details for the reserves and updated mine plan, which does not contemplate any growth capital or inclusion of additional mineralized material, were reported by Centerra as follows:
As of March 31, 2020, approximately 62% of the total $781.5 million advance payment for our investment at Mount Milligan has been returned.
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for Royal Gold’s stream and royalty interests. As part of the Company’s regular asset impairment analysis, the Company determined that an impairment of our stream interest at Mount Milligan was not necessary as (i) the earlier financial impairment taken by Centerra does not impact the mine operating performance, and (ii) the reduction in reserves and mineralized material at Mount Milligan resulted in gold and copper depletion rates that are well below current and long-term consensus gold and copper prices. As of March 31, 2020, the gold and copper depletion rates at our Mount Milligan stream interest are $764 per ounce of gold and $1.48 per pound of copper. Depletion rates well below current and long-term metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable The Company will continue to monitor future developments at Mount Milligan as part of its regular asset impairment analysis.
On April 1, 2020, Centerra announced that reductions of manpower and throughput to 50,000 tonnes per day at Mount Milligan would occur as a result of actions implemented to combat the COVID-19 pandemic. On May 1, 2020, Centerra announced that processing of surface ore stockpiles using only the primary crusher continued during this period of reduced operations, and a planned two-week maintenance shut-down occurred during mid-April 2020. Centerra further reported that process plant operations restarted in late April and mine operations are expected to ramp up production in mid-May, and the short-term decrease in activity is not expected to have a material impact on calendar 2020 production, or cause changes to calendar 2020 guidance.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 10,20010,500 ounces of gold for the three months ended MarchDecember 31, 2020, compared to approximately 12,40013,200 ounces of gold for the three months ended MarchDecember 31, 2019. 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 line with previously issued guidance of between 530,000 and 580,000 ounces.
Silver stream deliveries were approximately 394,700418,200 ounces of silver for the three months ended MarchDecember 31, 2020, compared to approximately 553,000417,800 ounces of silver for the three months ended MarchDecember 31, 2019.
Barrick reports that it continues to advance engineering and evaluation work towards a feasibility study for the process plant expansion and proposed tailings storage facility that could extend the mine lifereported continued progress at Pueblo Viejo during the quarter to beyond calendar
26
2040. Barrick estimates thatexpand the process plant and tailings storage facilities. Barrick estimates that the 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 3,600 ounces of gold for the three months ended March 31, 2020, compared to 4,400 ounces of gold for the three months ended March 31, 2019.
Wassa
Silver stream deliveries were approximately 40,800 ounces of silver for the three months ended March 31, 2020, compared to approximately 35,700 ounces of silver for the three months ended March 31, 2019.
On February 13, 2020, New Gold announced the results of an updated life of mine plan for the Rainy River mine. The corresponding NI 43-101 technical report was filed on March 27, 2020. New Gold reported that the mine plan was based on proven and probable reserves estimated at a gold price of $1,275 per ounce and a silver price of $17.00 per ounce, and it expects there may remain potential to extend the underground mine life beyond calendar 2028 should the prevailing gold price support the development of additional underground mining areas during that period and/or exploration efforts increase the resource inventory. Key highlights of the updated plan as reported by New Gold include:
As of March 31, 2020, approximately 22% of the total $175 million advance payment for our investment at Rainy River has been returned.
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for the Company’s stream and royalty interests. As a result of the new information from New Gold and as part of the Company’s regular asset impairment analysis, the Company determined that an impairment on its Rainy River stream interest was not necessary as of March 31, 2020 as the reduction in gold and silver reserves resulted in depletion rates that are well below current and long-term consensus gold and silver prices. As of March 31, 2020, the gold and silver depletion rates at our Rainy River stream interest are $848 per ounce of gold and $11.27 per ounce of silver. Depletion rates well below current and long-term consensus metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable. The Company will continue to monitor future developments at Rainy River as part of its regular asset impairment analysis.
According to New Gold, as a result of measures to address the spread of COVID-19, Rainy River completed a voluntary two-week shutdown from March 20 to April 2, 2020. On April 29, 2020 New Gold reported that the mill facility is operating at full capacity with ore supplied from the open pit and medium-grade stockpile, and the mine is operating at approximately 70% of the productivity achieved before the shutdown. New Gold announced that it has withdrawn its calendar 2020 guidance until the impact of COVID-19 is better understood.
Wassa
Gold stream deliveries from Wassa were approximately 3,8004,700 ounces for the three months ended December 31, 2020, compared to approximately 4,900 ounces for the three months ended December 31, 2019.
On January 20, 2021, Golden Star reported full calendar year 2020 gold production from Wassa of 168,000 ounces, within the revised guidance range of 165,000 to 170,000 ounces, and a 7% increase over 2019 production. Golden Star also provided full calendar year 2021 gold production guidance of 165,000 to 175,000 ounces.
Also according to Golden Star, work on a preliminary economic assessment of the expansion of the Wassa mine into the southern extension of the Wassa ore body is nearing completion, with release of the study results in conjunction with an updated reserve and resource estimate expected from Golden Star in February 2021.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez was approximately 57,600 ounces of gold for the three months ended MarchDecember 31, 2020, compared to approximately 4,60028,000 ounces of gold for the three months ended MarchDecember 31, 2019.
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On March 27, 2020, Golden Star reported that deep drilling in calendar 2019 successfully extended the mineralization at Wassa by approximately 700 feet to the south where the deposit remains open to the south and down dip. Golden Star further reported that the exploration strategy during calendar 2020 would transition away from growth of the overall resource to infill drilling to help define the potential mine plans for the southern extension of the operation. According to Golden Star, as of December 31, 2019 the proven mineral reserve at Wassa increased 87% over the prior year period to 1.4 million ounces of gold, and total underground mineralized material at Wassa contained approximately 11.2 million ounces of gold.
Golden Star announced earlier it has taken a proactive response to the COVID-19 pandemic threat by implementing a range of procedures to protect and monitor the health and safety of their workforce and has not reported anyBarrick expects production disruptions with respect to the pandemic.
Royalty Interests
Cortez
Production attributable to the Company’s royalty interest at Cortez increased to 57,700 ounces of gold over the prior year quarter of 32,700 ounces of gold, as a result of production ramping up at the Crossroads deposit, which is subject to the NVR1C, GSR2 and portions of the NVR1 and GSR3 royalty interests.
During the current quarter, Barrick provided the Company with an updated reserve statement and life of mine plan for Cortez. According to Barrick, as of December 31, 2019, total proven and probable reserves subject to the Company’s royalty interests contained 3.5 million ounces of gold (consisting of 87.0 million tonnes of ore at a grade of 1.26 grams per tonne). Reserves were calculated at a gold price of $1,200 per ounce.
Further according to Barrick, total gold production at Cortez from the regions subject to the Company’s interests is expected to be approximately 175,000 ounces in calendar 2020, increasingyear 2021 to an approximate average of 425,000 ounces from calendar 2021 through calendar 2026. The expected production increase from calendar year 2020 to calendar 2021 is 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
Gold, silver, lead and zinc productionProduction attributable to our royalty interest at Peñasquito for the three months ended December 31, 2020, increased by approximately 161%, 76%, 76%120% for gold and 71%, respectively, when30% for zinc, and decreased approximately 7% for silver and 15% for lead compared to the prior year quarter. The increase in production resulted from improved operations and higher grades from the main Peñasco pit.
On May 5,In December 2020, Newmont announced that operations atprovided full year 2021 production guidance for Peñasquito were placed on careof 660,000 ounces of gold, 30 million ounces of silver, 475 million pounds of zinc, and maintenance on April 12,190 million pounds of lead, compared to calendar 2020 due to a Mexican federal government decree to temporarily suspend all non-essential activitiesproduction guidance, as reported by Newmont in Mexico as partJuly 2020, of a nationwide effort to help slow the spread510,000 ounces of COVID-19. Newmont further stated that it has continued to engage with government at all levels on a restart plan,gold, 28 million ounces of silver, 360 million pounds of zinc and the site is well positioned to ramp back up quickly and efficiently over a two-week period once operations are allowed to restart.190 million pounds of lead.
Results of Operations
Quarter Ended MarchDecember 31, 2020, Compared to Quarter Ended MarchDecember 31, 2019
For the quarter ended MarchDecember 31, 2020, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $38.6$59.9 million, or $0.59$0.91 per basic and diluted share, as compared to net income and comprehensive income attributable to Royal Gold stockholders of $28.8$41.3 million, or $0.44$0.63 per basic and diluted share, for the quarter ended MarchDecember 31, 2019.2019. The increase in our earnings per sharenet income was primarily attributable to an increase in revenue, and a decrease in our interest expense, each discussed further below. These increases were partially offset by an increase in our generalcost of sales and administrative expenses (discussed further below)an increase in depreciation, depletion and a decrease in the fair value of the marketable equity securities the Company holds. Refer to Note 4 of our notes to consolidated financial statements for further discussion on our marketable equity securities.amortization expense, each discussed below.
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For the quarter ended MarchDecember 31, 2020, we recognized total revenue of $136.4$158.4 million, comprised of stream revenue of $97.5$107.7 million and royalty revenue of $39.0$50.7 million at an average gold price of $1,583$1,874 per ounce, an average silver price of $16.90$24.39 per ounce and an average copper price of $2.56$3.25 per pound. This is compared to total revenue of $109.8$123.6 million for the three months ended MarchDecember 31, 2019, comprised of stream revenue of $77.8$89.6 million and royalty revenue of $32.0$34.0 million, at an average gold price of $1,304$1,481 per ounce, an average silver price of $15.57$17.32 per ounce and an average copper price of $2.82$2.67 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended MarchDecember 31, 2020, compared to the quarter ended MarchDecember 31, 2019, are as follows:
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Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended MarchDecember 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Three Months Ended | | | | Three Months Ended | | Three Months Ended | ||||||||||||||||
| | | | March 31, 2020 | | March 31, 2019 | | | | 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 | | | | $ | 32,298 | | | | | $ | 26,938 | | | | | | | $ | 44,713 | | | | | $ | 30,629 | | | |
| | Gold | | | | | 14,000 | oz. | | | | | 15,200 | oz. | | Gold | | | | | 16,900 | oz. | | | | | 12,900 | oz. |
| | Copper | | | | | 4.3 | Mlbs. | | | | | 2.6 | Mlbs. | | Copper | | | | | 4.1 | Mlbs. | | | | | 4.3 | Mlbs. |
Pueblo Viejo | | | | $ | 28,302 | | | | | $ | 20,787 | | | | | | | $ | 27,554 | | | | | $ | 23,614 | | | |
| | Gold | | | | | 13,200 | oz. | | | | | 10,400 | oz. | | Gold | | | | | 9,400 | oz. | | | | | 10,500 | oz. |
| | Silver | | | | | 417,800 | oz. | | | | | 469,000 | oz. | | Silver | | | | | 408,600 | oz. | | | | | 462,400 | oz. |
Andacollo | | Gold | | $ | 22,055 | | 13,900 | oz. | | $ | 15,638 | | 12,000 | oz. | | Gold | | $ | 17,766 | | 9,500 | oz. | | $ | 20,665 | | 13,900 | oz. |
Wassa | | Gold | | $ | 8,647 | | 5,600 | oz. | | $ | 5,773 | | 4,400 | oz. | | Gold | | $ | 6,761 | | 3,600 | oz. | | $ | 4,794 | | 3,300 | oz. |
Rainy River | | | | $ | 4,838 | | | | | $ | 7,074 | | | | ||||||||||||||
Other(3) | | | | $ | 10,925 | | | | | $ | 9,923 | | | | ||||||||||||||
| | Gold | | | | | 2,600 | oz. | | | | | 5,000 | oz. | | Gold | | | | | 5,100 | oz. | | | | | 6,100 | oz. |
| | Silver | | | | | 47,900 | oz. | | | | | 40,800 | oz. | | Silver | | | | | 52,000 | oz. | | | | | 20,500 | oz. |
Other(3) | | Gold | | $ | 1,320 | | 800 | oz. | | $ | 1,555 | | 1,200 | oz. | ||||||||||||||
Total stream revenue | | | | $ | 97,460 | | | | | $ | 77,765 | | | | | | | $ | 107,719 | | | | | $ | 89,625 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 7,425 | | | | | $ | 4,465 | | | | | | | $ | 12,952 | | | | | $ | 7,577 | | | |
| | Gold | | | | | 97,200 | oz. | | | | | 37,300 | oz. | | Gold | | | | | 210,600 | oz. | | | | | 95,800 | oz. |
| | Silver | | | | | 8.7 | Moz. | | | | | 4.9 | Moz. | | Silver | | | | | 8.7 | Moz. | | | | | 9.3 | Moz. |
| | Lead | | | | | 60.5 | Mlbs. | | | | | 34.5 | Mlbs. | | Lead | | | | | 52.1 | Mlbs. | | | | | 61.5 | Mlbs. |
| | Zinc | | | | | 124.5 | Mlbs. | | | | | 72.8 | Mlbs. | | Zinc | | | | | 93.8 | Mlbs. | | | | | 72.1 | Mlbs. |
Cortez | | Gold | | $ | 6,400 | | 57,700 | oz. | | $ | 4,127 | | 32,700 | oz. | | Gold | | $ | 8,128 | | 57,600 | oz. | | $ | 3,292 | | 28,000 | oz. |
Other(3) | | Various | | $ | 25,152 | | N/A | | | $ | 23,421 | | N/A | | | Various | | $ | 29,561 | | N/A | | | $ | 23,149 | | N/A | |
Total royalty revenue | | | | $ | 38,977 | | | | | $ | 32,013 | | | | | | | $ | 50,641 | | | | | $ | 34,018 | | | |
Total Revenue | | | | $ | 136,437 | | | | | $ | 109,778 | | | | | | | $ | 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 |
(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 March 31, 2020, compared with the three months ended March 31, 2019, 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 gold and silver prices. The increase inproduction within our stream revenue was primarily attributable to an increase in gold sales at Andacollo and Pueblo Viejo and higher copper sales at Mount Milligan. These increases were partially offset by lower gold sales at Rainy River and Mount Milligan due to a decrease in 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.
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purchased and sold during the three months ended MarchDecember 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of MarchDecember 31, 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 | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 12,100 | | 14,000 | | 23,100 | | 15,200 | | 8,500 | | 7,100 | | 9,700 | | 16,900 | | 18,800 | | 12,900 | | 3,800 | | 3,300 |
Pueblo Viejo | | 10,200 | | 13,200 | | 12,400 | | 10,400 | | 10,200 | | 9,500 | | 10,500 | | 9,400 | | 13,200 | | 10,500 | | 10,500 | | 100 |
Andacollo | | 9,400 | | 13,900 | | 9,900 | | 12,000 | | 300 | | 4,300 | | 10,700 | | 9,500 | | 18,600 | | 13,900 | | 2,900 | | 11,100 |
Wassa | | 3,800 | | 5,600 | | 4,600 | | 4,400 | | 600 | | 1,500 | | 4,700 | | 3,600 | | 4,900 | | 3,300 | | 3,100 | | 2,900 |
Rainy River | | 3,600 | | 2,600 | | 4,400 | | 5,000 | | 2,300 | | 1,800 | ||||||||||||
Other | | 900 | | 800 | | 1,200 | | 1,200 | | 400 | | 400 | | 4,500 | | 5,100 | | 5,600 | | 6,100 | | 1,200 | | 1,500 |
Total | | 40,000 | | 50,100 | | 55,600 | | 48,200 | | 22,300 | | 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 | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 394,700 | | 417,800 | | 553,000 | | 469,000 | | 394,700 | | 475,600 | | 418,200 | | 408,600 | | 417,700 | | 462,400 | | 418,200 | | 451,200 |
Rainy River | | 40,800 | | 47,900 | | 35,700 | | 40,800 | | 41,300 | | 36,500 | ||||||||||||
Other | | 65,400 | | 52,000 | | 48,100 | | 51,100 | | 66,300 | | 23,400 | ||||||||||||
Total | | 435,500 | | 465,700 | | 588,700 | | 509,800 | | 436,000 | | 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 | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 3.4 | | 4.3 | | 2.5 | | 2.6 | | — | | 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 $22.0$24.9 million for the three months ended MarchDecember 31, 2020, from $19.1$21.1 million for the three months ended MarchDecember 31, 2019. The increase was primarily due to increasedan increase in the gold, sales from Pueblo Viejosilver and Andacollo 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 RGLD Gold’sour 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.
General and administrativeExploration costs increaseddecreased to $9.6zero for the three months ended December 31, 2020, from $1.5 million for the three months ended March 31, 2020 from $6.8 million for the three months ended MarchDecember 31, 2019. The increase was dueExploration costs were specific to additional non-cash stock compensation expense of approximately $3.3 million primarily as a resultthe exploration and advancement of the accelerated vesting of certain equity awardsPeak Gold JV. On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in connection with the recent retirementthis MD&A and Note 2 of our former President and Chief Executive Officer and our former Vice President and General Counsel.notes to consolidated financial statements.
Depreciation, depletion and amortization increased to $51.2$47.9 million for the three months ended MarchDecember 31, 2020, from $39.4$40.1 million for the three months ended MarchDecember 31, 2019. The increase was primarily due to higher coppergold sales at Mount Milligan and higher gold sales at Pueblo Viejo. Anan increase in the depletion rates at Mount Milligan, and Rainy River as previously discussed in our Fiscal 2020 10-K. These increases were partially offset by a result of updated reserves, as discussed above also contributeddecrease in gold sales at Andacollo when compared to the increase in our depletion expense.prior period.
Interest and other expense decreased to $2.1$1.6 million for the three months ended MarchDecember 31, 2020, from $7.5$2.2 million for the three months ended MarchDecember 31, 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.
DuringFor the three months ended MarchDecember 31, 2020, we recognized anrecorded income tax expense totaling $8.7$16.0 million, compared with an income tax expense of $9.4$11.1 million duringfor the three months ended MarchDecember 31, 2019. The income tax expense resulted in an effective tax rate of 18.5%21.1% in the current period, compared with 24.7% in21.6% for the quarter ended March 31, 2020. The three months ended MarchDecember 31, 2020 effective tax rate included income tax benefits resulting from foreign exchange rate movements compared to the U.S. dollar. On April 30, 2020, the Company entered into a settlement agreement with a foreign taxing authority related to an uncertain tax position recorded on our consolidated balance sheets as of March 31, 2020. We continue to analyze the impacts of the settlement on our consolidated financial statements, including the release of uncertain tax positions during our fourth quarter ending June 30, 2020.2019.
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NineSix Months Ended Marchended December 31, 2020, Compared to NineSix Months Ended MarchDecember 31, 2019
For the ninesix months ended MarchDecember 31, 2020, we recorded net income and comprehensive income attributable to Royal Gold stockholders of $150.3$166.8 million, or $2.30$2.55 per basic share and $2.29$2.54 per diluted share, as compared to net income and comprehensive income attributable to Royal Gold stockholders of $67.4$111.8 million, or $1.03$1.70 per basic and diluted share, for the ninesix months ended MarchDecember 31, 2019. The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a decrease inone-time gain attributable to the sale of our Peak Gold JV interest expenseduring the September 2020 quarter and (iii)various discrete income tax benefits recognized primarily attributable to recent Swiss tax reform during the quarter ended September 30, 2019.2020 quarter. Each areitem contributing to the increase
26
in our earnings per share during the period is discussed furtherbelow. 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 the ninesix months ended MarchDecember 31, 2020, we recognized total revenue of $378.9$305.2 million, which is comprised of stream revenue of $274.1$214.2 million and royalty revenue of $104.8$91.0 million at an average gold price of $1,512$1,892 per ounce, an average silver price of $17.07$24.32 per ounce and an average copper price of $2.62$3.10 per pound. This is compared to total revenue of $307.4$242.4 million for the ninesix months ended MarchDecember 31, 2019, which was comprised of stream revenue of $215.5$176.6 million and royalty revenue of $91.9$65.8 million, at an average gold price of $1,248$1,477 per ounce, an average silver price of $15.04$17.15 per ounce and an average copper price of $2.80$2.65 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the ninesix months ended MarchDecember 31, 2020, compared to the ninesix months ended MarchDecember 31, 2019, are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
NineSix Months Ended MarchDecember 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | | Nine Months Ended | | | | Six Months Ended | | Six Months Ended | ||||||||||||||||
| | | | March 31, 2020 | | March 31, 2019 | | | | 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 | | | | $ | 93,423 | | | | | $ | 63,954 | | | | | | | $ | 79,332 | | | | | $ | 61,126 | | | |
| | Gold | | | | | 43,500 | oz. | | | | | 38,500 | oz. | | Gold | | | | | 28,800 | oz. | | | | | 29,500 | oz. |
| | Copper | | | | | 10.9 | Mlbs. | | | | | 5.8 | Mlbs. | | Copper | | | | | 8.2 | Mlbs. | | | | | 6.7 | Mlbs. |
Pueblo Viejo | | | | $ | 73,534 | | | | | $ | 58,504 | | | | | | | $ | 58,824 | | | | | $ | 45,232 | | | |
| | Gold | | | | | 33,100 | oz. | | | | | 28,500 | oz. | | Gold | | | | | 20,500 | oz. | | | | | 20,000 | oz. |
| | Silver | | | | | 1.4 | Moz. | | | | | 1.5 | Moz. | | Silver | | | | | 859,800 | Moz. | | | | | 938,000 | oz. |
Andacollo | | Gold | | $ | 63,324 | | 41,800 | oz. | | $ | 51,016 | | 40,900 | oz. | | Gold | | $ | 41,275 | | 21,600 | oz. | | $ | 41,269 | | 27,900 | oz. |
Rainy River | | | | $ | 19,566 | | | | | $ | 17,067 | | | | ||||||||||||||
Wassa | | Gold | | $ | 15,870 | | 8,500 | oz. | | $ | 10,113 | | 6,900 | oz. | ||||||||||||||
Other(3) | | | | $ | 18,921 | | | | | $ | 18,866 | | | | ||||||||||||||
| | Gold | | | | | 11,700 | oz. | | | | | 12,300 | oz. | | Gold | | | | | 9,200 | oz. | | | | | 11,900 | oz. |
| | Silver | | | | | 133,500 | oz. | | | | | 108,300 | oz. | | Silver | | | | | 75,100 | oz. | | | | | 85,600 | oz. |
Wassa | | Gold | | $ | 18,760 | | 12,500 | oz. | | $ | 17,557 | | 14,000 | oz. | ||||||||||||||
Other(3) | | Gold | | $ | 5,458 | | 3,700 | oz. | | $ | 7,382 | | 6,000 | oz. | ||||||||||||||
Total stream revenue | | | | $ | 274,065 | | | | | $ | 215,480 | | | | | | | $ | 214,222 | | | | | $ | 176,606 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 19,422 | | | | | $ | 12,763 | | | | | | | $ | 23,161 | | | | | $ | 11,997 | | | |
| | Gold | | | | | 228,500 | oz. | | | | | 141,000 | oz. | | Gold | | | | | 341,300 | oz. | | | | | 131,300 | oz. |
| | Silver | | | | | 22.6 | Moz. | | | | | 14.1 | Moz. | | Silver | | | | | 15.1 | Moz. | | | | | 13.9 | Moz. |
| | Lead | | | | | 151.7 | Mlbs. | | | | | 100.4 | Mlbs. | | Lead | | | | | 93.7 | Mlbs. | | | | | 91.2 | Mlbs. |
| | Zinc | | | | | 303.6 | Mlbs. | | | | | 220.1 | Mlbs. | | Zinc | | | | | 191.8 | Mlbs. | | | | | 179.2 | Mlbs. |
Cortez | | Gold | | $ | 14,109 | | 120,800 | oz. | | $ | 7,066 | | 59,700 | oz. | | Gold | | $ | 13,812 | | 95,300 | oz. | | $ | 7,709 | | 63,100 | oz. |
Other(3) | | Various | | $ | 71,257 | | N/A | | | $ | 72,053 | | N/A | | | Various | | $ | 54,045 | | N/A | | | $ | 46,105 | | N/A | |
Total royalty revenue | | | | $ | 104,788 | | | | | $ | 91,882 | | | | | | | $ | 91,018 | | | | | $ | 65,811 | | | |
Total revenue | Total revenue | | $ | 378,853 | | | | | $ | 307,362 | | | | Total revenue | | $ | 305,240 | | | | | $ | 242,417 | | | |
(1)(1)Reported production relates to the amount of metal sales subject to our stream and royalty interests for the ninesix months ended MarchDecember 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. |
31
The increase in our total revenue for the ninesix months ended MarchDecember 31, 2020 compared with the nine months ended March 31, 2019, resulted primarily from an increase in our stream revenuethe average gold, silver and copper prices compared to the prior period and an increase in production within 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 and gold sales at Pueblo Viejo. These increases were partially offset by lower gold sales at Rainy River and Wassa. royalty segment.
27
Gold and silver ounces and copper pounds purchased and sold during the ninesix months ended MarchDecember 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of MarchDecember 31, 2020 and June 30, 2020 for our streaming interests were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended | | As of | | As of | | Six Months Ended | | Six Months Ended | | As of | | As of | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 44,900 | | 43,500 | | 46,100 | | 38,500 | | 8,500 | | 7,100 | | 29,300 | | 28,800 | | 32,800 | | 29,500 | | 3,800 | | 3,300 |
Andacollo | | 37,700 | | 41,800 | | 35,900 | | 41,000 | | 300 | | 4,300 | | 24,400 | | 21,600 | | 28,300 | | 27,900 | | 2,900 | | 100 |
Pueblo Viejo | | 33,900 | | 33,100 | | 31,700 | | 28,500 | | 10,200 | | 9,500 | | 19,900 | | 20,500 | | 23,700 | | 20,000 | | 10,500 | | 11,100 |
Wassa | | 11,600 | | 12,500 | | 12,300 | | 14,000 | | 600 | | 1,500 | | 8,700 | | 8,500 | | 7,800 | | 6,900 | | 3,100 | | 2,900 |
Rainy River | | 12,200 | | 11,700 | | 12,500 | | 12,300 | | 2,300 | | 1,800 | ||||||||||||
Other | | 3,700 | | 3,700 | | 4,700 | | 6,000 | | 400 | | 400 | | 8,900 | | 9,200 | | 11,400 | | 11,900 | | 1,200 | | 1,500 |
Total | | 144,000 | | 146,300 | | 143,200 | | 140,300 | | 22,300 | | 24,600 | | 91,200 | | 88,600 | | 104,000 | | 96,200 | | 21,500 | | 18,900 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended | | As of | | As of | | Six Months Ended | | Six Months Ended | | As of | | As of | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 1,274,900 | | 1,355,800 | | 1,531,400 | | 1,518,700 | | 394,700 | | 475,600 | | 826,800 | | 859,800 | | 880,200 | | 938,000 | | 418,200 | | 451,200 |
Rainy River | | 138,300 | | 133,500 | | 112,600 | | 108,300 | | 41,300 | | 36,500 | ||||||||||||
Other | | 118,000 | | 75,100 | | 97,500 | | 85,600 | | 66,300 | | 23,400 | ||||||||||||
Total | | 1,413,200 | | 1,489,300 | | 1,644,000 | | 1,627,000 | | 436,000 | | 512,100 | | 944,800 | | 934,900 | | 977,700 | | 1,023,600 | | 484,500 | | 474,600 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended | | As of | | As of | | Six Months Ended | | Six Months Ended | | As of | | As of | ||||||||
| | March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | 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 | | 10.2 | | 11.0 | | 6.6 | | 5.8 | | — | | 0.8 | | 8.3 | | 8.2 | | 6.8 | | 6.7 | | 1.0 | | 0.8 |
Cost of sales, which excludes depreciation, depletion and amortization, increased to $63.2$46.8 million for the ninesix months ended MarchDecember 31, 2020, from $53.8$41.2 million for the ninesix months ended MarchDecember 31, 2019. The increase was primarily due to increasedan increase in the gold, silver and copper sales from Mount Milligan, higher gold sales from Pueblo Viejo,prices and an increase in gold and silver prices overcopper sales at Mount Milligan when compared to the prior year quarter.period. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’sour 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 $130.0$94.2 million for the ninesix months ended MarchDecember 31, 2020, from $120.7$78.8 million for the ninesix months ended MarchDecember 31, 2019. The increase was primarily attributabledue to higher gold and copper sales and depletion rates at Mount Milligan and an increase in gold sales and depletion rates at Pueblo Viejo. ThisMount Milligan, as previously discussed in our Fiscal 2020 10-K. The increase was partially offset by lower depletion at Wassa due to a decrease in gold sales overat 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 $7.1$3.5 million for the ninesix months ended MarchDecember 31, 2020, from $22.8$5.1 million for the ninesix months ended MarchDecember 31, 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.
During28
For the ninesix months ended MarchDecember 31, 2020, we recognized anrecorded income tax benefitexpense totaling $3.7$13.7 million, compared with an income tax expensebenefit of $11.4$12.4 million duringfor the ninesix months ended MarchDecember 31, 2019. ThisThe income tax expense resulted in an effective tax rate of (2.6%)7.6% in the current period, compared with 15.1% during(12.8%) for the ninesix months ended MarchDecember 31, 2019. The decrease in thesix months ended December 31, 2020 effective tax rate forincluded income tax benefits of $24.5 million resulting primarily from the nine months ended March 31, 2020 was primarily relatedrelease of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change to the remeasurementrealizability of certain deferred tax assets, and a net step-up inboth of which were recorded during the basisthree months ended September 30, 2020. For the six months ended December 31, 2019, the effective tax rate included an income tax benefit of tax assets due$32.3 million primarily related to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform) during the September 2019 quarter. The effective tax rate for the nine months ended March 31, 2019 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..
32
Liquidity and Capital Resources
Overview
At MarchDecember 31, 2020, we had current assets of $150.6$450.5 million compared to current liabilities of $49.8$57.2 million, resultingwhich resulted in working capital of $100.8$393.3 million and a current ratio of approximately 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.
During the ninesix months ended MarchDecember 31, 2020, liquidity needs were met from $249.2$194.1 million in net cash provided by operating activities and our available cash resources. During the nine months ended MarchAs of December 31, 2020, the Company repaid $115we had $800 million of the outstanding borrowings under the revolving credit facility. As of March 31, 2020, the Company had $105available and $200 million outstanding and $895 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 MarchDecember 31, 2020. The Company wasWe were in compliance with each financial covenant under the revolving credit facility as of MarchDecember 31, 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.
Recent Liquidity and Capital Resource Developments
Revolving Credit Facility Drawdown
On April 3, 2020, the Company drew an additional $200 million on its revolving credit facility at an interest rate of LIBOR plus 1.10% for an all-in rate of 2.54%, resulting in a total of $305 million outstanding and $695 million available. There is no immediate requirement for the additional funds. However, due to the uncertain environment caused by the COVID-19 pandemic and the impact on certain operations where we hold a stream or royalty interest, we believe the drawdown was a prudent precautionary measure to help ensure cash is readily available to support continued business activities.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $249.2$194.1 million for the ninesix months ended MarchDecember 31, 2020, compared to $180.9$149.5 million for the ninesix months ended MarchDecember 31, 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 $51.7 million and lower$49.9 million. The increase was partially offset by an increase in income taxes paid of $6.0 million over the prior period.$10.3 million.
Investing Activities
Net cash used inprovided by investing activities totaled $105.1$12.1 million for the ninesix months ended MarchDecember 31, 2020, compared to net cash used in investing activities of $4.8$68.1 million for the ninesix months ended MarchDecember 31, 2019. The increase in cash used in investing activities iswas primarily due to an$49.2 million received for the sale of our Peak Gold JV investment and $12.1 million for the sale of our Contango shares. This increase in the acquisition of stream and royalty interests. The Company has madewas partially offset by advance payments totaling $87.8$43.6 million for the Khoemacau silver stream acquisition during the nine months ended March 31, 2020.
current period.
3329
Financing Activities
Net cash used in financing activities totaled $169.9$143.4 million for the ninesix months ended MarchDecember 31, 2020, compared to $48.9$120.4 million for the ninesix months ended March December��31, 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 $115.0$105.0 million on our revolving credit facility during the ninesix months ended MarchDecember 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.
Forward-Looking Statements
This report and our other public communications include “forward-looking statements” within the meaning of U.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from these statements.
Forward-looking statements are often identified by words like “will,” “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” or negatives of these words or 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 financial 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 COVID-19; prices for gold, silver, copper, nickel and other metals; potential impairments; or tax changes.
Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the following: a low-pricelower-price environment for gold, silver, copper, nickel or other metals; operating activities or financial performance of 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;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 other factors described elsewhere in this report and our other SEC reports, includingItem 1A. Risk Factors of our Fiscal 2019 10-K and subsequent Quarterly Reports on Form 10-Q.2020 10-K. Most of these factors are beyond our ability to predict or control.
Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any
forward-looking statements, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
30
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 ninesix months ended MarchDecember 31, 2020, we reported revenue of $378.9$305.2 million, with an average gold price for the period of $1,512$1,892 per ounce, an average silver price of $17.07$24.32 per ounce, and an average copper price of $2.62$3.10 per pound. Approximately 77% of our total reported revenues forThe table below shows the nine months ended March 31, 2020 were attributable to gold sales from our gold producing stream and royalty interests, as shown within the MD&A. For the nine months ended March 31, 2020, if the price of gold had averagedimpact that a 10% higher or lower per ounce, we would have recorded an increase or decrease in revenuethe average price of approximately $31.2 million.
34
Approximately 10% ofthe specified metal would have had on our total reported revenuesrevenue for the ninesix months ended MarchDecember 31, 2020 were attributable to copper sales from our copper producing stream and royalty interests. For the nine months ended March 31, 2020, 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 $4.2 million.2020:
| | |
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 nine months ended March 31, 2020 were attributable to silver sales from our silver producing stream and royalty interests. For the nine months ended March 31, 2020, 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 $3.5 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31, 2020,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 March 31, 2020, 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 March 31, 2020 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.None.
31
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” and various risks faced by us are also discussed 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.
The following risk factors supplement, and should be read in conjunction with,There have been no material changes to the risk factors describedincluded in Part I, Item 1Athe section entitled “Risk Factors” of our Fiscal 20192020 10-K.
35
The current COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, operations at some properties in which we have stream or royalty interests, which could have a material adverse effect on our results of operations and financial condition.
The world is currently experiencing a deadly outbreak of the coronavirus disease 2019, or COVID-19. Public health and government authorities have recommended and mandated precautions to mitigate the spread of the COVID-19, including in some cases quarantines, shelter-in-place orders, and restrictions on mining-related activities. As a result, several of our operating counterparties have announced temporary operational curtailments. There may be additional curtailments, and any curtailment could be extended. The COVID-19 pandemic could also disrupt operators’ supply or distribution chains or access to workers, which in turn could adversely impact their production or sales. In addition, development and exploration activities at some properties may be delayed or suspended. Any of these events could have a material adverse impact on our results of operations and financial condition in future periods. We are currently unable to predict the nature or extent of any impact the COVID-19 pandemic may have on our results of operations and financial condition.
The current COVID-19 pandemic is significantly impacting the global economy and markets, which may adversely affect our business or the trading price of our stock.
The global economy, metal prices, and financial markets are experiencing significant volatility and uncertainty due to COVID-19. Our revenue is directly related to the market price of gold and other metals. Metal price volatility could cause our revenue to fluctuate from period to period. This price volatility could also cause operators or developers to defer or forgo projects, which could adversely impact our future revenue. Moreover, in the ordinary course of business, we are reviewing opportunities to acquire new stream and royalty interests and we have acquisition opportunities at various stages of review. Reduced economic and travel activities or illness among our management team as a result of COVID-19 could limit or delay acquisition opportunities or other business activities. In addition, economic volatility, disruptions in the financial markets, or severe price declines for gold or other metals could adversely affect our ability to obtain future debt or equity financing for acquisitions on acceptable terms. Government efforts to counter the economic effects of COVID-19 through liquidity and stimulus programs may be insufficient or ineffective in preventing or reducing the effects of a recession. It is difficult to determine the extent of the economic and market impacts from COVID-19 and the many ways in which they may negatively affect our business and the trading price of our stock.
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.
3632
ITEM 6. EXHIBITS
Exhibit |
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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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37
* | Filed herewith. |
‡ | Furnished herewith. |
▲Identifies each management contract or compensation plan or arrangement.
3833
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ROYAL GOLD, INC. | |
| | |
Date: | | |
| By: | /s/ William Heissenbuttel |
| | William Heissenbuttel |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: | By: | /s/ Paul Libner |
| | Paul Libner |
| | Chief Financial Officer and Treasurer |
| | (Principal Financial and Accounting Officer) |
3934