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RGLD Royal Gold

Filed: 3 Feb 21, 7:00pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 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

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 65,606,496 shares of the Company’s common stock, par value $0.01 per share, outstanding as of 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

    

    

PAGE

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets

3

Consolidated Statements of Operations and Comprehensive Income

4

Consolidated Statements of Changes in Stockholders’ Equity

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosure

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

SIGNATURES

34

2

ITEM 1.     FINANCIAL STATEMENTS

ROYAL GOLD, INC.

Consolidated Balance Sheets

(Unaudited, amounts in thousands except share data)

    

December 31, 

    

June 30, 

    

2020

2020

ASSETS

Cash and equivalents

$

381,859

$

319,128

Royalty receivables

44,316

27,689

Income tax receivable

8,939

2,435

Stream inventory

13,900

11,671

Prepaid expenses and other

1,477

1,227

Total current assets

450,491

362,150

Stream and royalty interests, net (Note 3)

2,231,980

2,318,913

Other assets

81,263

85,224

Total assets

$

2,763,734

$

2,766,287

LIABILITIES

Accounts payable

$

2,587

$

2,484

Dividends payable

19,680

18,364

Income tax payable

23,318

13,323

Other current liabilities

11,569

9,384

Total current liabilities

57,154

43,555

Debt (Note 5)

195,983

300,439

Deferred tax liabilities

85,017

86,439

Uncertain tax positions

13,267

25,427

Other liabilities

7,634

8,308

Total liabilities

359,055

464,168

Commitments and contingencies (Note 13)

EQUITY

Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued

Common stock, $.01 par value, 200,000,000 shares authorized; and 65,548,415 and 65,531,288 shares outstanding, respectively

656

655

Additional paid-in capital

2,201,076

2,210,429

Accumulated earnings

189,910

61,133

Total Royal Gold stockholders’ equity

2,391,642

2,272,217

Non-controlling interests

13,037

29,902

Total equity

2,404,679

2,302,119

Total liabilities and equity

$

2,763,734

$

2,766,287

The accompanying notes are an integral part of these consolidated financial statements.

3

ROYAL GOLD, INC.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, amounts in thousands except share data)

Three Months Ended

Six Months Ended

December 31, 

December 31, 

December 31, 

December 31, 

    

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

Additional

Common Shares

Paid-In

Accumulated

Non-controlling

Total

Shares

Amount

Capital

(Losses) Earnings

Interests

Equity

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

 

17,127

 

1

 

 

1,476

 

 

 

1,477

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

 

 

 

 

 

(38,051)

 

 

(38,051)

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 June 30, 2019

 

65,440,492

$

655

 

$

2,201,773

$

(65,747)

$

33,772

$

2,170,453

Stock-based compensation and related share issuances

 

55,512

 

 

 

891

 

 

 

891

Distributions from (to) non-controlling interests

 

 

 

2,700

 

 

(379)

 

2,321

Net income (loss) and comprehensive income (loss)

 

 

 

 

 

111,774

 

(2,488)

 

109,286

Dividends declared

 

 

 

 

 

(35,737)

 

 

(35,737)

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)

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

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.    OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS

Royal Gold is engaged in the business of acquiring and managing precious metals 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. 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. Royalties are non-operating interests in a mining project that provide the right to revenue or metals produced from the project after deducting contractually specified costs, if any.  

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. These interim unaudited financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the Securities and Exchange Commission on August 6, 2020 (“Fiscal 2020 10-K”).

Recently Adopted Accounting Standards

Current Expected Credit Loss

In June 2016, the Financial 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 records credit losses from an “incurred loss” approach to an “expected loss” approach. This update was effective for annual periods beginning after December 15, 2019 and interim financial statement periods within those years, with early adoption permitted. On July 1, 2020, we adopted the new guidance and, based on our assessment, the adoption of the new guidance did not have any impact on our consolidated financial statements.

2.    SALE OF PEAK GOLD JV INTEREST

On September 30, 2020, we entered into an agreement with an affiliate of Kinross 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. (“Contango”), our partner in Peak Gold, LLC, for cash consideration of $12.1 million.

In addition to the total cash consideration of $61.3 million, we received the following royalty 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 royalties were recorded as exploration stage royalty interests in Stream and royalty interests, net in our consolidated balance sheet as of December 31, 2020 and were assigned a combined value of approximately $4.4 million on the date of the transaction. We recorded a gain of $33.9 million on the sale of our 40% membership interest in the Peak Gold Project during the three months ended September 30, 2020. The mark-to-market increase of $3.6 million on the sale of our 809,744 common shares in Contango is included in Fair value changes in equity securities on our consolidated statements of operations and comprehensive income and was recognized during the three months ended September 30, 2020.

7

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

3.    STREAM AND ROYALTY INTERESTS, NET

The following tables summarize our stream and royalty interests, net as of December 31, 2020 and June 30, 2020.

As of December 31, 2020 (Amounts in thousands):

    

Cost

    

Accumulated Depletion

    

Net

Production stage stream interests:

Mount Milligan

$

790,635

$

(270,370)

$

520,265

Pueblo Viejo

610,405

(226,083)

384,322

Andacollo

388,182

(120,847)

267,335

Rainy River

175,727

(34,820)

140,907

Wassa

146,475

(72,839)

73,636

Total production stage stream interests

2,111,424

(724,959)

1,386,465

Production stage royalty interests:

Voisey's Bay

205,724

(104,850)

100,874

Peñasquito

99,172

(47,263)

51,909

Cortez

80,681

(16,418)

64,263

Other

521,289

(433,800)

87,489

Total production stage royalty interests

906,866

(602,331)

304,535

Total production stage stream and royalty interests

3,018,290

(1,327,290)

1,691,000

Development stage stream interests:

Khoemacau

180,220

180,220

Other

12,037

12,037

Development stage royalty interests:

Other

69,780

69,780

Total development stage stream and royalty interests

262,037

262,037

Exploration stage royalty interests:

Pascua-Lama

177,690

177,690

Other

101,253

101,253

Total exploration stage royalty interests

278,943

278,943

Total stream and royalty interests, net

$

3,559,270

$

(1,327,290)

$

2,231,980

8

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

Separation of the Wassa and Prestea/Bogoso Stream Agreement

On October 1, 2020, we announced the separation of the Wassa and Prestea/Bogoso gold stream agreement into separate stream agreements effective September 30, 2020. This separation was completed to facilitate the sale by Golden Star Resources Ltd. (“Golden Star”) of the Prestea/Bogoso mines to Future Global Resources (“FGR”).

The Wassa stream agreement, which remains with Golden Star, continues to provide us the right to purchase 10.5% of the gold produced from the Wassa mine until the delivery of 240,000 ounces, after which the stream percentage will decrease to 5.5%. The cash purchase price for gold remains at 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter. As of December 31, 2020, approximately 110,200 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.

The Prestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.

The material terms of both the Wassa stream agreement and the Prestea/Bogoso stream agreement, including security and the rights and obligations of both Royal Gold and Golden Star, remain substantially consistent with those terms in the original agreement. The Wassa stream is recorded as a production stage stream interest within Stream and royalty interests, net on our consolidated balance sheets and has a carrying value of $73.6 million as of December 31, 2020.

9

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

COVID-19 and current economic environment

Throughout 2020 and into 2021, several of our operating counterparties have instituted temporary operational curtailments due to the ongoing COVID-19 pandemic. In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance. For the most part, our results of operations and financial condition have not been materially impacted by these measures to date. However, the effects of the pandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19. As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition. We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis.

4.  MARKETABLE EQUITY SECURITIES

As of December 31, 2020, our marketable equity securities include 3,949,575 common shares of Battle North Gold Corporation, and warrants to purchase up to 19,640,000 common shares of TriStar Gold Inc. Our marketable equity securities are measured at fair value (Note 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 $0.4 million and increased $2.2 million for the three and six months ended December 31, 2020, respectively, and are included in Fair value changes in equity securities on our consolidated statements of operations and comprehensive income. The carrying value of our marketable equity securities as of December 31, 2020 and June 30, 2020 was $7.9 million and $17.9 million, respectively, and is included in Other assets on our consolidated balance sheets.

5.    DEBT

Our debt as of December 31, 2020 and June 30, 2020 consists of the following:

As of December 31, 2020

As of June 30, 2020

   

Principal

   

Debt Issuance Costs

   

Total

   

Principal

   

Debt Issuance Costs

   

Total

(Amounts in thousands)

(Amounts in thousands)

Revolving credit facility

$

200,000

$

(4,017)

$

195,983

$

305,000

$

(4,561)

$

300,439

Total debt

$

200,000

$

(4,017)

$

195,983

$

305,000

$

(4,561)

$

300,439

Revolving credit facility

As of December 31, 2020, we had $200 million outstanding and $800 million available under our revolving credit facility. The interest rate on borrowings under our revolving credit facility as of December 31, 2020 was LIBOR plus 1.10% for an all-in rate of 1.33%. Interest expense, which includes interest on outstanding borrowings and amortization of debt issuance costs, was $1.0 million and $2.2 million for the three and six months ended December 31, 2020, respectively, and $1.6 million and $3.8 million for the three and six months ended December 31, 2019, respectively. As discussed in Note 6 to the consolidated financial statements in our Fiscal 2020 10-K, we have financial covenants associated with our revolving credit facility. As of December 31, 2020, we were in compliance with each financial covenant.

On January 4, 2021, we repaid $50 million of the outstanding borrowings under our revolving credit facility. This increased the amount available under our revolving credit facility to $850 million and decreased the amount outstanding to $150 million.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Royal Gold may repay any borrowings under our revolving credit facility at any time without premium or penalty. Our revolving credit facility matures on June 3, 2024.

6.    LEASES

Our significant lease arrangements relate to our office spaces. These arrangements are for leases of assets such as corporate office space and office equipment. We lease office space and office equipment under operating leases expiring at various dates through the fiscal year ending June 30, 2030. The following amounts were recorded in the consolidated balance sheets at December 31, 2020 (amounts in thousands):

Classification

December 31, 2020

Operating Leases

Right-of-use assets - current

    

Prepaid expenses and other

    

$

806

Right-of-use assets - non-current

Other assets

6,404

Total right-of-use assets

$

7,210

Lease liabilities - current

Other current liabilities

$

951

Lease liabilities - non-current

Other long-term liabilities

7,634

Total operating lease liabilities

$

8,585

Maturities of operating lease liabilities at December 31, 2020 were as follows (amounts in thousands):

Fiscal Years:

Operating Leases

2021

$

574

2022

1,145

2023

1,121

2024

1,121

2025

1,082

Thereafter

4,524

Total lease payments

$

9,567

Less imputed interest

(982)

Total

$

8,585

Other information pertaining to leases consist of the following:

December 31, 2020

Operating Lease Term and Discount Rate

Weighted average remaining lease term in years

9

Weighted average discount rate

2.5%

We did not have any finance leases as of December 31, 2020.

7.    REVENUE

Revenue Recognition

Under 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.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Stream Interests

A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more of the metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Gold, silver and copper received under our metal streaming agreements are taken into inventory, and then sold primarily using average spot rate gold, silver and copper forward contracts. The sales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between ten days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time) commencing shortly after receipt and purchase of the metal. We settle our forward sales contracts via physical delivery of the metal to the purchaser (our customer) on the settlement date specified in the contract. Under our forward sales contracts, there is a single performance obligation to sell a contractually specified volume of metal to the purchaser, and we satisfy this obligation at the point in time of physical delivery. Accordingly, revenue from our metal sales is recognized on the date of settlement, which is the date that control, custody and title to the metal transfer to the purchaser.

Royalty Interests

Royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. We are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price (for example, a monthly or quarterly average spot price) for the period in which metal production occurs. As a royalty holder, we act as a passive entity in the production and operations of the mining project, and the third-party operator of the mining project is responsible for all mining activities, including subsequent marketing and delivery of all metal production to their ultimate customer. In all of our material royalty interest arrangements, we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs, and thus, the operator is our customer. We have further determined that the transfer of each unit of metal production comprising our royalty interest to the operator represents a separate performance obligation under the contract, and each performance obligation is satisfied at the point in time of metal production by the operator.  Accordingly, we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement, net of any contractually allowable offsite treatment, refining, transportation and, if applicable, mining costs.

Royalty Revenue Estimates

For a small number of our royalty interests, we may not receive, or be entitled to receive, payment information, including production information from the operator, for the period in which metal production occurred prior to issuance of our financial statements for that period. As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator. If adequate information is not available from the operator or from other public sources before we issue our financial statements, we will recognize royalty revenue during the period in which the necessary payment information is received. Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known. Please also refer to our “Use of Estimates” accounting policy discussed in our Fiscal 2020 10-K. For the three and six months ended December 31, 2020, royalty revenue that was estimated or was attributable to metal production for a period prior to December 31, 2020, was not material.  

Disaggregation of Revenue

We have identified 2 material revenue sources in our business: stream interests and royalty interests. These identified revenue sources are consistent with our reportable segments as discussed in Note 11.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Revenue by metal type attributable to each of our revenue sources is disaggregated as follows (amounts in thousands):

Three Months Ended

Six Months Ended

December 31, 

    

December 31, 

    

December 31, 

    

December 31, 

2020

2019

2020

2019

Stream revenue:

    Gold

$

83,685

$

69,111

$

167,282

$

141,335

    Silver

11,128

8,929

22,026

17,365

    Copper

12,906

11,585

24,914

17,906

         Total stream revenue

$

107,719

$

89,625

$

214,222

$

176,606

Royalty revenue:

    Gold

$

36,471

$

22,068

$

63,375

$

43,825

    Silver

4,193

3,365

7,634

5,194

    Copper

4,395

4,107

8,456

7,087

    Other

5,582

4,478

11,553

9,705

         Total royalty revenue

$

50,641

$

34,018

$

91,018

$

65,811

Total revenue

$

158,360

$

123,643

$

305,240

$

242,417

Revenue attributable to our principal stream and royalty interests is disaggregated as follows (amounts in thousands):

Three Months Ended

Six Months Ended

December 31, 

    

December 31, 

    

December 31, 

    

December 31, 

Metal(s)

2020

2019

2020

2019

Stream revenue:

    Mount Milligan

Gold & Copper

$

44,713

$

30,629

$

79,332

$

61,126

    Pueblo Viejo

Gold & Silver

27,554

23,614

58,824

45,232

    Andacollo

Gold

17,766

20,665

41,275

41,269

    Wassa

Gold

6,761

4,794

15,870

10,113

    Other

Gold & Silver

10,925

9,923

18,921

18,866

         Total stream revenue

$

107,719

$

89,625

$

214,222

$

176,606

Royalty revenue:

    Peñasquito

Gold, Silver, Lead & Zinc

$

12,952

$

7,577

$

23,161

$

11,997

    Cortez

Gold

8,128

3,292

13,812

7,709

    Other

Various

29,561

23,149

54,045

46,105

         Total royalty revenue

$

50,641

$

34,018

$

91,018

$

65,811

Total revenue

$

158,360

$

123,643

$

305,240

$

242,417

Please refer to Note 11 for the geographical distribution of our revenue by reportable segment.

8.    STOCK-BASED COMPENSATION

We recognized stock-based compensation expense as follows:

Three Months Ended

Six Months Ended

December 31, 

December 31, 

December 31, 

December 31, 

    

2020

    

2019

    

2020

    

2019

(Amounts in thousands)

(Amounts in thousands)

Stock options

$

17

$

26

$

33

$

57

Stock appreciation rights

430

430

801

872

Restricted stock

588

697

1,585

1,940

Performance stock

363

385

473

770

Total stock-based compensation expense

$

1,398

$

1,538

$

2,892

$

3,639

Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

During the six months ended December 31, 2020 and 2019, we granted the following stock-based compensation awards (note that 0 awards were granted during the three months ended December 31, 2020 and 2019):

Six Months Ended

December 31, 

December 31, 

    

2020

    

2019

(Number of shares)

Stock options

2,860

1,604

Stock appreciation rights

64,100

46,726

Restricted stock

26,104

23,976

Performance stock (at maximum 200% attainment)

35,380

28,560

Total equity awards granted

128,444

100,866

As of December 31, 2020, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:

    

Unrecognized

    

Weighted-

compensation

average vesting

expense

    

period (years)

Stock options

$

123

2.3

Stock appreciation rights

3,172

2.2

Restricted stock

4,993

3.5

Performance stock

2,367

1.9

9.    EARNINGS PER SHARE (“EPS”)

Basic EPS were computed using the weighted average number of shares of common stock outstanding during the period, considering the effect of participating securities. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method. Our unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. Our unexercised stock option awards, unexercised stock-settled stock appreciation rights and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic EPS are reduced by an amount allocated to participating securities. Use of the two-class method has an immaterial impact on the calculation of basic and diluted EPS.

The following tables summarize the effects of dilutive securities on diluted EPS for the period (amounts in thousands, except share data):

Three Months Ended

Six Months Ended

December 31, 

December 31, 

December 31, 

December 31, 

    

2020

    

2019

    

2020

    

2019

Net income attributable to Royal Gold common stockholders

$

59,889

$

41,321

$

166,828

$

111,774

Weighted-average shares for basic EPS

65,546,938

65,495,907

65,542,326

65,480,759

Effect of other dilutive securities

72,303

115,660

83,639

132,647

Weighted-average shares for diluted EPS

65,619,241

65,611,567

65,625,965

65,613,406

Basic EPS

$

0.91

$

0.63

$

2.55

$

1.70

Diluted EPS

$

0.91

$

0.63

$

2.54

$

1.70

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 valuation allowance related to deferred 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 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).

11.    SEGMENT INFORMATION

We 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 shown in the following table (amounts in thousands):

As of December 31, 2020

As of June 30, 2020

Total stream

Total stream

Stream

Royalty

and royalty

Stream

Royalty

and royalty

  

interest

  

interest

  

interests, net

  

interest

  

interest

  

interests, net

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

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Our reportable segments for purposes of assessing performance are shown below (amounts in thousands):

Three Months Ended December 31, 2020

    

Revenue

    

Cost of sales (1)

    

Production taxes

    

Depletion (2)

    

Segment gross profit

Stream interests

$

107,719

$

24,859

$

$

40,226

$

42,634

Royalty interests

50,641

1,401

7,635

41,605

Total

$

158,360

$

24,859

$

1,401

$

47,861

$

84,239

Three Months Ended December 31, 2019

    

Revenue

    

Cost of sales (1)

    

Production taxes

    

Depletion (2)

    

Segment gross profit

Stream interests

$

89,625

$

21,077

$

$

32,181

$

36,367

Royalty interests

34,018

984

7,801

25,233

Total

$

123,643

$

21,077

$

984

$

39,982

$

61,600

Six Months Ended December 31, 2020

    

Revenue

    

Cost of sales (1)

    

Production taxes

    

Depletion (2)

    

Segment gross profit

Stream interests

$

214,222

$

46,760

$

$

79,253

$

88,209

Royalty interests

91,018

2,756

14,822

73,440

Total

$

305,240

$

46,760

$

2,756

$

94,075

$

161,649

Six Months Ended December 31, 2019

    

Revenue

    

Cost of sales (1)

    

Production taxes

    

Depletion (2)

    

Segment gross profit

Stream interests

$

176,606

$

41,188

$

$

63,643

$

71,775

Royalty interests

65,811

2,083

15,000

48,728

Total

$

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

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Our revenue by reportable segment for the three and six months ended December 31, 2020 and 2019 is geographically distributed as shown in the following table (amounts in thousands):

Three Months Ended

Six Months Ended

December 31, 

December 31, 

December 31, 

December 31, 

    

2020

    

2019

   

2020

   

2019

Stream interests:

Canada

$

54,302

$

38,191

$

95,888

$

75,854

Dominican Republic

27,554

23,614

58,824

45,232

Chile

17,766

20,665

41,275

41,269

Africa

8,097

7,155

18,235

14,251

Total stream interests

$

107,719

$

89,625

$

214,222

$

176,606

Royalty interests:

United States

$

17,090

$

10,012

$

30,788

$

20,614

Mexico

15,174

9,376

26,751

15,763

Australia

8,314

3,546

12,856

7,348

Canada

6,047

8,037

13,458

16,958

Africa

744

911

1,494

1,606

Rest of world

3,272

2,136

5,671

3,522

Total royalty interests

$

50,641

$

34,018

$

91,018

$

65,811

Total revenue

$

158,360

$

123,643

$

305,240

$

242,417

12.  FAIR VALUE MEASUREMENTS

Fair value 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, which prioritizes the inputs used in measuring fair value 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).

The following table sets forth our financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.

As of December 31, 2020

Fair Value

    

Carrying Amount

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets (amounts in thousands):

Marketable equity securities(1)

$

7,874

$

7,874

$

6,447

$

1,427

$

(1) Included in Other assets on our consolidated balance sheets.

Our 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. 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 model-derived (Black-Scholes) valuations in which the significant inputs are observable in active markets.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

As of December 31, 2020, we had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with stream and royalty interests, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if any of these assets are determined to be impaired. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.  

13.  COMMITMENTS AND CONTINGENCIES

Khoemacau Silver Stream Acquisition

Pursuant to our Khoemacau silver stream transaction closed in February 2019, we made the 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 $212 million which completes the advance payments for the Base Silver Stream. We are further committed to up to $53.0 million in additional contributions should Khoemacau Copper Mining (Pty.) Limited elect to fully exercise the Option Silver Stream. Any further payments under the Option Silver Stream are subject to certain conditions and are scheduled to be made using an agreed formula and certification process as project spending progresses. Refer to our Fiscal 2020 10-K for further details on the Khoemacau silver stream acquisition.

Ilovica Gold Stream Acquisition

As of December 31, 2020, our conditional funding schedule of $163.75 million, as part of the Ilovica gold stream acquisition in October 2014, remains subject to certain conditions.

18

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.  You 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, 2020, filed with the Securities and Exchange Commission (the “SEC”) on August 6, 2020 (“Fiscal 2020 10-K”).

This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.

We do not own, develop, or mine the properties on which we hold stream or royalty interests. Certain information provided in this Quarterly Report on Form 10-Q about operating properties in which we hold interests, including information about reserves, historical production, production estimates, property descriptions, and property developments, was provided to us by the operators of those properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC. We have not verified, and are not in a position to verify, and expressly disclaim any responsibility for the accuracy, completeness, or fairness of, this third-party information and refer the reader to the public reports filed by the operators for information regarding those properties.

We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 2020 10-K.

Overview of Our Business

We acquire and manage precious metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or finance projects that are in production or in the development stage in exchange for stream or royalty interests.

We manage our business under two segments:

Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. As of December 31, 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.

 

We do not conduct mining operations on the properties in which we hold stream and royalty interests, and we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.

19

We are continually reviewing opportunities to grow our portfolio, whether through the creation or acquisition of new or existing stream or royalty interests or other acquisition activity. We generally have acquisition opportunities in various stages of review. Our review process may include, for example, engaging consultants and advisors to analyze an opportunity; analysis of technical, financial, legal, and other confidential information of an opportunity; submission of indications of interest and term sheets; participation in preliminary discussions and negotiations; 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, silver, copper, and other metals. Metal prices have fluctuated widely in recent years and we expect this volatility to continue. The marketability and the price of metals are influenced by numerous factors beyond our control, and significant changes in metal prices can have a material effect on our revenue.

For the three and six months ended December 31, 2020 and 2019, average metal prices and percentages of revenue by metal were as follows:

Three Months Ended

Six Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

Metal

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

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 the Current Economic Environment

Throughout 2020 and into 2021, several of our operating counterparties have instituted temporary operational curtailments due to the ongoing COVID-19 pandemic. In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance. For the most part, our results of operations and financial condition have not been materially impacted by these measures to date. However, the effects of the pandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19. As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition. We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis.

Sale of Peak Gold JV Interest

On September 30, 2020, we announced an agreement with Kinross 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 sale of these interests included cash of $61.3 million, an incremental 28% net smelter return royalty on silver produced from an area of interest 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 acquire 50% of the incremental 28% net smelter return royalty on silver for $4 million.

After this transaction, our interests in the Peak Gold Project and State of Alaska mining claim property owned by Contango consist solely of net smelter return royalties. Refer to Note 2 of our notes to consolidated financial statements for further discussion on the sale of the Peak Gold JV interest.

Separation of the Wassa and Prestea/Bogoso Stream Agreement

On October 1, 2020, we announced the separation of the Wassa and Prestea/Bogoso gold stream agreement into separate stream agreements effective September 30, 2020. This separation was completed to facilitate the sale by Golden Star Resources Ltd. (“Golden Star”) of the Prestea/Bogoso mines to Future Global Resources (“FGR”).

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The Wassa stream agreement, which remains with Golden Star, continues to provide us the right to purchase 10.5% of the gold produced from the Wassa mine until the delivery of 240,000 ounces, after which the stream percentage will decrease to 5.5%. The cash purchase price for gold remains at 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter. As of December 31, 2020, approximately 110,200 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.

The Prestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.

Operators’ Production Estimates by Stream and Royalty Interest for Calendar 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 its original calendar year guidance throughout the year. The following table shows current production estimates for calendar 2020, as well as actual production through December 31, 2020, for our principal properties as reported to us by the 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

Estimate(1)

Actual(2)

Gold

Silver

Base Metals

Gold

Silver

Base Metals

Stream/Royalty

    

(oz.)

  

(oz.)

  

(lbs.)

  

(oz.)

  

(oz.)

  

(lbs.)

Stream:

Andacollo(3)

  

53,000

  

  

  

49,200

  

  

Mount Milligan(4)

 

140,000 - 160,000

 

 

 

161,900

 

 

Copper

 

 

80 - 90 Million

 

 

 

82.8 Million

Pueblo Viejo(5)

530,000 - 580,000

N/A

542,000

N/A

Wassa(6)

165,000 - 170,000

168,000

Royalty:

 

 

 

 

 

 

Cortez GSR1

 

66,900

 

 

 

101,700

 

 

Cortez GSR2

 

109,600

 

 

 

103,900

 

 

Cortez GSR3

 

146,300

 

 

 

161,100

 

 

Cortez NVR1

 

113,500

 

 

 

121,600

 

 

Cortez NVR1C

30,100

44,500

Peñasquito(7)

 

510,000

28 million

 

343,000

20.4 Million

 

Lead

 

  

 

  

 

190 million

 

130 Million

Zinc

 

  

 

  

 

360 million

 

281 Million

(1)Production estimates received from our operators are for calendar 2020, unless otherwise noted in footnotes to this table. There can be no assurance that production estimates received from the operators will be achieved.

(2)Actual production figures are provided by our operators and cover the period from January 1, 2020, through December 31, 2020, unless otherwise noted in footnotes to this table.

(3)The estimated and actual production figures shown for Andacollo are contained gold in concentrate.

(4)The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate.

(5)The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo. The operator did not provide estimated or actual silver production.

(6)The estimated and actual production figures shown for Wassa are payable gold in doré.  

(7)The estimated and actual gold and silver production figures shown for Peñasquito are payable gold and silver in concentrate and doré. The estimated and actual lead and zinc production figures shown are payable lead and zinc in concentrate. The estimated production figures shown are for the period January 1, 2020 through December 31, 2020, while actual production figures shown are for the period January1, 2020 through September 30, 2020, per the operator. Full calendar year 2020 information was not available from the operator as of the date of this report.

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Property Developments

This section provides recent updates for our principal properties as reported by the operators, either directly to us or in their publicly available documents.

Stream Interests

Andacollo

Gold stream deliveries from Andacollo were approximately 10,700 ounces for the three months ended December 31, 2020, compared to approximately 18,600 ounces for the three months ended December 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.

Teck expects grades to continue to decline towards reserve grades. The current life of mine for Andacollo is expected to continue until calendar year 2035. According to Teck, additional permits or permit amendments will be required to execute the life of mine plan.

Khoemacau

According to Khoemacau Copper Mining (Pty.) Limited (“KCM”), progress continued at the Khoemacau Project (“Khoemacau”) during the three months ended December 31, 2020, and the project reached approximately 85% of construction completion as of December 31, 2020. According to KCM, activities are focused on refurbishment and upgrading of the Boseto mill, underground development, completion of accommodation, power and water infrastructure at Zone 5 and completion of haul road surfacing between Zone 5 and the Boseto mill. Also, according to KCM, underground development had cumulatively advanced 8,311 meters in the three mines and approximately 70,000 tonnes of ore were stockpiled on surface at the end of December 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 January 6, 2021, Royal Gold made the sixth advance payment of $32.6 million, which brings the total contribution to $212 million and completes the advance payment required to earn the full base silver stream. For any remaining funding required to complete construction, KCM may elect under the stream agreement to draw up to $53 million in additional stream financing, earning Royal Gold up to an 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 project sponsors. The subordinated debt facility has a term of seven years, carries interest at a rate of LIBOR +11%, and requires mandatory repayment upon certain events.

KCM currently anticipates that up to $50 million of this additional funding is required to complete construction and ramp up of Khoemacau to commercial production, largely a result of previously reported schedule impacts caused by COVID-19 considerations. The added funding mechanisms built into the stream agreement allow KCM to seamlessly access the additional capital required. KCM is currently reviewing its funding options in advance of 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 9,700 ounces for the three months ended December 31, 2020, compared to approximately 18,800 ounces for the three months ended December 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.

On January 14, 2021, Centerra reported that Mount Milligan produced approximately 161,900 ounces of gold during calendar 2020, above previously issued gold production guidance of between 140,000 and 160,000 ounces. Centerra also reported that copper production for calendar year 2020 was 82.8 million pounds, in line with previously issued copper production guidance of between 80 and 90 million pounds.

Pueblo Viejo

Gold stream deliveries from Pueblo Viejo were approximately 10,500 ounces for the three months ended December 31, 2020, compared to approximately 13,200 ounces for the three months ended December 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 418,200 ounces for the three months ended December 31, 2020, compared to approximately 417,800 ounces for the three months ended December 31, 2019.

Barrick reported continued progress at Pueblo Viejo during the quarter to expand 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).

As 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.

Wassa

Gold stream deliveries from Wassa were approximately 4,700 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 December 31, 2020, compared to approximately 28,000 ounces of gold for the three months ended December 31, 2019.

Barrick expects production in calendar year 2021 to increase from calendar year 2020  primarily due to higher contribution from the Crossroads deposit, which is expected to ramp up through calendar year 2023 and offset declining production from the other royalty regions.

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Peñasquito

Production attributable to our royalty interest at Peñasquito for the three months ended December 31, 2020, increased by approximately 120% for gold and 30% for zinc, and decreased approximately 7% for silver and 15% for lead compared to the prior year quarter.

In December 2020, Newmont provided full year 2021 production guidance for Peñasquito of 660,000 ounces of gold, 30 million ounces of silver, 475 million pounds of zinc, and 190 million pounds of lead, compared to calendar 2020 production guidance, as reported by Newmont in July 2020, of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc and 190 million pounds of lead.

Results of Operations

Quarter Ended December 31, 2020, Compared to Quarter Ended December 31, 2019

For the quarter ended December 31, 2020, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $59.9 million, or $0.91 per basic and diluted share, as compared to net income of $41.3 million, or $0.63 per basic and diluted share, for the quarter ended December 31, 2019. The increase in net income was primarily attributable to an increase in revenue, discussed below. These increases were partially offset by an increase in our cost of sales and an increase in depreciation, depletion and amortization expense, each discussed below.

For the quarter ended December 31, 2020, we recognized total revenue of $158.4 million, comprised of stream revenue of $107.7 million and royalty revenue of $50.7 million at an average gold price of $1,874 per ounce, an average silver price of $24.39 per ounce and an average copper price of $3.25 per pound. This is compared to total revenue of $123.6 million for the three months ended December 31, 2019, comprised of stream revenue of $89.6 million and royalty revenue of $34.0 million, at an average gold price of $1,481 per ounce, an average silver price of $17.32 per ounce and an average copper price of $2.67 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended December 31, 2020, compared to the quarter ended December 31, 2019, are as follows:

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Revenue and Reported Production Subject to Our Stream and Royalty Interests

Quarter Ended December 31, 2020 and 2019

(Amounts in thousands, except reported production ozs. and lbs.)

Three Months Ended

Three Months Ended

December 31, 2020

December 31, 2019

Reported

Reported

Stream/Royalty

    

Metal(s)

    

Revenue

    

Production(1)

    

Revenue

    

Production(1)

Stream(2):

Mount Milligan

$

44,713

$

30,629

Gold

16,900

oz.

12,900

oz.

Copper

4.1

Mlbs.

4.3

Mlbs.

Pueblo Viejo

$

27,554

$

23,614

Gold

9,400

oz.

10,500

oz.

Silver

408,600

oz.

462,400

oz.

Andacollo

Gold

$

17,766

9,500

oz.

$

20,665

13,900

oz.

Wassa

Gold

$

6,761

3,600

oz.

$

4,794

3,300

oz.

Other(3)

$

10,925

$

9,923

Gold

5,100

oz.

6,100

oz.

Silver

52,000

oz.

20,500

oz.

Total stream revenue

$

107,719

$

89,625

Royalty(2):

Peñasquito

$

12,952

$

7,577

Gold

210,600

oz.

95,800

oz.

Silver

8.7

Moz.

9.3

Moz.

Lead

52.1

Mlbs.

61.5

Mlbs.

Zinc

93.8

Mlbs.

72.1

Mlbs.

Cortez

Gold

$

8,128

57,600

oz.

$

3,292

28,000

oz.

Other(3)

Various

$

29,561

N/A

$

23,149

N/A

Total royalty revenue

$

50,641

$

34,018

Total Revenue

$

158,360

$

123,643

(1)Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended December 31, 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 three months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.

The increase in our total revenue resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within our royalty segment. Gold and silver ounces and copper pounds

25

purchased and sold during the three months ended December 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2020, and June 30, 2020, for our streaming interests were as follows:

Three Months Ended

Three Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Gold Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Mount Milligan

9,700

16,900

18,800

12,900

3,800

3,300

Pueblo Viejo

10,500

9,400

13,200

10,500

10,500

100

Andacollo

10,700

9,500

18,600

13,900

2,900

11,100

Wassa

4,700

3,600

4,900

3,300

3,100

2,900

Other

4,500

5,100

5,600

6,100

1,200

1,500

Total

40,100

44,500

61,100

46,700

21,500

18,900

Three Months Ended

Three Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Silver Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Pueblo Viejo

418,200

408,600

417,700

462,400

418,200

451,200

Other

65,400

52,000

48,100

51,100

66,300

23,400

Total

483,600

460,600

465,800

513,500

484,500

474,600

Three Months Ended

Three Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Copper Stream

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Inventory (Mlbs.)

    

Inventory (Mlbs.)

Mount Milligan

2.5

4.1

4.4

4.3

1.0

0.8

Cost of sales, which excludes depreciation, depletion and amortization, increased to $24.9 million for the three months ended December 31, 2020, from $21.1 million for the three months ended December 31, 2019. The increase was primarily due to an increase in the gold, silver and copper prices when compared to the prior period. Cost of sales is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.

Exploration costs decreased to zero for the three months ended December 31, 2020, from $1.5 million for the three months ended December 31, 2019. Exploration costs were specific to the exploration and advancement of the Peak Gold 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 $47.9 million for the three months ended December 31, 2020, from $40.1 million for the three months ended December 31, 2019. The increase was primarily due to higher gold sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K. These increases were partially offset by a decrease in gold sales at Andacollo when compared to the prior period.

Interest and other expense decreased to $1.6 million for the three months ended December 31, 2020, from $2.2 million for the three months ended December 31, 2019. The decrease was primarily attributable to lower interest expense as a result of lower interest rates on our outstanding debt when compared to the prior period. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.

For the three months ended December 31, 2020, we recorded income tax expense totaling $16.0 million, compared with income tax expense of $11.1 million for the three months ended December 31, 2019. The income tax expense resulted in an effective tax rate of 21.1% in the current period, compared with 21.6% for the three months ended December 31, 2019.

Six Months ended December 31, 2020, Compared to Six Months Ended December 31, 2019

For the six months ended December 31, 2020, we recorded net income of $166.8 million, or $2.55 per basic share and $2.54 per diluted share, as compared to net income of $111.8 million, or $1.70 per basic and diluted share, for the six months ended December 31, 2019. The increase in our earnings per share was primarily attributable to an increase in revenue, a one-time gain attributable to the sale of our Peak Gold JV interest during the September 2020 quarter and various discrete income tax benefits recognized during the September 2020 quarter. Each item contributing to the increase

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in our earnings per share during the period is discussed below. These increases were partially offset by an increase in our cost of sales and an increase in depreciation, depletion and amortization expense, each discussed below.

For six months ended December 31, 2020, we recognized total revenue of $305.2 million, comprised of stream revenue of $214.2 million and royalty revenue of $91.0 million at an average gold price of $1,892 per ounce, an average silver price of $24.32 per ounce and an average copper price of $3.10 per pound. This is compared to total revenue of $242.4 million for the six months ended December 31, 2019, comprised of stream revenue of $176.6 million and royalty revenue of $65.8 million, at an average gold price of $1,477 per ounce, an average silver price of $17.15 per ounce and an average copper price of $2.65 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, are as follows:

Revenue and Reported Production Subject to Our Stream and Royalty Interests

Six Months Ended December 31, 2020 and 2019

(Amounts in thousands, except reported production ozs. and lbs.)

Six Months Ended

Six Months Ended

December 31, 2020

December 31, 2019

Reported

Reported

Stream/Royalty

    

Metal(s)

    

Revenue

    

Production(1)

    

Revenue

    

Production(1)

Stream(2):

Mount Milligan

$

79,332

$

61,126

Gold

28,800

oz.

29,500

oz.

Copper

8.2

Mlbs.

6.7

Mlbs.

Pueblo Viejo

$

58,824

$

45,232

Gold

20,500

oz.

20,000

oz.

Silver

859,800

Moz.

938,000

oz.

Andacollo

Gold

$

41,275

21,600

oz.

$

41,269

27,900

oz.

Wassa

Gold

$

15,870

8,500

oz.

$

10,113

6,900

oz.

Other(3)

$

18,921

$

18,866

Gold

9,200

oz.

11,900

oz.

Silver

75,100

oz.

85,600

oz.

Total stream revenue

$

214,222

$

176,606

Royalty(2):

Peñasquito

$

23,161

$

11,997

Gold

341,300

oz.

131,300

oz.

Silver

15.1

Moz.

13.9

Moz.

Lead

93.7

Mlbs.

91.2

Mlbs.

Zinc

191.8

Mlbs.

179.2

Mlbs.

Cortez

Gold

$

13,812

95,300

oz.

$

7,709

63,100

oz.

Other(3)

Various

$

54,045

N/A

$

46,105

N/A

Total royalty revenue

$

91,018

$

65,811

Total revenue

$

305,240

$

242,417

(1)Reported production relates to the amount of metal sales subject to our stream and royalty interests for the six months ended December 31, 2020, and 2019, and may differ from the operators’ public reporting.

(2)

Refer to “Property Developments” above for a discussion of recent developments at principal properties.

(3)

Individually, except for Rainy River which contributed 6% of total revenue for the six months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.

The increase in our total revenue for the six months ended December 31, 2020 resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within the royalty segment.

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Gold and silver ounces and copper pounds purchased and sold during the six months ended December 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2020 and June 30, 2020 for our streaming interests were as follows:

Six Months Ended

Six Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Gold Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Mount Milligan

29,300

28,800

32,800

29,500

3,800

3,300

Andacollo

24,400

21,600

28,300

27,900

2,900

100

Pueblo Viejo

19,900

20,500

23,700

20,000

10,500

11,100

Wassa

8,700

8,500

7,800

6,900

3,100

2,900

Other

8,900

9,200

11,400

11,900

1,200

1,500

Total

91,200

88,600

104,000

96,200

21,500

18,900

Six Months Ended

Six Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Silver Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Pueblo Viejo

826,800

859,800

880,200

938,000

418,200

451,200

Other

118,000

75,100

97,500

85,600

66,300

23,400

Total

944,800

934,900

977,700

1,023,600

484,500

474,600

Six Months Ended

Six Months Ended

As of

As of

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Copper Stream

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Inventory (Mlbs.)

    

Inventory (Mlbs.)

Mount Milligan

8.3

8.2

6.8

6.7

1.0

0.8

Cost of sales, which excludes depreciation, depletion and amortization, increased to $46.8 million for the six months ended December 31, 2020, from $41.2 million for the six months ended December 31, 2019. The increase was primarily due to an increase in the gold, silver and copper prices and an increase in copper sales at Mount Milligan when compared to the prior period. Cost of sales is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.

Exploration costs decreased to $0.6 million for the six months ended December 31, 2020, from $4.1 million for the six months ended December 31, 2019. Exploration costs were specific to the exploration and advancement of the Peak Gold JV. On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 2 of our notes to consolidated financial statements.

Depreciation, depletion and amortization increased to $94.2 million for the six months ended December 31, 2020, from $78.8 million for the six months ended December 31, 2019. The increase was primarily due to higher copper sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K. The increase was partially offset by a decrease in gold sales at Andacollo when compared to the prior period.

We recognized an increase in fair value changes in equity securities of $2.2 million for the six months ended December 31, 2020 compared to a decrease of $1.2 million for the six months ended December 31, 2019. The increase was primarily due to a $3.6 million mark-to-market increase on the sale of 809,744 Contango common shares as part of the sale of our interest in the Peak Gold JV during the September 2020 quarter. Refer to Note 4 of our notes to consolidated financial statements for further discussion on our marketable equity securities.

Interest and other expense decreased to $3.5 million for the six months ended December 31, 2020, from $5.1 million for the six months ended December 31, 2019. The decrease was primarily attributable to lower interest expense as a result of lower interest rates on our outstanding debt when compared to the prior period. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.

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For the six months ended December 31, 2020, we recorded income tax expense totaling $13.7 million, compared with an income tax benefit of $12.4 million for the six months ended December 31, 2019. The income tax expense resulted in an effective tax rate of 7.6% in the current period, compared with (12.8%) for the six months ended December 31, 2019. The six months ended December 31, 2020 effective tax rate included income tax benefits of $24.5 million resulting primarily from the release of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change to the realizability of certain deferred tax assets, both of which were recorded during the three months ended September 30, 2020. For the six months ended December 31, 2019, the effective tax rate included an income tax benefit of $32.3 million primarily related to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform).

Liquidity and Capital Resources

Overview

At December 31, 2020, we had current assets of $450.5 million compared to current liabilities of $57.2 million, which resulted in working capital of $393.3 million and a current ratio of 8 to 1. This compares to current assets of $362.2 million and current liabilities of $43.6 million at June 30, 2020, resulting in working capital of $318.6 million and a current ratio of approximately 8 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 six months ended December 31, 2020, liquidity needs were met from $194.1 million in net cash provided by operating activities and our available cash resources. As of December 31, 2020, we had $800 million available and $200 million outstanding under our revolving credit facility. Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $1.2 billion of total liquidity at December 31, 2020. We were in compliance with each financial covenant under the revolving credit facility as of December 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. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. We currently, and generally at any time, have 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 2020 10-K for a discussion of certain risks that may impact our liquidity and capital resources.

Cash Flows

Operating Activities

Net cash provided by operating activities totaled $194.1 million for the six months ended December 31, 2020, compared to $149.5 million for the six months ended December 31, 2019. The increase was primarily due to an increase in proceeds received from our stream and royalty interests, net of cost of sales and production taxes, of approximately $49.9 million. The increase was partially offset by an increase in income taxes paid of $10.3 million.

Investing Activities

Net cash provided by investing activities totaled $12.1 million for the six months ended December 31, 2020, compared to net cash used in investing activities of $68.1 million for the six months ended December 31, 2019. The increase was primarily due to $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 was partially offset by advance payments totaling $43.6 million for the Khoemacau silver stream acquisition during the current period.

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Financing Activities

Net cash used in financing activities totaled $143.4 million for the six months ended December 31, 2020, compared to $120.4 million for the six months ended December��31, 2019. The increase was primarily due to an increase in repayments on our revolving credit facility. We repaid $105.0 million on our revolving credit facility during the six months ended December 31, 2020, compared to $85.0 million during the six months ended December 31, 2019.

Recent Liquidity and Capital Resource Development

Dividend Increase

On November 17, 2020, we announced an increase in our annual dividend for calendar 2021 from $1.12 to $1.20, payable on a quarterly basis of $0.30 per share.  The newly declared dividend is 7% higher than the dividend paid during calendar 2020. We have steadily increased our annual dividend for 20 years, or since calendar 2001.

Recently Adopted Accounting Standards and Critical Accounting Policies

Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently adopted accounting standards. Refer to our Fiscal 2020 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 lower-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, 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 in Item 1A. Risk Factors of our Fiscal 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.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper, and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events, and the strength of the U.S. dollar relative to other currencies. Please see the risk factor entitled “Our revenue is subject to volatility in metal prices, which could negatively affect our results of operations or cash flow.” under Part I, Item 1A of our Fiscal 2020 10-K, for more information about risks associated with metal price volatility.

During the six months ended December 31, 2020, we reported revenue of $305.2 million, with an average gold price for the period of $1,892 per ounce, an average silver price of $24.32 per ounce, and an average copper price of $3.10 per pound. The table below shows the impact that a 10% increase or decrease in the average price of the specified metal would have had on our total reported revenue for the six months ended December 31, 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

ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Treasurer (the principal financial and accounting officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based on this evaluation, our President and Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that our disclosure controls and procedures were effective as 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 materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our President and Chief Executive Officer and Chief Financial Officer and Treasurer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all 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 Royal Gold have been detected.

PART II.    OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

None.

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ITEM 1A.    RISK FACTORS

There have been no material changes to the risk factors included in the section entitled “Risk Factors” of our Fiscal 2020 10-K.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

None.

ITEM 4.     MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.     OTHER INFORMATION

None.

32

ITEM 6.     EXHIBITS

Exhibit
Number

    

Description

31.1*

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1‡

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2‡

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*

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 XBRL: (a) Consolidated Statements of Cash Flows, (b) Consolidated Statements of Operations, (c) Consolidated Statements of Comprehensive Income, (d) Consolidated Balance Sheets, and (e) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104*

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 (included as Exhibit 101).

*

Filed herewith.

Furnished herewith.

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ROYAL GOLD, INC.

Date: February 4, 2021

By:

/s/ William Heissenbuttel

William Heissenbuttel

President and Chief Executive Officer

(Principal Executive Officer)

Date:  February 4, 2021

By:

/s/ Paul Libner

Paul Libner

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

34