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ROYAL GOLD INC - Quarter Report: 2019 March (Form 10-Q)

Table of Contents

 

 

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 March 31, 2019

 

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.)

 

 

 

1660 Wynkoop Street, Suite 1000

 

 

Denver, Colorado

 

80202

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (303) 573-1660

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)  Yes ☒    No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

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 65,519,664 shares of the Company’s common stock, par value $0.01 per share, outstanding as of April 25, 2019.    

 

 

 

 

Title of Each Class

Trading Symbol

Name of the
Exchange on which
Registered

Common Stock, $0.01 par value

RGLD

Nasdaq Global Select Market

 

 

 

 

 


 

Table of Contents

INDEX

 

 

    

 

    

PAGE

 

 

 

 

 

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. 

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

3

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

4

 

 

Consolidated Statements of Changes in Stockholder’s 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

 

34

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

34

 

 

 

 

 

PART II 

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1. 

 

Legal Proceedings

 

35

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

35

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

35

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosure

 

35

 

 

 

 

 

Item 5. 

 

Other Information

 

35

 

 

 

 

 

Item 6. 

 

Exhibits

 

35

 

 

 

 

 

SIGNATURES 

 

37

 

 

2


 

Table of Contents

ITEM 1.     FINANCIAL STATEMENTS

 

ROYAL GOLD, INC.

Consolidated Balance Sheets

(Unaudited, in thousands except share data)

 

 

 

 

 

 

 

 

 

    

March 31, 2019

    

June 30, 2018

ASSETS

 

 

 

 

 

 

Cash and equivalents

 

$

215,996

 

$

88,750

Royalty receivables

 

 

27,554

 

 

26,356

Income tax receivable

 

 

8,790

 

 

40

Stream inventory

 

 

12,413

 

 

9,311

Prepaid expenses and other

 

 

602

 

 

1,350

Total current assets

 

 

265,355

 

 

125,807

Stream and royalty interests, net (Note 3)

 

 

2,381,592

 

 

2,501,117

Other assets

 

 

52,438

 

 

55,092

Total assets

 

$

2,699,385

 

$

2,682,016

LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

5,005

 

$

9,090

Dividends payable

 

 

17,361

 

 

16,375

Income tax payable

 

 

16,251

 

 

18,253

Withholding taxes payable

 

 

2,861

 

 

3,254

Other current liabilities

 

 

7,786

 

 

4,411

Total current liabilities

 

 

49,264

 

 

51,383

Debt (Note 4)

 

 

362,915

 

 

351,027

Deferred tax liabilities

 

 

90,321

 

 

91,147

Uncertain tax positions

 

 

36,524

 

 

33,394

Other long-term liabilities

 

 

-

 

 

13,796

Total liabilities

 

 

539,024

 

 

540,747

Commitments and contingencies (Note 11)

 

 

 

 

 

 

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 65,400,304 and 65,360,041 shares outstanding, respectively

 

 

654

 

 

654

Additional paid-in capital

 

 

2,199,349

 

 

2,192,612

Accumulated other comprehensive loss

 

 

-

 

 

(1,201)

Accumulated losses

 

 

(74,563)

 

 

(89,898)

Total Royal Gold stockholders’ equity

 

 

2,125,440

 

 

2,102,167

Non-controlling interests

 

 

34,921

 

 

39,102

Total equity

 

 

2,160,361

 

 

2,141,269

Total liabilities and equity

 

$

2,699,385

 

$

2,682,016

 

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

3


 

Table of Contents

ROYAL GOLD, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss) 

(Unaudited, in thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Three Months Ended

 

For The Nine Months Ended

 

 

 

March 31, 

 

March 31, 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Revenue (Note 5)

 

$

109,778

 

$

115,983

 

$

307,362

 

$

342,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

19,075

 

 

21,345

 

 

53,764

 

 

61,627

 

General and administrative

 

 

6,798

 

 

8,100

 

 

24,147

 

 

24,555

 

Production taxes

 

 

1,006

 

 

423

 

 

3,206

 

 

1,568

 

Exploration costs

 

 

330

 

 

536

 

 

5,534

 

 

5,098

 

Depreciation, depletion and amortization

 

 

39,368

 

 

39,679

 

 

120,726

 

 

121,380

 

Impairment of royalty interests

 

 

 —

 

 

239,364

 

 

 —

 

 

239,364

 

Total costs and expenses

 

 

66,577

 

 

309,447

 

 

207,377

 

 

453,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

43,201

 

 

(193,464)

 

 

99,985

 

 

(110,785)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value changes in equity securities

 

 

 1,781

 

 

 —

 

 

(3,318)

 

 

 —

 

Interest and other income

 

 

499

 

 

1,781

 

 

1,089

 

 

3,416

 

Interest and other expense

 

 

(7,499)

 

 

(8,294)

 

 

(22,786)

 

 

(25,946)

 

Income (loss) before income taxes

 

 

37,982

 

 

(199,977)

 

 

74,970

 

 

(133,315)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(9,388)

 

 

 45,859

 

 

(11,355)

 

 

(10,044)

 

Net income (loss)  

 

 

28,594

 

 

(154,118)

 

 

63,615

 

 

(143,359)

 

Net loss attributable to non-controlling interests

 

 

178

 

 

468

 

 

3,753

 

 

3,573

 

Net income (loss) attributable to Royal Gold common stockholders

 

$

28,772

 

$

(153,650)

 

$

67,368

 

$

(139,786)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

28,594

 

$

(154,118)

 

$

63,615

 

$

(143,359)

 

Adjustments to comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized change in market value of available-for-sale securities

 

 

 —

 

 

(666)

 

 

 —

 

 

(858)

 

Comprehensive income (loss) 

 

 

28,594

 

 

(154,784)

 

 

63,615

 

 

(144,217)

 

Comprehensive loss attributable to non-controlling interests

 

 

178

 

 

468

 

 

3,753

 

 

3,573

 

Comprehensive income (loss) attributable to Royal Gold stockholders

 

$

28,772

 

$

(154,316)

 

$

67,368

 

$

(140,644)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share available to Royal Gold common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.44

 

$

(2.35)

 

$

1.03

 

$

(2.14)

 

Basic weighted average shares outstanding

 

 

65,398,369

 

 

65,307,324

 

 

65,389,499

 

 

65,283,019

 

Diluted earnings (loss) per share

 

$

0.44

 

$

(2.35)

 

$

1.03

 

$

(2.14)

 

Diluted weighted average shares outstanding

 

 

65,515,234

 

 

65,307,324

 

 

65,494,902

 

 

65,283,019

 

Cash dividends declared per common share

 

$

0.265

 

$

0.25

 

$

0.78

 

$

0.74

 

 

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

 

4


 

Table of Contents

ROYAL GOLD, INC.

Consolidated Statements of Changes in Stockholder’s Equity

(unaudited, in thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royal Gold Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Paid-In

 

Comprehensive

 

Accumulated

 

Non-controlling

 

Total

 

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

(Losses) Earnings

 

Interests

 

Equity

Balance at December 31, 2018

 

65,396,339

 

$

654

 

$

2,197,254

 

$

 —

 

$

(86,238)

 

$

35,300

 

$

2,146,970

Stock-based compensation and related share issuances

 

3,965

 

 

 —

 

 

1,675

 

 

 —

 

 

 —

 

 

 —

 

 

1,675

Other

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

266

 

 

 —

 

 

266

Contributions from non-controlling interests

 

 —

 

 

 —

 

 

420

 

 

 —

 

 

 —

 

 

(201)

 

 

219

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

28,772

 

 

(178)

 

 

28,594

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Dividends declared

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17,363)

 

 

 —

 

 

(17,363)

Balance at March 31, 2019

 

65,400,304

 

$

654

 

$

2,199,349

 

$

 —

 

$

(74,563)

 

$

34,921

 

$

2,160,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royal Gold Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Paid-In

 

Comprehensive

 

Accumulated

 

Non-controlling

 

Total

 

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

(Losses) Earnings

 

Interests

 

Equity

Balance at December 31, 2017

 

65,307,285

 

$

653

 

$

2,186,648

 

$

687

 

$

69,842

 

$

41,987

 

$

2,299,817

Stock-based compensation and related share issuances

 

1,733

 

 

 —

 

 

1,603

 

 

 —

 

 

 —

 

 

 —

 

 

1,603

Contributions from non-controlling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

134

 

 

134

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(153,650)

 

 

(468)

 

 

(154,118)

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(666)

 

 

 —

 

 

 —

 

 

(666)

Dividends declared

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,365)

 

 

 —

 

 

(16,365)

Balance at March 31, 2018

 

65,309,018

 

$

653

 

$

2,188,251

 

$

21

 

$

(100,173)

 

$

41,653

 

$

2,130,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royal Gold Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Paid-In

 

Comprehensive

 

Accumulated

 

Non-controlling

 

Total

 

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

(Losses) Earnings

 

Interests

 

Equity

Balance at June 30, 2018

 

65,360,041

 

$

654

 

$

2,192,612

 

$

(1,201)

 

$

(89,898)

 

$

39,102

 

$

2,141,269

Stock-based compensation and related share issuances

 

40,263

 

 

 —

 

 

3,527

 

 

 —

 

 

 —

 

 

 —

 

 

3,527

Other 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

266

 

 

 —

 

 

266

Contributions from non-controlling interests

 

 —

 

 

 —

 

 

3,210

 

 

 —

 

 

 —

 

 

(428)

 

 

2,782

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

67,368

 

 

(3,753)

 

 

63,615

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

1,201

 

 

(1,201)

 

 

 —

 

 

 —

Dividends declared

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(51,098)

 

 

 —

 

 

(51,098)

Balance at March 31, 2019

 

65,400,304

 

$

654

 

$

2,199,349

 

$

 —

 

$

(74,563)

 

$

34,921

 

$

2,160,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royal Gold Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

Paid-In

 

Comprehensive

 

Accumulated

 

Non-controlling

 

Total

 

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

(Losses) Earnings

 

Interests

 

Equity

Balance at June 30, 2017

 

65,179,527

 

$

652

 

$

2,185,796

 

$

879

 

$

88,050

 

$

44,887

 

$

2,320,264

Stock-based compensation and related share issuances

 

129,491

 

 

 1

 

 

2,455

 

 

 —

 

 

 —

 

 

 —

 

 

2,456

Contributions from non-controlling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

339

 

 

339

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(139,786)

 

 

(3,573)

 

 

(143,359)

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(858)

 

 

 —

 

 

 —

 

 

(858)

Dividends declared

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(48,437)

 

 

 —

 

 

(48,437)

Balance at March 31, 2018

 

65,309,018

 

$

653

 

$

2,188,251

 

$

21

 

$

(100,173)

 

$

41,653

 

$

2,130,405

 

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

 

5


 

Table of Contents

ROYAL GOLD, INC.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

For The Nine Months Ended

 

 

March 31, 

 

March 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

63,615

 

$

(143,359)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

120,726

 

 

121,380

Amortization of debt discount and issuance costs

 

 

11,882

 

 

11,200

Non-cash employee stock compensation expense

 

 

5,510

 

 

5,958

Fair value changes in equity securities

 

 

3,318

 

 

Deferred tax benefit

 

 

(5,329)

 

 

(31,583)

Impairment of royalty interests

 

 

 

 

239,364

Other  

 

 

 —

 

 

(199)

Changes in assets and liabilities:

 

 

 

 

 

 

Royalty receivables

 

 

(1,198)

 

 

(909)

Stream inventory

 

 

(3,102)

 

 

(4,816)

Income tax receivable

 

 

(8,750)

 

 

21,020

Prepaid expenses and other assets

 

 

2,474

 

 

3,224

Accounts payable

 

 

(4,326)

 

 

(939)

Income tax payable

 

 

(2,002)

 

 

6,779

Withholding taxes payable

 

 

(393)

 

 

227

Uncertain tax positions

 

 

3,130

 

 

10,989

Other liabilities

 

 

(4,646)

 

 

13,473

Net cash provided by operating activities

 

$

180,909

 

$

251,809

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of stream and royalty interests

 

 

(1,055)

 

 

(1,012)

Purchase of equity securities

 

 

(3,573)

 

 

 —

Other

 

 

(157)

 

 

(1,251)

Net cash used in investing activities

 

$

(4,785)

 

$

(2,263)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of revolving credit facility

 

 

 —

 

 

(175,000)

Net payments from issuance of common stock

 

 

(1,982)

 

 

(3,502)

Common stock dividends

 

 

(50,114)

 

 

(47,755)

Contributions from non-controlling interest

 

 

3,210

 

 

 —

Other

 

 

 8

 

 

240

Net cash used in financing activities

 

$

(48,878)

 

$

(226,017)

Net increase in cash and equivalents

 

 

127,246

 

 

23,529

Cash and equivalents at beginning of period

 

 

88,750

 

 

85,847

Cash and equivalents at end of period

 

$

215,996

 

$

109,376

 

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 AND RECENTLY ISSUED ACCOUNTING STANDARDS

 

Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing metal streams, royalties and similar interests.  We seek to acquire existing stream and royalty interests or to finance mining projects that are in production or in the development stage in exchange for stream or royalty interests.  A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine at a price determined for the life of the transaction by the purchase agreement.  A royalty is a non-operating interest in a mining project that provides the right to revenue or metals produced from the project after deducting contractually specified costs, if any. 

 

Summary of Significant Accounting Policies

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.  In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q.  Operating results for the three and nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019.  These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the Securities and Exchange Commission on August 9, 2018 (“Fiscal 2018 10-K”).

 

Recently Adopted Accounting Standards

 

Revenue Recognition

 

On July 1, 2018, we adopted Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method of transition.  Under this transition approach, we applied ASC 606 to all existing contracts for which all (or substantially all) of the revenue attributable to a contract had not been recognized under legacy revenue guidance.  The guidance of ASC 606 will also be applied to any new contracts entered into on or after July 1, 2018.

 

ASC 606 supersedes nearly all of the existing revenue recognition guidance under U.S. GAAP and sets out a five-step revenue recognition framework to recognize revenue upon the transfer of control of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

 

For the three and nine months ended March 31, 2019, there was no impact to our reported revenue, operating costs and expenses or net income attributable to Royal Gold common stockholders as a result of adopting ASC 606, as compared to legacy revenue guidance under U.S. GAAP.  In addition, no cumulative catch-up adjustment to accumulated losses was required on July 1, 2018 as a result of adopting ASC 606.  Please refer to Note 5 for additional discussion.

 

Recognition and Measurement of Financial Instruments

 

On July 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 – Financial Instruments, which is guidance on the recognition and measurement of financial instruments.  The amended guidance requires, among other things, that equity securities previously classified as available-for-sale be measured at fair value with changes in fair value recognized in net income rather than other comprehensive income (loss) as required under previous guidance.  Upon adoption, the Company recorded a cumulative-effect adjustment in Accumulated losses of $1.2 million.  The increase and decrease in fair value of our equity securities was approximately $1.8 million and $3.3 million, respectively, for the three and nine months ended March 31, 2019 and is included in Fair value changes in equity securities on our consolidated statements of operations and comprehensive income (loss).  The carrying value of the Company’s equity securities as of March 31,

7


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

2019 and June 30, 2018 was $19.5 million and $19.2 million, respectively, and is included in Other assets on the Company’s consolidated balance sheets.  As of March 31, 2019, the Company owns 809,744 common shares of Contango Ore, Inc. (“CORE”) and 3,597,823 common shares of Rubicon Minerals Corporation.

 

Recently Issued Accounting Standards

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) which requires recognition of right-of-use assets and lease payment liabilities on the balance sheet by lessees for virtually all leases currently classified as operating leasesUnder ASU 2016-02, companies are permitted to make a policy election to not recognize lease assets or liabilities when the term of the lease is less than twelve months.  The Company is evaluating the impacts of ASU 2016-02, which includes an analysis of non-cancelable leases, joint venture agreements and other existing arrangements that may contain a lease component. The Company has substantially completed the process of identifying contracts to which the new guidance applies and is evaluating those identified contracts to determine the impacts of ASC 2016-02 at adoption.   Further, the Company is also evaluating policies, internal controls, and processes that will be necessary to support the additional accounting and disclosure requirements.  The Company will adopt ASU 2016-02 on July 1, 2019, using the modified retrospective approach.  Adoption of this guidance is anticipated to result in an insignificant increase in right-of-use assets and related liabilities on the Company’s consolidated balance sheets; however, the full impact to the Company’s financial statements and related footnote disclosures is still being evaluated.

 

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides an additional transition method for adopting ASU 2016-02, as well as provides lessors with a practical expedient when applying ASU 2016-02 to certain leases.  The Company anticipates making a policy election in connection with adopting ASU 2018-11, which will eliminate the need for adjusting prior period comparable financial statements prepared under current lease accounting guidance.  The Company will adopt ASU 2018-11 at the same time it adopts ASU 2016-02.

 

2.    ACQUISITION

 

Acquisition of Silver Stream on Khoemacau Copper Project

 

On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement for silver produced from the Khoemacau Copper Project (“Khoemacau” or the “Project”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments.  Pursuant to the purchase and sale agreement, RGLD Gold will make advance payments to Cupric totaling $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced (the “Option Stream”).  The stream rate will drop by 50% (to 40% of the silver produced) upon the 32 million silver ounces under the Silver Stream, or to 50% of the silver produced upon delivery of 40 million silver ounces in the event Cupric exercises delivery of the entire Option Stream.  RGLD Gold will pay 20% of the spot price of silver for each ounce delivered; however, depending on the achievement by Cupric of mill expansion throughput levels 30% above current mill design capacity, RGLD Gold will pay higher ongoing cash payments for silver ounces delivered in excess of specific annual thresholds.

 

RGLD Gold’s first advance payment under the Silver Stream is expected to occur after $100 million of net new debt and equity funding has been spent on the Project by Cupric.  The $212 million in advance payments under the Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule:  $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020 and the balance in calendar 2021.  RGLD Gold will fund the transaction through cash on hand or cash advances from Royal Gold. 

 

Separate from the Silver Stream and Option Stream, and subject to various conditions, RGLD Gold will make available up to $25 million to Cupric toward the end of development of Khoemacau in the form of a subordinated debt facility.  Any

8


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

amounts drawn under the facility would carry interest at LIBOR + 11% and have a term of seven years.  RGLD Gold will have the right to force repayment of the facility upon certain events. 

 

The Company anticipates accounting for the Silver Stream and Option Stream (if exercised by Cupric) as an asset acquisition, consistent with the treatment of our other acquired streams.  The $212 million in advance payments for the Silver Stream and $53 million in advance payments for the Option Stream, plus direct transaction costs, will be recorded as a development stage stream interest within Stream and royalty interests, net on our consolidated balance sheets in the period advance payments occur. 

 

3.    STREAM AND ROYALTY INTERESTS, NET

 

The following tables summarize the Company’s stream and royalty interests, net as of March 31, 2019 and June 30, 2018.

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019 (Amounts in thousands):

    

Cost

    

Accumulated Depletion

    

Net

Production stage stream interests:

 

 

 

 

 

 

 

 

 

Mount Milligan

 

$

790,635

 

$

(172,737)

 

$

617,898

Pueblo Viejo

 

 

610,404

 

 

(145,955)

 

 

464,449

Andacollo

 

 

388,182

 

 

(79,513)

 

 

308,669

Rainy River

 

 

175,727

 

 

(12,218)

 

 

163,509

Wassa and Prestea

 

 

146,475

 

 

(54,628)

 

 

91,847

Total production stage stream interests

 

 

2,111,423

 

 

(465,051)

 

 

1,646,372

Production stage royalty interests:

 

 

 

 

 

 

 

 

 

Voisey's Bay

 

 

205,724

 

 

(94,055)

 

 

111,669

Peñasquito

 

 

99,172

 

 

(40,496)

 

 

58,676

Holt

 

 

34,612

 

 

(22,243)

 

 

12,369

Cortez

 

 

20,878

 

 

(11,859)

 

 

9,019

Other

 

 

487,224

 

 

(382,702)

 

 

104,522

Total production stage royalty interests

 

 

847,610

 

 

(551,355)

 

 

296,255

Total production stage stream and royalty interests

 

 

2,959,033

 

 

(1,016,406)

 

 

1,942,627

 

 

 

 

 

 

 

 

 

 

Development stage stream interests:

 

 

 

 

 

 

 

 

 

Other

 

 

12,038

 

 

 —

 

 

12,038

 

 

 

 

 

 

 

 

 

 

Development stage royalty interests:

 

 

 

 

 

 

 

 

 

Cortez

 

 

59,803

 

 

 —

 

 

59,803

Other

 

 

70,952

 

 

 —

 

 

70,952

Total development stage royalty interests

 

 

130,755

 

 

 —

 

 

130,755

Total development stage stream and royalty interests

 

 

142,793

 

 

 —

 

 

142,793

 

 

 

 

 

 

 

 

 

 

Exploration stage royalty interests:

 

 

 

 

 

 

 

 

 

Pascua-Lama

 

 

177,690

 

 

 —

 

 

177,690

Other

 

 

118,482

 

 

 —

 

 

118,482

Total exploration stage royalty interests

 

 

296,172

 

 

 —

 

 

296,172

Total stream and royalty interests, net

 

$

3,397,998

 

$

(1,016,406)

 

$

2,381,592

 

9


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018 (Amounts in thousands):

    

Cost

    

Accumulated Depletion

    

Impairments

 

Net

Production stage stream interests:

 

 

 

 

 

 

 

 

 

 

 

 

Mount Milligan

 

$

790,635

 

$

(152,833)

 

$

 —

 

$

637,802

Pueblo Viejo

 

 

610,404

 

 

(114,944)

 

 

 —

 

 

495,460

Andacollo

 

 

388,182

 

 

(59,851)

 

 

 —

 

 

328,331

Wassa and Prestea

 

 

146,475

 

 

(41,601)

 

 

 —

 

 

104,874

Rainy River

 

 

175,727

 

 

(4,028)

 

 

 —

 

 

171,699

Total production stage stream interests

 

 

2,111,423

 

 

(373,257)

 

 

 —

 

 

1,738,166

Total production stage stream and royalty interests

 

 

 

 

 

 

 

 

 

 

 

 

Production stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Voisey's Bay

 

 

205,724

 

 

(86,933)

 

 

 —

 

 

118,791

Peñasquito

 

 

99,172

 

 

(38,426)

 

 

 —

 

 

60,746

Holt

 

 

34,612

 

 

(21,173)

 

 

 —

 

 

13,439

Cortez

 

 

20,878

 

 

(11,241)

 

 

 —

 

 

9,637

Other

 

 

483,795

 

 

(364,795)

 

 

 —

 

 

119,000

Total production stage royalty interests

 

 

844,181

 

 

(522,568)

 

 

 —

 

 

321,613

Total production stage stream and royalty interests

 

 

2,955,604

 

 

(895,825)

 

 

 —

 

 

2,059,779

Development stage stream interests:

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

12,038

 

 

 —

 

 

 —

 

 

12,038

 

 

 

 

 

 

 

 

 

 

 

 

 

Development stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Cortez

 

 

59,803

 

 

 —

 

 

 —

 

 

59,803

Other

 

 

74,610

 

 

 —

 

 

(284)

 

 

74,326

Total development stage royalty interests

 

 

134,413

 

 

 —

 

 

(284)

 

 

134,129

Total development stage stream and royalty interests

 

 

146,451

 

 

 —

 

 

(284)

 

 

146,167

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Pascua-Lama

 

 

416,770

 

 

 —

 

 

(239,080)

 

 

177,690

Other

 

 

117,481

 

 

 —

 

 

 —

 

 

117,481

Total exploration stage royalty interests

 

 

534,251

 

 

 —

 

 

(239,080)

 

 

295,171

Total stream and royalty interests, net

 

$

3,636,306

 

$

(895,825)

 

$

(239,364)

 

$

2,501,117

 

Voisey’s Bay

 

The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Royalty Corporation, a non-controlling interest.

 

On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine.  Refer to Note 14 of our Fiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.

 

During the three and nine months ended March 31, 2019, the Company recognized approximately $2.5 million and $10.0 million (each period includes the 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty.  Royalty payments for each quarter are due 45 days after quarter-end.  Refer to Note 5 for further discussion on our revenue recognition.

 

10


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

4.    DEBT

 

The Company’s non-current debt as of March 31, 2019 and June 30, 2018 consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

As of June 30, 2018

 

   

Principal

   

Unamortized Discount

   

Debt Issuance Costs

   

Total

   

Principal

   

Unamortized Discount

   

Debt Issuance Costs

   

Total

 

 

 

(Amounts in thousands)

 

 

(Amounts in thousands)

Convertible notes due 2019

 

$

370,000

 

$

(2,844)

 

$

(290)

 

$

366,866

 

$

370,000

 

$

(12,764)

 

$

(1,316)

 

$

355,920

Revolving credit facility

 

 

 —

 

 

 —

 

 

(3,951)

 

 

(3,951)

 

 

 —

 

 

 —

 

 

(4,893)

 

 

(4,893)

Total debt

 

$

370,000

 

$

(2,844)

 

$

(4,241)

 

$

362,915

 

$

370,000

 

$

(12,764)

 

$

(6,209)

 

$

351,027

 

Convertible Senior Notes Due 2019

 

In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”).  The 2019 Notes bear interest at the rate of 2.875% per annum, and the Company is required to make semi-annual interest payments on the outstanding principal balance of the 2019 Notes on June 15 and December 15 of each year, beginning December 15, 2012.  The 2019 Notes mature on June 15, 2019, and the Company will settle the principal amounts of each 2019 Note in cash and settle any excess conversion value in shares of the Company, plus cash in lieu of fractional shares.  Generally, we classify debt that is maturing within one year as a current liability.  However, the Company has the intent and ability to settle the principal amount of the 2019 Notes in cash primarily from its available revolving credit facility, a non-current liability, as of March 31 2019 and June 30, 2018.

 

Interest expense recognized on the 2019 Notes for the three and nine months ended March 31, 2019 was $6.3 million and $18.9 million, respectively, compared to $6.1 million and $18.3 million, respectively, for the three and nine months ended March 31, 2018, and included the contractual coupon interest, the accretion of the debt discount and amortization of the debt issuance costs.

 

Revolving credit facility

 

The Company maintains a $1 billion revolving credit facility.  As of March 31, 2019, the Company had no amounts outstanding and $1 billion available under the revolving credit facility.  Amortization of debt issuance costs, included within interest expense, recognized on the revolving credit facility for the three and nine months ended March 31, 2019 was $0.3 million and $0.9 million.  For the three and nine months ended March 31, 2018,  interest expense included interest on the outstanding borrowings and the amortization of the debt issuance costs and was $1.3 million and $4.9 million, respectively.  Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.

 

As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 2018 10-K, the Company has financial covenants associated with its revolving credit facility.  As of March 31, 2019, the Company was in compliance with each financial covenant.

 

5.    REVENUE

 

Revenue Recognition

 

Under current ASC 606 guidance, a performance obligation is a promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer. A contract’s transaction price is allocated to 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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Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(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 occurred.  As a royalty holder, we act as a passive entity in the production and operations of the mining project, and the third-party operator of the mining project is responsible for all mining activities, including subsequent marketing and delivery of all metal production to their ultimate customer. In all of our material royalty interest arrangements, we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs, and thus, the operator is our customer.  We have further determined that the transfer of each unit of metal production, comprising our royalty interest, to the operator represents a separate performance obligation under the contract, and each performance obligation is satisfied at the point in time of metal production by the operator.  Accordingly, we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement, net of any contractually allowable offsite treatment, refining, transportation and, if applicable, mining costs.

 

Royalty Revenue Estimates

 

For a small number of our royalty interests, we may not receive, or be entitled to receive, payment information, including production information from the operator, for the period in which metal production occurred prior to issuance of our financial statements.  As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator.  If adequate information is not available from the operator or from other public sources before we issue our financial statements, the Company will recognize royalty revenue during the period in which the necessary payment information is received.  Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known.  Please also refer to our “Use of Estimates” accounting policy discussed in our Fiscal 2018 10-K.  For the quarter ended March 31, 2019, royalty revenue that was estimated or was attributable to metal production for a period prior to March 31, 2019, was not material. 

 

Disaggregation of Revenue

 

We have identified two material revenue sources in our business: stream interests and royalty interests. These identified revenue sources are consistent with our reportable segments as discussed in Note 9.  

 

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Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

Revenue by metal type attributable to each of our revenue sources is disaggregated as follows:  

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

    

March 31, 2019

    

March 31, 2019

Stream revenue:

 

 

 

 

 

 

Gold

 

$

62,856

 

$

175,149

Silver

 

 

7,908

 

 

24,512

Copper

 

 

7,001

 

 

15,819

Total stream revenue

 

$

77,765

 

$

215,480

Royalty revenue:

 

 

 

 

 

 

Gold

 

$

22,041

 

$

60,251

Silver

 

 

1,608

 

 

4,527

Copper

 

 

3,056

 

 

11,030

Other

 

 

5,308

 

 

16,074

Total royalty revenue

 

$

32,013

 

$

91,882

Total revenue

 

$

109,778

 

$

307,362

 

Revenue attributable to our principal stream and royalty interests is disaggregated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Metal(s)

 

March 31, 2019

 

March 31, 2019

Stream revenue:

 

 

 

 

 

 

 

 

Mount Milligan

 

Gold & Copper

 

$

26,938

 

$

63,954

Pueblo Viejo

 

Gold & Silver

 

 

20,787

 

 

58,504

Andacollo

 

Gold

 

 

15,638

 

 

51,016

Wassa and Prestea

 

Gold

 

 

7,328

 

 

24,939

Other

 

Gold & Silver

 

 

7,074

 

 

17,067

Total stream revenue

 

 

 

$

77,765

 

$

215,480

Royalty revenue:

 

 

 

 

 

 

 

 

Peñasquito

 

Gold, Silver, Lead & Zinc

 

$

4,465

 

$

12,763

Cortez

 

Gold

 

 

4,127

 

 

7,066

Other

 

Various

 

 

23,421

 

 

72,053

Total royalty revenue

 

 

 

$

32,013

 

$

91,882

Total revenue

 

 

 

$

109,778

 

$

307,362

 

Please refer to Note 9 for the geographical distribution of our revenue by reportable segment.

 

Contract Receivables

 

Under our forward sales contracts related to our metal streaming arrangements, payment is due from the purchaser on the day of settlement. Accordingly, our metal stream sales contracts do not give rise to a receivable under ASC 606.

 

Under our royalty arrangements, payment is typically due by the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirty to sixty days after the respective quarter-end.  Revenue related to production that has occurred as of the reporting date but for which payment has not been received represents a receivable (rather than a contract asset) under ASC 606 as payment by the operator is unconditional upon the production of metal.  As of March 31, 2019, and June 30, 2018, our royalty receivables were $27.6  million and $26.4 million, respectively.

 

Practical Expedients Utilized

 

Our forward sales contracts related to our metal streaming arrangements are short-term in nature with a term of one year or less. For these contracts, we have utilized the practical expedient allowed in ASC 606 that exempts us from presenting

13


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) for contracts with an original expected term of one year or less.

 

Our royalty arrangements generally cover metal production over the life of a mine and, thus, have a contract term that is greater than one year.  Under these contracts, variability related to future production volumes and market pricing is allocated entirely to those future production volumes from the mining operation. Consequently, we have utilized an alternative practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) if the variable consideration in a contract is allocated entirely to a wholly unsatisfied performance obligation.

 

 

6.    STOCK-BASED COMPENSATION

 

The Company recognized stock-based compensation expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31, 

 

March 31, 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

(Amounts in thousands)

 

 

(Amounts in thousands)

 

Stock options

 

$

33

 

$

70

 

$

187

 

$

241

 

Stock appreciation rights

 

 

417

 

 

482

 

 

1,592

 

 

1,456

 

Restricted stock

 

 

679

 

 

727

 

 

2,636

 

 

3,041

 

Performance stock

 

 

311

 

 

284

 

 

1,095

 

 

1,220

 

Total stock-based compensation expense

 

$

1,440

 

$

1,563

 

$

5,510

 

$

5,958

 

 

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

 

During the three and nine months ended March 31, 2019, the Company granted the following stock-based compensation awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31, 

 

 

March 31, 

 

 

March 31, 

 

 

March 31, 

 

    

 

2019

    

 

2018

    

 

2019

    

 

2018

 

 

 

(Number of shares)

 

 

(Number of shares)

Stock options

 

 

 —

 

 

 —

 

 

6,430

 

 

6,858

Stock appreciation rights

 

 

3,500

 

 

 —

 

 

72,860

 

 

71,262

Restricted stock

 

 

1,200

 

 

 —

 

 

43,460

 

 

50,380

Performance stock (at maximum 200% attainment)

 

 

2,400

 

 

 —

 

 

59,820

 

 

34,010

Total equity awards granted

 

 

7,100

 

 

 —

 

 

182,570

 

 

162,510

 

As of March 31, 2019, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

Unrecognized

    

Weighted-

 

 

 

 

 

 

 

 

compensation

 

average vesting

 

 

 

 

 

 

 

 

expense

    

period (years)

Stock options

 

 

 

 

 

 

 

$

168

 

 

1.8

Stock appreciation rights

 

 

 

 

 

 

 

 

2,296

 

 

1.9

Restricted stock

 

 

 

 

 

 

 

 

5,260

 

 

3.1

Performance stock

 

 

 

 

 

 

 

 

1,062

 

 

1.6

 

 

14


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

7.    EARNINGS PER SHARE (“EPS”)

 

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

 

The following tables summarize the effects of dilutive securities on diluted EPS for the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31, 

 

March 31, 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

Net income (loss) available to Royal Gold common stockholders

 

$

28,772

 

$

(153,650)

 

$

67,368

 

$

(139,786)

 

Weighted-average shares for basic EPS

 

 

65,398,369

 

 

65,307,324

 

 

65,389,499

 

 

65,283,019

 

Effect of other dilutive securities

 

 

116,865

 

 

 

 

105,403

 

 

 —

 

Weighted-average shares for diluted EPS

 

 

65,515,234

 

 

65,307,324

 

 

65,494,902

 

 

65,283,019

 

Basic earnings (loss) per share

 

$

0.44

 

$

(2.35)

 

$

1.03

 

$

(2.14)

 

Diluted earnings (loss) per share

 

$

0.44

 

$

(2.35)

 

$

1.03

 

$

(2.14)

 

 

The calculation of weighted average shares includes all of our outstanding common stock.  The Company intends to settle the principal amount of the 2019 Notes in cash from amounts available under our revolving credit facility, and we intend to settle any excess conversion value in shares in the Company, plus cash in lieu of fractional shares.  As a result, there will be no impact to diluted earnings per share unless the share price of the Company’s common stock exceeds the conversion price of $102.16.

 

8.    INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31, 

 

March 31, 

 

March 31, 

 

March 31, 

 

    

2019

    

2018

    

2019

    

2018

 

 

(Amounts in thousands, except rate)

 

(Amounts in thousands, except rate)

Income tax benefit (expense)

 

$

(9,388)

 

$

45,859

 

$

 (11,355)

 

$

(10,044)

Effective tax rate

 

 

24.7%

 

 

22.9%

 

 

15.1%

 

 

(7.5%)

 

The increase in the effective tax rate for the three months ended March 31, 2019 was primarily attributable to lower discrete period benefits as compared to the three months ended March 31, 2018.  The prior year’s three months effective tax rate included discrete benefits from an impairment partially offset by true-ups to H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”). The effective tax rate for the nine months ended March 31, 2019 was primarily impacted by discrete true-ups recorded in the December 2018 quarter related to the Company’s completion of its analysis of the Act.  The effective tax rate for the nine months ended March 31, 2018 was impacted by discrete period expense recorded during the December 2017 quarter related to the impacts of the Act, partially offset by discrete benefits related to impairment charges.  As of December 31, 2018, the Company completed its analysis of the Act within the measurement period provided by Staff Accounting Bulletin No. 118 and the amounts are no longer considered provisional.  Despite the completion of our analysis, many aspects of the law remain unclear and future guidance could impact the Company.  A material impact due to evolving guidance is not anticipated; however, the Company will continue to monitor any new developments.

 

15


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

9.    SEGMENT INFORMATION

 

The Company manages its business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests.  Royal Gold’s long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

As of June 30, 2018

 

 

 

 

 

 

 

 

Total stream

 

 

 

 

 

 

 

 

 

 

Total stream

 

 

Stream

 

Royalty

 

and royalty

 

Stream

 

Royalty

 

 

 

 

and royalty

 

    

interest

    

interest

    

interests, net

    

interest

    

interest

    

Impairments

    

interests, net

Canada

 

$

781,404

 

$

202,896

 

$

984,300

 

$

809,500

 

$

214,562

 

$

(284)

 

$

1,023,778

Dominican Republic

 

 

464,449

 

 

 —

 

 

464,449

 

 

495,460

 

 

 —

 

 

 —

 

 

495,460

Chile

 

 

308,669

 

 

214,226

 

 

522,895

 

 

328,331

 

 

453,306

 

 

(239,080)

 

 

542,557

Africa

 

 

91,847

 

 

321

 

 

92,168

 

 

104,874

 

 

502

 

 

 —

 

 

105,376

Mexico

 

 

 —

 

 

84,915

 

 

84,915

 

 

 —

 

 

93,277

 

 

 —

 

 

93,277

United States

 

 

 —

 

 

164,372

 

 

164,372

 

 

 —

 

 

165,543

 

 

 —

 

 

165,543

Australia

 

 

 —

 

 

32,404

 

 

32,404

 

 

 —

 

 

34,254

 

 

 —

 

 

34,254

Other

 

 

12,041

 

 

24,048

 

 

36,089

 

 

12,039

 

 

28,833

 

 

 —

 

 

40,872

Total

 

$

1,658,410

 

$

723,182

 

$

2,381,592

 

$

1,750,204

 

$

990,277

 

$

 (239,364)

 

$

2,501,117

 

The Company’s revenue, cost of sales and net revenue by reportable segment for the three and nine months ended March 31, 2019 and 2018 is geographically distributed as shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

Three Months Ended March 31, 2018

 

    

Revenue

    

Cost of sales

    

Net revenue

    

Revenue

    

Cost of sales

    

Net revenue

Streams:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

$

34,012

 

$

9,398

 

$

24,614

 

$

51,709

 

$

14,225

 

$

37,484

Dominican Republic

 

 

20,787

 

 

5,942

 

 

14,845

 

 

15,734

 

 

4,415

 

 

11,319

Chile

 

 

15,638

 

 

2,282

 

 

13,356

 

 

7,186

 

 

1,039

 

 

6,147

Africa

 

 

7,328

 

 

1,453

 

 

5,875

 

 

8,350

 

 

1,666

 

 

6,684

Total streams

 

$

77,765

 

$

19,075

 

$

58,690

 

$

82,979

 

$

21,345

 

$

61,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

8,719

 

$

 —

 

$

8,719

 

$

11,021

 

$

 —

 

$

11,021

United States

 

 

9,813

 

 

 —

 

 

9,813

 

 

8,459

 

 

 —

 

 

8,459

Canada

 

 

8,201

 

 

 —

 

 

8,201

 

 

6,089

 

 

 —

 

 

6,089

Australia

 

 

3,234

 

 

 —

 

 

3,234

 

 

3,343

 

 

 —

 

 

3,343

Africa

 

 

161

 

 

 —

 

 

161

 

 

543

 

 

 —

 

 

543

Other

 

 

1,885

 

 

 —

 

 

1,885

 

 

3,549

 

 

 —

 

 

3,549

Total royalties

 

$

32,013

 

$

 —

 

$

32,013

 

$

33,004

 

$

 —

 

$

33,004

Total streams and royalties

 

$

109,778

 

$

19,075

 

$

90,703

 

$

115,983

 

$

21,345

 

$

94,638

 

16


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended March 31, 2019

 

Nine Months Ended March 31, 2018

 

    

Revenue

    

Cost of sales

    

Net revenue

    

Revenue

    

Cost of sales

    

Net revenue

Streams:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

$

81,021

 

$

23,393

 

$

57,628

 

$

106,363

 

$

30,072

 

$

76,291

Dominican Republic

 

 

58,504

 

 

17,675

 

 

40,829

 

 

67,492

 

 

20,200

 

 

47,292

Chile

 

 

51,016

 

 

7,684

 

 

43,332

 

 

41,124

 

 

6,148

 

 

34,976

Africa

 

 

24,939

 

 

5,012

 

 

19,927

 

 

26,049

 

 

5,207

 

 

20,842

Total streams

 

$

215,480

 

$

53,764

 

$

161,716

 

$

241,028

 

$

61,627

 

$

179,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

24,551

 

$

 —

 

$

24,551

 

$

32,772

 

$

 —

 

$

32,772

United States

 

 

24,153

 

 

 —

 

 

24,153

 

 

31,186

 

 

 —

 

 

31,186

Canada

 

 

25,918

 

 

 —

 

 

25,918

 

 

17,577

 

 

 —

 

 

17,577

Australia

 

 

9,451

 

 

 —

 

 

9,451

 

 

9,891

 

 

 —

 

 

9,891

Africa

 

 

1,185

 

 

 —

 

 

1,185

 

 

1,589

 

 

 —

 

 

1,589

Other

 

 

6,624

 

 

 —

 

 

6,624

 

 

8,764

 

 

 —

 

 

8,764

Total royalties

 

$

91,882

 

$

 —

 

$

91,882

 

$

101,779

 

$

 —

 

$

101,779

Total streams and royalties

 

$

307,362

 

$

53,764

 

$

253,598

 

$

342,807

 

$

61,627

 

$

281,180

 

 

10.  FAIR VALUE MEASUREMENTS

 

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under ASC 820 are described below:

 

Level 1:   Quoted prices for identical instruments in active markets;

 

Level 2:   Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

 

Level 3:   Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

 

Carrying

 

Fair Value

 

    

Amount

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets (In thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities(1)

 

$

19,465

 

$

19,465

 

$

19,465

 

$

 —

 

$

 —

Total assets

 

$

19,465

 

$

19,465

 

$

19,465

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities (In thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt(2)

 

$

444,156

 

$

370,000

 

$

370,000

 

$

 —

 

$

 —

Total liabilities

 

$

444,156

 

$

370,000

 

$

370,000

 

$

 —

 

$

 —


(1)

Included in Other assets on the Company’s consolidated balance sheets.

(2)

Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital on the Company’s consolidated balance sheets.

 

17


 

Table of Contents

ROYAL GOLD, INC.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

The Company’s marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets.  The fair value of the Level 1 marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.  The Company’s debt classified within Level 1 of the fair value hierarchy is valued using quoted prices in an active market. 

 

As of March 31, 2019, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with stream and royalty interests, intangible assets and other long-lived assets.  For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if any of these assets are determined to be impaired.  If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs. 

 

11.  COMMITMENTS AND CONTINGENCIES

 

Khoemacau Silver Stream Acquisition

 

As of March 31, 2019, the Company’s conditional funding schedule for $212 million related to the Silver Stream pursuant to its Khoemacau silver stream acquisition made in February 2019 (Note 2) remains subject to certain conditions. 

 

Ilovica Gold Stream Acquisition

 

As of March 31, 2019, the Company’s conditional funding schedule for $163.75 million related to its Ilovica gold stream acquisition made in October 2014 remains subject to certain conditions.

 

 

 

18


 

Table of Contents

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations.  Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”) recommends that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2018 (Fiscal 2018 10-K).

 

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

 

We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A.  These terms are defined in our Fiscal 2018 10-K.

 

Statement Regarding Third Party Information

 

Royal Gold does not own, develop, or mine the properties on which it holds stream or royalty interests, except for our interest in the Peak Gold, LLC joint venture (“Peak Gold JV”) as described further in this report.  Certain information provided in this report, including the Operator’s Production Estimates by Stream and Royalty Interest for Calendar 2019 and Property Developments, has been provided to us by the operators of properties where we own interests or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC.  Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for, the accuracy, completeness or fairness of such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.

 

Overview

 

Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing metal streams, royalties, and similar interests.  We seek to acquire existing stream and royalty interests or to finance projects that are in production or in the development stage in exchange for stream or royalty interests.

 

We manage our business under two segments:

 

Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement.  As of March 31, 2019, we owned seven stream interests, which are on six producing properties and two development stage properties.  Stream interests accounted for approximately 71% and 70% of our total revenue for the three and nine months ended March 31, 2019, respectively, and 72% and 70% of our total revenue for the three and nine months ended March 31, 2018, respectively.   We expect stream interests to continue representing a significant proportion of our total revenue.

 

Acquisition and Management of Royalty Interests — Royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs, if any.  As of March 31, 2019, we owned royalty interests  on 37 producing properties, 15 development stage properties and 131 exploration stage properties, of which we consider 53 to be evaluation stage projects.  We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves.  Royalties accounted for approximately 29% and 30%, respectively, of our total revenue for the three and nine months ended March 31, 2019 and 28% and 30%, respectively, for the three and nine months ended March 31, 2018. 

 

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

 

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In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams on operating mines, to create new stream and royalty interests through the financing of mine development or exploration, or to acquire companies that hold stream and royalty interests.  We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial and other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.

 

Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver and copper, together with the amounts of production from our producing stage stream and royalty interests.  The price of gold, silver, copper and other metals has fluctuated widely in recent years.  The marketability and the price of metals are influenced by numerous factors beyond the control of the Company and significant declines in the price of gold, silver or copper could have a material and adverse effect on the Company’s results of operations and financial condition.

 

For the three and nine months ended March 31, 2019 and 2018, gold, silver and copper price averages and percentage of revenue by metal were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

March 31, 2018

Metal

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

    

Average
Price

    

Percentage
of Revenue

Gold ($/ounce)

 

$

1,304

 

77%

 

$

1,329

 

76%

 

$

1,248

 

77%

 

$

1,294

 

77%

Silver ($/ounce)

 

$

15.57

 

9%

 

$

16.77

 

6%

 

$

15.04

 

9%

 

$

16.78

 

8%

Copper ($/pound)

 

$

2.82

 

9%

 

$

3.16

 

15%

 

$

2.80

 

9%

 

$

3.04

 

11%

Other

 

 

N/A

 

5%

 

 

N/A

 

3%

 

 

N/A

 

5%

 

 

N/A

 

4%

 

Recent Business Developments

 

Acquisition of Silver Stream on Khoemacau Copper Project

 

On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement for silver produced from the Khoemacau Copper Project (“Khoemacau” or the “Project”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments.  Pursuant to the purchase and sale agreement, RGLD Gold will make advance payments totaling $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced (the “Option Stream”).  The stream rate will drop by 50% (to 40% of silver produced) upon the delivery to RGLD Gold of 32 million silver ounces under the Silver Stream, or to 50% of the silver produced upon delivery of 40 million silver ounces in the event Cupric exercises the entire Option Stream.  RGLD Gold will pay 20% of the spot price of silver for each ounce delivered; however, depending on the achievement by Cupric of mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), RGLD Gold will pay higher ongoing cash payments for silver ounces delivered in excess of specific annual thresholds.

 

RGLD Gold’s first advance payment under the Silver Stream is expected to occur after $100 million of net new debt and equity funding has been spent on the Project by Cupric.  The $212 million in advance payments under the Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule:  $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020 and the balance in calendar 2021.  RGLD Gold will fund the transaction through cash on hand or cash advances from Royal Gold.  Royal Gold will fund any advances made to RGLD Gold largely out of cash flow from operations and its current undrawn $1 billion revolving credit facility, as required.

 

Separate from the Silver Stream and Option Stream, and subject to various conditions, RGLD Gold will make available up to $25 million to Cupric toward the end of development of Khoemacau in the form of a subordinated debt facility.  Any amounts drawn under the facility would carry interest at LIBOR + 11% and have a term of seven years.  RGLD Gold will have the right to force repayment of the facility upon certain events.

 

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Background on Khoemacau

 

Khoemacau is a copper-silver project located in the Kalahari copper belt, in a sparsely populated region of northwestern Botswana in the Kalahari Desert.  Khoemacau is made up of over 4,040 square kilometers of mineral concessions from Cupric’s acquisition of Hana Mining Ltd. in 2013, as well as additional mineral concessions and a plant and associated infrastructure (the “Boseto Mill”) acquired by Cupric out of the receivership of Discovery Metals Inc. in 2015.  Cupric consolidated the land position and infrastructure and has focused on exploration and development of the Zone 5 orebody. 

 

Cupric plans to develop the Zone 5 orebody as three separate underground mines, each planned to produce 1.2 million tonnes of ore per year over the first five years.  Each of the mines is expected to have its own independent ramp access and operate over a strike length of approximately 1,000 meters, extracting ore using conventional sub-level open stoping.  Cupric’s plan provides for the ore to be trucked approximately 35 kilometers to the Boseto Mill, which is to be refurbished and enhanced to process approximately 10,000 tonnes of ore per day.  Processing will be conventional sulfide flotation via three stage crushing, ball milling and flotation, which will produce a high-quality copper concentrate grading approximately 40% for shipment to international smelters.  Cupric expects that power will be sourced from an expansion to the existing power grid currently under construction by Botswana Power Corporation, and that existing diesel generation capacity remaining from previous operations will be used as backup power.  Water is expected to be supplied from three borefields along with mine dewatering.

 

Voisey’s Bay

 

The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Royalty Corporation.

 

On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine.    

 

The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant (“LHPP”), which will be effective for all Voisey’s Bay mine production after April 1, 2018.  Under the terms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the concentrates at the nickel, copper and cobalt prices prevailing at the time of settlement.  As those metal prices rise or fall, the percentage of gross metal value in the concentrates applicable to the royalty would correspondingly increase or decrease.

 

The LHPP is designed to produce 50,000 tonnes of finished nickel annually.  In the next few years, Voisey’s Bay concentrate will provide 100% of the feed to LHPP but, over time, other sources of concentrate will be added to LHPP.

 

Vale announced it will recommence the $1.7 billion development of an underground mine and associated facilities, which is expected to extend the Voisey’s Bay mine life until 2034. Vale expects the underground mine to begin production in 2021 and to ramp up over four years, while the current open pit mining in the Ovoid deposit is expected to continue until 2022.  

 

During the three and nine months ended March 31, 2019, the Company recognized approximately $2.5 million and $10.0 million (each period includes the 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty.  Royalty payments for each quarter are due 45 days after quarter-end.  The Company anticipates recognizing revenue for the Voisey’s Bay royalty in the period in which metal production occurs, based on information provided by the operator.  If information is not received timely from the operator, the Company may estimate Voisey’s Bay royalty revenue based on available or historical information.  Refer to Note 5 of our notes to consolidated financial statements for further discussion on our revenue recognition.

 

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Peak Gold JV

 

On September 24, 2018, the Company announced that the Peak Gold JV, of which our Royal Alaska, LLC subsidiary owns a 40% interest, completed a Preliminary Economic Assessment (“PEA”) on the Peak Gold Project located near Tok, Alaska.  The PEA contemplates on a preliminary basis an open pit mining operation with positive economics at base case gold and silver prices.  The Company has engaged an external advisor to assist in identifying options with respect to our interests in the Peak Gold Project. 

 

Royal Gold also owns two net smelter return royalties on the Peak Gold Project.

 

Acquisition of Contango Ore, Inc. Common Stock

 

On October 3, 2018, the Company purchased the second and final tranche of Contango Ore, Inc. (“CORE”) common stock (127,188 shares) for $26 per share.  As previously reported in our Fiscal 2018 10-K, the Company purchased 682,556 shares of CORE common stock at $26 per share in June 2018.  As of March 31, 2019, the Company owns 809,744 shares of CORE common stock. 

 

Principal Stream and Royalty Interests

 

The Company considers both historical and future potential revenues in determining which stream and royalty interests in our portfolio are principal to our business.  Estimated future potential revenues from both producing and development properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause the Company to conclude that one or more of such stream and royalty interests are no longer principal to our business.  Currently, our principal producing stream and royalty interests are listed alphabetically in the following table.

 

Please refer to our Fiscal 2018 10-K for further discussion of our principal producing stream and royalty interests.

 

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Principal Producing Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stream or royalty interests

Mine

    

Location

    

Operator

    

(Gold unless otherwise stated)

Andacollo

 

Region IV, Chile

 

Compañía Minera Teck Carmen de Andacollo (“Teck”)

 

Gold stream - 100% of gold produced (until 900,000 ounces delivered; 50% thereafter)

Cortez

 

Nevada, USA

 

Barrick Gold Corporation ("Barrick")

 

GSR1: 0.40% to 5.0% sliding-scale GSR

 

 

 

 

 

 

GSR2: 0.40% to 5.0% sliding-scale GSR

 

 

 

 

 

 

GSR3: 0.71% GSR

 

 

 

 

 

 

NVR1: 4.91% NVR; 4.52% NVR (Crossroads)

Mount Milligan

 

British Columbia, Canada

 

Centerra Gold Inc. ("Centerra")

 

Gold stream - 35.00% of payable gold

 

 

 

 

 

 

Copper stream - 18.75% of payable copper

Peñasquito

 

Zacatecas, Mexico

 

Newmont Goldcorp Corporation (“Newmont Goldcorp”)

 

2.0% NSR (gold, silver, lead, zinc)

Pueblo Viejo

 

Sanchez Ramirez, Dominican Republic

 

Barrick (60%)

 

Gold stream - 7.5% of gold produced (until 990,000 ounces delivered; 3.75% thereafter)

 

 

 

 

 

 

Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter)

Wassa and Prestea

 

Western Region of Ghana

 

Golden Star Resources Ltd. (“Golden Star”)

 

Gold stream - 10.5% of gold produced (until 220,000 ounces delivered; 5.5% thereafter)

 

Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2019

 

We generally receive annual production estimates from many of the operators of our producing mines during the first quarter of each calendar year.  In some instances, an operator may revise their original calendar year guidance throughout the year.  The following table shows current production estimates for our principal producing properties for calendar 2019 as well as the actual production reported to us by the various operators through March 31, 2019.  The estimates and production reports are prepared by the operators of the mining properties.  We do not participate in the preparation or calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information.  Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing and development stage properties.

 

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Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2019

Principal Producing Properties    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calendar 2019 Operator’s Production

 

Calendar 2019 Operator’s Production

 

 

Estimate(1)

 

Actual(2)

 

 

Gold

 

Silver

 

Base Metals

 

Gold

 

Silver

 

Base Metals

Stream/Royalty

    

(oz.)

  

(oz.)

  

(lbs.)

  

(oz.)

  

(oz.)

  

(lbs.)

Stream:

 

 

 

 

 

 

 

 

 

 

 

 

Andacollo(3)

  

62,000

  

 

  

 

  

13,200

  

 

  

 

Mount Milligan(4)

 

155,000 - 175,000

 

 

 

 

 

33,300

 

 

 

 

Copper

 

 

 

 

 

65 - 75 million

 

 

 

 

 

11.4 million

Pueblo Viejo(5)

 

550,000 - 600,000

 

N/A

 

 

 

148,000

 

N/A

 

 

Wassa and Prestea(6)

 

220,000 - 240,000

 

 

 

 

 

N/A

 

 

 

 

Royalty:

 

 

 

 

 

 

 

 

 

 

 

 

Cortez GSR1

 

102,000

 

 

 

 

 

28,500

 

 

 

 

Cortez GSR2

 

98,000

 

 

 

 

 

4,100

 

 

 

 

Cortez GSR3

 

199,000

 

 

 

 

 

32,600

 

 

 

 

Cortez NVR1

 

168,200

 

 

 

 

 

30,700

 

 

 

 

Peñasquito(7)

 

370,000 - 400,000

 

N/A

 

 

 

N/A

 

N/A

 

 

Lead

 

  

 

  

 

240 - 290 million

 

 

 

 

 

N/A

Zinc

 

  

 

  

 

390 - 450 million

 

 

 

 

 

N/A


(1)

Production estimates received from our operators are for calendar 2019.  Please refer to our cautionary statement regarding third party information at the beginning of this MD&A.  There can be no assurance that production estimates received from our operators will be achieved.  Please also refer to our cautionary language regarding forward-looking statements following this MD&A, as well as the Risk Factors identified in Part I, Item 1A, of our Fiscal 2018 10-K for information regarding factors that could affect actual results.

 

(2)

Actual production figures shown are from our operators and cover the period January 1, 2019 through March 31, 2019, 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 production figures shown for Wassa and Prestea are payable gold in doré.  The operator did not provide actual production figures for the three months ended March 31, 2019 as of the date of this report.    

 

(7)

The estimated gold production figures shown for Peñasquito are payable gold in concentrate and doré.  The estimated lead and zinc production figures shown are payable lead and zinc in concentrate. The operator did not provide estimated annual silver production. The operator did not provide actual gold, silver, lead and zinc production figures for the three months ended March 31, 2019 as of the date of this report. 

 

Property Developments 

 

The following property development information is provided by the operators of the property, either to Royal Gold or in various documents made publicly available.

 

Stream Interests

 

Andacollo

 

Gold stream deliveries from Andacollo were approximately 9,900 ounces of gold for the three months ended March 31, 2019, compared to approximately 10,000 ounces of gold for the three months ended March 31, 2018.

 

Consistent with the mine plan, Teck expects copper grades to decline towards reserve grade in calendar 2019 and future years.  Teck continues to study and implement projects that would help increase production, including the installation of a sizer to manage harder ores at depth and increase mill throughput.  Teck anticipated that the sizer project will be operational in the first half of calendar 2019.  Teck expects the current life of mine for Carmen de Andacollo to continue until 2035. Additional permitting or amendments to existing permits will be required to execute the life of mine plan.

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Mount Milligan

 

Gold stream deliveries from Mount Milligan were approximately 23,100 ounces of gold for the three months ended March 31, 2019, compared to approximately 27,400 ounces of gold for the three months ended March 31, 2018.  Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds of copper during the three months ended March 31, 2019, compared to approximately 3.4 million pounds of copper during the three months ended March 31, 2018.  Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.

 

On February 27, 2019, Centerra announced that it received an amendment to the Mount Milligan environmental assessment certificate that permits access to additional sources of surface water and groundwater.  According to Centerra, Mount Milligan will be permitted to use water at set rates from Philip Lake 1, Rainbow Creek and Meadows Creek until November 30, 2021, as well as water from groundwater sources within a six-kilometer radius of the mine for the life of mine.  Mount Milligan reported that it has upgraded its water pumping infrastructure and commenced accessing water from the newly permitted sources at the beginning of April 2019.  Mill throughput was limited to 32,000 tonnes per operating day in the March 2019 quarter and has increased slowly as water levels increased in the tailing’s facility.  Centerra expects mill throughput to be at full capacity of 55,000 tonnes per day starting mid-May 2019 as additional water is captured during the pending spring melt, and to remain at that level throughout the remainder of calendar 2019. 

 

With respect to the long-term water supply plan, Centerra continues to work with relevant stakeholders to identify and evaluate water sources for the remainder of the mine life.  Centerra expects formal applications and government review to commence later this calendar year.  Centerra also expects that the long-term source, or sources, should be available after November 2021, for the entire mine life.  Centerra continues to expect Mount Milligan gold and copper production to be in-range of their earlier reported guidance.

 

Pueblo Viejo

 

Gold stream deliveries from Pueblo Viejo were approximately 12,400 ounces of gold for the three months ended March 31, 2019, compared to approximately 13,200 ounces of gold for the three months ended March 31, 2018.  Silver stream deliveries were approximately 553,000 ounces of silver for the three months ended March 31, 2019, compared to approximately 616,300 ounces of silver for the three months ended March 31, 2018.

 

In calendar 2019, Barrick expects production at Pueblo Viejo to be in line with calendar 2018 production levels, driven by increased throughput and recoveries, offset by declining ore grades. Barrick indicated that scoping studies and pilot project work are supportive of a plant expansion at the Pueblo Viejo mine that could increase throughput by roughly 50% to 12 million tonnes per year, allowing the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022.  To achieve this, Barrick is evaluating a flotation concentrator followed by ultra-fine grinding and tank oxidation of the concentrate. Barrick reported that testing to date indicates that tank oxidation is preferable to the pad pre-oxidation process previously considered.  Barrick expects to complete prefeasibility studies for the plant expansion and additional tailings capacity by the end of calendar 2019. According to Barrick, the project has potential to convert roughly seven million ounces of mineralized material to proven and probable reserves.

 

Barrick and its power generation partner, AES Corporation, made significant progress in 2018 toward securing all necessary permits and commencing construction of a new 50-kilometer gas pipeline to the Quisqueya I power generation facility at Pueblo Viejo.   Barrick reports that completion and first delivery of natural gas is expected to occur in the December 2019 quarter and that conversion of the power plant to natural gas from heavy fuel oil is anticipated to reduce both greenhouse gas emissions and power costs at Pueblo Viejo.

 

Rainy River

 

Gold stream deliveries from Rainy River were approximately 4,400 ounces of gold for the three months ended March 31, 2019, compared to approximately 2,900 ounces of gold for the three months ended March 31, 2018.  Silver stream deliveries were approximately 35,700 ounces of silver for the three months ended March 31, 2019, compared to approximately 41,800 ounces of silver for the three months ended March 31, 2018.

 

New Gold, Inc. (“New Gold”) reported Rainy River produced 61,557 ounces of gold and 60,383 ounces of silver during the March 2019 quarter.  Production at Rainy River included planned lower grades as mining operations continued the

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transition to phase 2 of the mine plan.    Mill throughput for the March 2019 quarter averaged 19,725 tonnes per calendar day, below the annual target of 22,000-24,000 tonnes per day.  The lower average mill throughput was negatively impacted by the significant buildup of ice in the crushed ore stockpile above the apron feeders.  New Gold reported average mill throughput returned to target levels at the end of the March 2019 quarter.  Also during the March 2019 quarter, New Gold reported that they launched a comprehensive optimization study that includes the review of alternative open pit and underground mining scenarios with the overall objective of reducing capital and improving the return on investment over the life of mine. New Gold expects to complete an updated life of mine plan in the December 2019 quarter.

 

New Gold expects to begin a strategic exploration drilling program in the June 2019 quarter that will test near-mine targets in the Intrepid North area.

 

On May 1, 2019, New Gold announced that a buildup of excess water in the tailings facility from snowmelt caused a temporary suspension of milling operations at Rainy River on April 24, 2019.  Mining and crushing operations are continuing and ore is being stockpiled during the suspension.  New Gold is managing the excess water and expects full mill operations to resume within five days of the announcement of the suspension depending on precipitation levels over the same period.

 

Wassa and Prestea

 

Gold stream deliveries from Wassa and Prestea were approximately 5,800 ounces of gold for the three months ended March 31, 2019, compared to approximately 6,800 ounces of gold for the three months ended March 31, 2018.

 

On March 28, 2019, Golden Star announced Wassa underground mineral reserves increased 47% to 949,000 ounces of gold, which was attributable to strong results from the calendar 2018 underground definition drilling program combined with a stope design optimization.  Prestea mineral reserves decreased by 36% to 317,000 ounces of gold, resulting from calendar 2018 mining depletion and changes to the resource model following definition drilling and underground development.

 

In calendar 2019, Golden Star expects the average targeted mining rate for Wassa underground to be 3,500 tonnes per day, moving towards a target of 4,000 tonnes per day in calendar 2020.  At the end of calendar 2018, improvements were being recorded in Prestea underground's lead production indicators. Golden Star expects improvements in raise development, long-hole drilling and blasting productivities to continue in calendar 2019.

 

Royalty Interests

 

Cortez

 

Production attributable to our royalty interest at Cortez during the quarter increased approximately 73% over the prior year quarter, as a result of production ramping up at the Crossroads deposit, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests. Initial ore production at Crossroads was realized during calendar 2018.  In calendar 2019, Barrick expects Crossroads expansion stripping to transition to production phase stripping.

 

Peñasquito 

 

Gold and zinc production attributable to our royalty interest at Peñasquito decreased approximately 59% and 17%, respectively, and lead production attributable to our royalty interest increased approximately 33%, when compared to the prior year quarter, while silver production was in line with the prior year quarter.

 

On November 29, 2018, Newmont Goldcorp announced that the first gold from the Peñasquito Pyrite Leach Project (“PLP”) was achieved, and on January 14, 2019, announced that PLP achieved commercial production in December 2018, both under budget and ahead of schedule.  Newmont Goldcorp stated that during the March 2019 quarter the PLP is running well with overall higher recoveries.

 

On April 29, 2019, Newmont Goldcorp reported a temporary suspension of operations at Peñasquito due to a blockade by a trucking contractor and certain community leaders.  Newmont Goldcorp reported that it is pursuing legal avenues and working with government authorities to resolve the situation but did not indicate what effect this suspension is expected to have on calendar 2019 production. 

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For calendar 2019, Newmont Goldcorp expects grades and recoveries to climb at Peñasquito as the mine benefits from completion of the multi-year waste stripping campaign in the main Peñasco pit and a full year of operation at the PLP.  In June 2019, Newmont Goldcorp plans to launch their full potential continuous improvement program at Peñasquito, where they expect the greatest overall value to be in processing improvements, which will concentrate on productivity, reliability and cost efficiency.

 

Results of Operations

 

Quarter Ended March 31, 2019, Compared to Quarter Ended March 31, 2018

 

For the quarter ended March 31, 2019, we recorded net income attributable to Royal Gold stockholders of $28.8 million, or $0.44 per basic and diluted share, as compared to net loss attributable to Royal Gold stockholders of $153.7 million, or ($2.35) per basic and diluted share, for the quarter ended March 31, 2018.  The increase in our earnings per share, when compared to the prior year period, was attributable to prior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further in our Fiscal 2018 10-K.  The effect of the impairment charges during the quarter ended March 31, 2018 was $2.74 per basic share, after taxes. 

 

For the quarter ended March 31, 2019, we recognized total revenue of $109.8 million, which is comprised of stream revenue of $77.8 million and royalty revenue of $32.0 million at an average gold price of $1,304 per ounce, an average silver price of $15.57 per ounce and an average copper price of $2.82 per pound.  This is compared to total revenue of $116.0 million for the three months ended March 31, 2018, which was comprised of stream revenue of $83.0 million and royalty revenue of $33.0 million, at an average gold price of $1,329 per ounce, an average silver price of $16.77 per ounce and an average copper price of $3.16 per pound for the quarter ended March 31, 2018.  Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended March 31, 2019 compared to the quarter ended March 31, 2018 are as follows:

 

Revenue and Reported Production Subject to Our Stream and Royalty Interests

Quarter Ended March 31, 2019 and 2018

(In thousands, except reported production ozs. and lbs.) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

 

March 31, 2019

 

March 31, 2018

 

 

 

 

 

 

Reported

 

 

 

Reported

Stream/Royalty

    

Metal(s)

    

Revenue

    

Production(1)

    

Revenue

    

Production(1)

Stream(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mount Milligan

 

 

 

$

26,938

 

 

 

 

$

47,807

 

 

 

 

 

Gold

 

 

 

 

15,200

oz.

 

 

 

 

25,800

oz.

 

 

Copper

 

 

 

 

2.6

Mlbs.

 

 

 

 

4.3

Mlbs.

Pueblo Viejo

 

 

 

$

20,787

 

 

 

 

$

15,734

 

 

 

 

 

Gold

 

 

 

 

10,400

oz.

 

 

 

 

8,500

oz.

 

 

Silver

 

 

 

 

469,000

oz.

 

 

 

 

260,800

oz.

Andacollo

 

Gold

 

$

15,638

 

12,000

oz.

 

$

7,186

 

5,400

oz.

Wassa and Prestea

 

Gold

 

$

7,328

 

5,600

oz.

 

$

8,350

 

6,300

oz.

Other(3)

 

 

 

$

7,074

 

 

 

 

$

3,902

 

 

 

 

 

Gold

 

 

 

 

5,000

oz.

 

 

 

 

2,800

oz.

 

 

Silver

 

 

 

 

40,800

oz.

 

 

 

 

11,100

oz.

Total stream revenue

 

 

 

$

77,765

 

 

 

 

$

82,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peñasquito

 

 

 

$

4,465

 

 

 

 

$

6,452

 

 

 

 

 

Gold

 

 

 

 

37,300

oz.

 

 

 

 

91,200

oz.

 

 

Silver

 

 

 

 

4.9

Moz.

 

 

 

 

5.0

Moz.

 

 

Lead

 

 

 

 

34.5

Mlbs.

 

 

 

 

26.0

Mlbs.

 

 

Zinc

 

 

 

 

72.8

Mlbs.

 

 

 

 

88.0

Mlbs.

Cortez

 

Gold

 

$

4,127

 

32,700

oz.

 

$

1,901

 

18,900

oz.

Other(3)

 

Various

 

$

23,421

 

N/A

 

 

$

24,651

 

N/A

 

Total royalty revenue

 

 

 

$

32,013

 

 

 

 

$

33,004

 

 

 

Total Revenue

 

 

 

$

109,778

 

 

 

 

$

115,983

 

 

 


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Table of Contents

(1)

Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended March 31, 2019 and 2018, and may differ from the operators’ public reporting.

 

(2)

Refer to “Property Developments” above for further discussion on our principal stream and royalty interests.

 

(3)

The “Other” category for streams is only our Rainy River gold and silver stream. Individually, no royalty included within the “Other” category for royalties contributed greater than 5% of our total revenue for either period.

 

The decrease in our total revenue for the three months ended March 31, 2019, compared with the three months ended March 31, 2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices.  The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Mount Milligan.  This decrease was partially offset by higher gold and silver sales at Pueblo Viejo and higher gold sales at Andacollo due to timing of deliveries.  Please refer to “Property Developments” earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests.

 

Gold and silver ounces and copper pounds purchased and sold during the three months ended March 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of March 31, 2019, and June 30, 2018, for our streaming interests were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Gold Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Mount Milligan

 

23,100

 

15,200

 

27,400

 

25,800

 

7,900

 

300

Pueblo Viejo

 

12,400

 

10,400

 

13,200

 

8,500

 

12,400

 

9,200

Andacollo

 

9,900

 

12,000

 

10,000

 

5,400

 

2,400

 

7,400

Wassa and Prestea

 

5,800

 

5,600

 

6,800

 

6,300

 

900

 

3,900

Rainy River

 

4,400

 

5,000

 

2,900

 

2,800

 

1,000

 

800

Total

 

55,600

 

48,200

 

60,300

 

48,800

 

24,600

 

21,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Silver Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Pueblo Viejo

 

553,000

 

469,000

 

616,300

 

260,800

 

553,000

 

540,200

Rainy River

 

35,700

 

40,800

 

41,800

 

11,100

 

36,600

 

32,300

Total

 

588,700

 

509,800

 

658,100

 

271,900

 

589,600

 

572,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Copper Stream

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Inventory (Mlbs.)

    

Inventory (Mlbs.)

Mount Milligan

 

2.5

 

2.6

 

3.4

 

4.3

 

0.8

 

 —

 

Cost of sales decreased to $19.1 million for the three months ended March 31, 2019 from $21.3 million for the three months ended March 31, 2018. The decrease was primarily due to decreased gold and copper sales from Mount Milligan.  Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment.  The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper spot price near the date of metal delivery.

 

General and administrative expenses decreased to $6.8 million for the three months ended March 31, 2019 from $8.1 million for the three months ended March 31, 2018.  The decrease during the current quarter was primarily due to a decrease in legal costs attributable to the Voisey’s Bay royalty calculation dispute and settlement as discussed further above under “Recent Business Developments.”

 

On July 1, 2018, the Company adopted new Accounting Standards Update (“ASU”) guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period.  As a result of the new ASU guidance, the Company recognized a gain on changes in fair value of equity securities of approximately  $1.8 million for the three months ended March 31, 2019.  Refer to Note 1 of our notes to consolidated financial statements for further detail.  The new guidance could increase our earnings volatility.

 

During the three months ended March 31, 2019, we recognized an income tax expense totaling $9.4 million compared with an income tax benefit of $45.9 million during the three months ended March 31, 2018.  This resulted in an effective tax rate of 24.7% in the current period, compared with 22.9% in the quarter ended March 31, 2018.  The increase in the

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effective tax rate for the three months ended March 31, 2019 was primarily related to lower discrete benefits recorded in the current quarter as compared to the quarter ended March 31, 2018.  The prior year’s quarter included a discrete tax benefit related to the impairment charges.

 

Nine Months Ended March 31, 2019, Compared to Nine Months Ended March 31, 2018

 

For the nine months ended March 31, 2019, we recorded net income attributable to Royal Gold stockholders of $67.4 million, or $1.03 per basic and diluted share, as compared to a  net loss attributable to Royal Gold stockholders of $139.8 million, or ($2.14) per basic and diluted share, for the nine months ended March 31, 2018.  The increase in our earnings per share, when compared to the prior period, was attributable to prior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further in our Fiscal 2018 10-K.  The effect of the impairment charges during the quarter ended March 31, 2018 was $2.74 per basic share, after taxes. 

 

For the nine months ended March 31, 2019, we recognized total revenue of $307.4 million, which is comprised of stream revenue of $215.5 million and royalty revenue of $91.9 million at an average gold price of $1,248 per ounce, an average silver price of $15.04 per ounce and an average copper price of $2.80 per pound.  This is compared to total revenue of $342.8 million for the nine months ended March 31, 2018, which was comprised of stream revenue of $241.0 million and royalty revenue of $101.8 million, at an average gold price of $1,294 per ounce, an average silver price of $16.78 per ounce and an average copper price of $3.04 per pound.  Revenue and the corresponding production attributable to our stream and royalty interests for the nine months ended March 31, 2019 compared to the nine months ended March 31, 2018 are as follows:

 

Revenue and Reported Production Subject to Our Stream and Royalty Interests

Nine Months Ended March 31, 2019 and 2018

(In thousands, except reported production ozs. and lbs.) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

 

March 31, 2019

 

March 31, 2018

 

 

 

 

 

 

 

Reported

 

 

 

 

Reported

Stream/Royalty

    

Metal(s)

    

Revenue

    

Production(1)

    

Revenue

    

Production(1)

Stream(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mount Milligan

 

 

 

$

63,954

 

 

 

 

$

101,390

 

 

 

 

 

Gold

 

 

 

 

38,500

oz.

 

 

 

 

57,100

oz.

 

 

Copper

 

 

 

 

5.8

Mlbs.

 

 

 

 

8.7

Mlbs.

Pueblo Viejo

 

 

 

$

58,504

 

 

 

 

$

67,492

 

 

 

 

 

Gold

 

 

 

 

28,500

oz.

 

 

 

 

35,900

oz.

 

 

Silver

 

 

 

 

1.5

Moz.

 

 

 

 

1.3

Moz.

Andacollo

 

Gold

 

$

51,016

 

40,900

oz.

 

$

41,124

 

32,100

oz.

Wassa and Prestea

 

Gold

 

$

24,939

 

20,000

oz.

 

$

26,049

 

20,200

oz.

Other(3)

 

 

 

$

17,067

 

 

 

 

$

4,973

 

 

 

 

 

Gold

 

 

 

 

12,300

oz.

 

 

 

 

3,600

oz.

 

 

Silver

 

 

 

 

108,300

oz.

 

 

 

 

11,100

oz.

Total stream revenue

 

 

 

$

215,480

 

 

 

 

$

241,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peñasquito

 

 

 

$

12,763

 

 

 

 

$

20,439

 

 

 

 

 

Gold

 

 

 

 

141,000

oz.

 

 

 

 

296,200

oz.

 

 

Silver

 

 

 

 

14.1

Moz.

 

 

 

 

15.9

Moz.

 

 

Lead

 

 

 

 

100.4

Mlbs.

 

 

 

 

95.5

Mlbs.

 

 

Zinc

 

 

 

 

220.1

Mlbs.

 

 

 

 

274.8

Mlbs.

Cortez

 

Gold

 

$

7,066

 

59,700

oz.

 

$

7,823

 

73,800

oz.

Other(3)

 

Various

 

$

72,053

 

N/A

 

 

$

73,517

 

N/A

 

Total royalty revenue

 

 

 

$

91,882

 

 

 

 

$

101,779

 

 

 

Total revenue

 

$

307,362

 

 

 

 

$

342,807

 

 

 


(1)

Reported production relates to the amount of metal sales subject to our stream and royalty interests for the nine months ended March 31, 2019 and 2018, and may differ from the operators’ public reporting.

 

(2)

Refer to “Property Developments” above for further discussion on our principal stream and royalty interests.

 

(3)

The “Other” category for streams is only our Rainy River gold and silver stream.  Individually, no royalty included within the “Other” category for royalties contributed greater than 5% of our total revenue for either period. 

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The decrease in our total revenue for the nine months ended March 31, 2019 compared with the nine months ended March 31, 2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices.  The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Mount Milligan and a decrease in gold sales at Pueblo Viejo.  These decreases were partially offset by higher metal sales at Andacollo and Rainy River.  The decrease in metal sales at Mount Milligan was anticipated based on previously announced news from Centerra and as reported earlier by the Company. 

 

Gold and silver ounces and copper pounds purchased and sold during the nine months ended March 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of March 31, 2019, and June 30, 2018, for our streaming interests were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Gold Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Mount Milligan

 

46,100

 

38,500

 

63,800

 

57,100

 

7,900

 

300

Andacollo

 

35,900

 

41,000

 

36,500

 

32,100

 

2,400

 

7,400

Pueblo Viejo

 

31,700

 

28,500

 

36,300

 

35,900

 

12,400

 

9,200

Wassa and Prestea

 

17,000

 

20,000

 

20,200

 

20,200

 

900

 

3,900

Rainy River

 

12,500

 

12,300

 

3,900

 

3,600

 

1,000

 

800

Total

 

143,200

 

140,300

 

160,700

 

148,900

 

24,600

 

21,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Silver Stream

    

Purchases (oz.)

    

Sales (oz.)

    

Purchases (oz.)

    

Sales (oz.)

    

Inventory (oz.)

    

Inventory (oz.)

Pueblo Viejo

 

1,531,400

 

1,518,700

 

1,346,500

 

1,267,000

 

553,000

 

540,200

Rainy River

 

112,600

 

108,300

 

53,700

 

11,100

 

36,600

 

32,300

Total

 

1,644,000

 

1,627,000

 

1,400,200

 

1,278,100

 

589,600

 

572,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

As of

 

As of

 

 

March 31, 2019

 

March 31, 2018

 

March 31, 2019

 

June 30, 2018

Copper Stream

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Purchases (Mlbs.)

    

Sales (Mlbs.)

    

Inventory (Mlbs.)

    

Inventory (Mlbs.)

Mount Milligan

 

6.6

 

5.8

 

8.7

 

8.7

 

0.8

 

 —

 

Cost of sales decreased to $53.8 million for the nine months ended March 31, 2019 from $61.6 million for the nine months ended March 31, 2018. The decrease was primarily due to decreased gold and copper sales from Mount Milligan and Pueblo Viejo, partially offset by an increase in gold sales at Rainy River and Andacollo.  Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment.  The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper spot price near the date of metal delivery.

 

Production taxes increased to $3.2 million for the nine months ended March 31, 2019, from $1.6 million for the nine months ended March 31, 2018.  The increase is primarily due to an increase in mining proceeds tax associated with our Voisey’s Bay royalty, which resulted from increased revenue from the Voisey’s Bay royalty during the current period.

 

On July 1, 2018, the Company adopted new ASU guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period.  As a result of the new ASU guidance, the Company recognized a loss on changes in fair value of equity securities of approximately  $3.3 million for the nine months ended March 31, 2019.  Refer to Note 1 of our notes to consolidated financial statements for further detail.  The new guidance could increase our earnings volatility.

 

Interest and other income decreased to $1.1 million for the nine months ended March 31, 2019, from $3.4 million for the nine months ended March 31, 2018.  As discussed further in our Fiscal 2018 10-K, in June 2018, Golden Star repaid its $20 million term loan facility with Royal Gold, thus reducing interest income during the current period. 

 

Interest and other expense decreased to $22.3 million for the nine months ended March 31, 2019, from $25.9 million for the nine months ended March 31, 2018.  The decrease was primarily attributable to lower interest expense as a result of a decrease in amounts outstanding under our revolving credit facility.  The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018.

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During the nine months ended March 31, 2019, we recognized income tax expense $11.4 million compared with income tax expense of $10.0 million during the nine months ended March 31, 2018.  This resulted in an effective tax rate of 15.1% in the current period, compared with (7.5%) during the nine months ended March 31, 2018.  The effective tax rate for the nine months ended March 31, 2019 was primarily impacted by discrete true-ups recorded in the December 2018 quarter related to the Company’s completion of its analysis of the Tax Cuts and Jobs Act (the “Act”).  The effective tax rate for the nine months ended March 31, 2018 was impacted by discrete period expense recorded during the December 2017 quarter related to the impacts of the Act, partially offset by discrete benefits related to impairment charges.  Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.

 

Liquidity and Capital Resources

 

Overview

 

At March 31, 2019, we had current assets of $265.4 million compared to current liabilities of $49.3 million resulting in working capital of $216.1 million and a current ratio of 5 to 1.  This compares to current assets of $125.8 million and current liabilities of $51.4 million at June 30, 2018, resulting in working capital of $74.4 million and a current ratio of approximately 2 to 1.  The increase in our current ratio was primarily attributable to an increase in our cash and equivalents, which is discussed further below under “Summary of Cash Flows.”

 

During the nine months ended March 31, 2019, liquidity needs were met from $180.9 million in operating cash flows and our available cash resources.  As of March 31, 2019, the Company had no amounts outstanding and  $1 billion available under its revolving credit facility.  Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2 billion of total liquidity at March 31, 2019.  The Company was in compliance with each financial covenant under the revolving credit facility as of March 31, 2019.  Refer to Note 4 of our notes to consolidated financial statements for further discussion on our debt.

 

We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and capital expenditures for the foreseeable future.  Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests.  Our long-term capital requirements are primarily affected by our ongoing acquisition activities.  The Company currently, and generally at any time, has acquisition opportunities in various stages of active review.  In the event of one or more substantial stream and royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary.

 

Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2018 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of certain risks that may impact the Company’s liquidity and capital resources.

 

Summary of Cash Flows

 

Operating Activities

 

Net cash provided by operating activities totaled $180.9 million for the nine months ended March 31, 2019, compared to $251.8 million for the nine months ended March 31, 2018.  The decrease is primarily due to higher income taxes paid of $41.2 million over the prior period and a decrease in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $27.5 million.    The increase in cash taxes paid during the current period is primarily attributable to an increase in required estimated tax payments made to various taxing authorities and an increase in prior fiscal year earnings at certain foreign subsidiaries, which corresponding tax payments were made within the current period. 

 

Investing Activities

 

Net cash used in investing activities totaled $4.8 million for the nine months ended March 31, 2019, compared $2.3 million for the nine months ended March 31, 2018.  The increase in cash used in investing activities is primarily due to additional CORE common stock purchased during the current period.

 

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Financing Activities

 

Net cash used in financing activities totaled $48.9 million for the nine months ended March 31, 2019, compared to $226.0 million for the nine months ended March 31, 2018.  The decrease in cash used in financing activities is primarily due to a  decrease in repayments on our revolving credit facility.  The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018. 

 

Recently Issued or Adopted Accounting Standards and Critical Accounting Policies

 

Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently issued or adopted accounting standards.  Refer to our Fiscal 2018 10-K for discussion on our critical accounting policies.

 

Forward-Looking Statements

 

Cautionary “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:  With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein.  Such forward-looking statements include, without limitation, statements regarding the impact of recently adopted or issued accounting standards; the expected schedule for making advance payments pursuant to the Khoemacau Copper Project stream agreement and the funding of such payments; application of the royalty on production from Voisey’s Bay to a percentage of gross metal value in concentrates; expectations to settle the principal amount of 2019 Notes in cash (primarily from the available revolving credit facility) and any excess conversion value in shares plus cash in lieu of fractional shares; expectations concerning the proportion of total revenue to come from stream and royalty interests; the results of the PEA for the Peak Gold Project and the results of efforts to identify options with respect to the Company’s interests in the Peak Gold Project; the results of pre-feasibility study work for the Pueblo Viejo plant expansion; projected production estimates and estimates pertaining to timing, commencement and volume of production from the operators of properties where we hold stream and royalty interests; statements related to ongoing developments and expected developments at properties where we hold stream and royalty interests; fluctuations in the prices for gold, silver, copper, nickel and other metals; stream and royalty revenue estimates compared to actual revenue; effective tax rate estimates, including the effect of recently enacted tax reform; the adequacy of financial resources and funds to cover anticipated expenditures for debt service, general and administrative expenses and dividends, as well as costs associated with exploration and business development and capital expenditures; expected delivery dates of gold, silver, copper and other metals; and our expectation that substantially all our revenues will be derived from stream and royalty interests.  Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements, which speak only as of the date the statement is made.  Do not unduly rely on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:

 

·

a low price environment for gold and other metal prices on which our stream and royalty interests are paid or a low price environment for the primary metals mined at properties where we hold stream and royalty interests;

 

·

the production at or performance of properties where we hold stream and royalty interests, and variation of actual performance from the production estimates and forecasts made by the operators of these properties;

 

·

the ability of operators to bring projects into production on schedule or operate in accordance with feasibility studies, including development stage mining properties, mine and mill expansion projects and other development and construction projects;

 

·

acquisition and maintenance of permits and authorizations, completion of construction and commencement and continuation of production at the properties where we hold stream and royalty interests;

 

·

challenges to mining, processing and related permits and licenses, or to applications for permits and licenses, by or on behalf of indigenous populations, non-governmental organizations or other third parties;

 

·

liquidity or other problems our operators may encounter, including shortfalls in the financing required to complete construction and bring a mine into production;

 

·

decisions and activities of the operators of properties where we hold stream and royalty interests;

 

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·

hazards and risks at the properties where we hold stream and royalty interests that are normally associated with developing and mining properties, including unanticipated grade, continuity and geological, metallurgical, processing or other problems, mine operating and ore processing facility problems, pit wall or tailings dam failures, industrial accidents, environmental hazards and natural catastrophes such as drought, floods, hurricanes or earthquakes and access to sufficient raw materials, water and power;

 

·

changes in operators’ mining, processing and treatment techniques, which may change the production of minerals subject to our stream and royalty interests;

 

·

changes in the methodology employed by our operators to calculate our stream and royalty interests, or failure to make such calculations in accordance with the agreements that govern them;

 

·

changes in project parameters as plans of the operators of properties where we hold stream and royalty interests are refined;

 

·

accuracy of and decreases in estimates of reserves and mineralization by the operators of properties where we hold stream and royalty interests;

 

·

contests to our stream and royalty interests and title and other defects in the properties where we hold stream and royalty interests;

 

·

adverse effects on market demand for commodities, the availability of financing, and other effects from adverse economic and market conditions;

 

·

future financial needs of the Company and the operators of properties where we hold stream or royalty interests;

 

·

federal, state and foreign legislation governing us or the operators of properties where we hold stream and royalty interests;

 

·

the availability of stream and royalty interests for acquisition or other acquisition opportunities and the availability of debt or equity financing necessary to complete such acquisitions;

 

·

our ability to make accurate assumptions regarding the valuation, timing and amount of revenue to be derived from our stream and royalty interests when evaluating acquisitions;

 

·

risks associated with conducting business in foreign countries, including application of foreign laws to contract and other disputes, validity of security interests, governmental consents for granting interests in exploration and exploitation licenses, application and enforcement of real estate, mineral tenure, contract, safety, environmental and permitting laws, currency fluctuations, expropriation of property, repatriation of earnings, taxation, price controls, inflation, import and export regulations, community unrest and labor disputes, endemic health issues, corruption, enforcement and uncertain political and economic environments;

 

·

changes in laws governing us, the properties where we hold stream and royalty interests or the operators of such properties;

 

·

risks associated with issuances of additional common stock or incurrence of indebtedness in connection with acquisitions or otherwise including risks associated with the issuance and conversion of convertible notes;

 

·

changes in management and key employees; and

 

·

failure to complete future acquisitions;

 

as well as other factors described elsewhere in this report and our other reports filed with the SEC, including our Fiscal 2018 10-K.  Most of these factors are beyond our ability to predict or control.  Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.  Forward-looking statements speak only as of the date on which they are made.  We disclaim any obligation to update any forward-looking statements made herein, except as required by law.  Readers are cautioned not to put undue reliance on forward-looking statements.

 

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals.  Gold, silver, copper and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies.  Please see “Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our stream and royalty interests and may reduce our revenues. Certain contracts governing our stream and royalty interests have features that may amplify the negative effects of a drop in metals prices,” under Part I, Item 1A of our Fiscal 2018 10-K, for more information that can affect gold, silver, copper and other metal prices as well as historical gold, silver, copper and nickel prices.

 

During the nine months ended March 31, 2019, we reported revenue of $307.4 million, with an average gold price for the period of $1,248 per ounce, an average silver price of $15.04 per ounce and an average copper price of $2.80 per pound.  Approximately 77% of our total reported revenues for the nine months ended March 31, 2019 were attributable to gold sales from our gold producing stream and royalty interests, as shown within the MD&A.  For the nine months ended March 31, 2019, if the price of gold had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $24.5 million.

 

Approximately 9% of our total reported revenues for the nine months ended March 31, 2019 were attributable to silver sales from our silver producing stream and royalty interests.  For the nine months ended March 31, 2019, if the price of silver had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $3.0 million.

 

Approximately 9% of our total reported revenues for the nine months ended March 31, 2019 were attributable to copper sales from our copper producing stream and royalty interests.  For the nine months ended March 31, 2019, if the price of copper had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $3.1 million.

 

ITEM 4.     CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2019, the Company’s management, with the participation of the President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Vice President Strategy (the principal financial and accounting officer) of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based on such evaluation, the Company’s President and Chief Executive Officer and its Chief Financial Officer and Vice President Strategy have concluded that, as of March 31, 2019, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and that such information is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer and Vice President Strategy, as appropriate to allow timely decisions regarding required disclosure.

 

Disclosure controls and procedures involve human diligence and compliance and are subject to lapses in judgment and breakdowns resulting from human failures.  As a result, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

Changes in Internal Controls

 

There has been no change in the Company’s internal control over financial reporting during the three months ended March 31, 2019 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II.    OTHER INFORMATION

 

ITEM 1.      LEGAL PROCEEDINGS

 

Voisey’s Bay

 

Refer to Note 3 of our notes to consolidated financial statements for a discussion of the settlement associated with our Voisey’s Bay royalty.

 

ITEM 1A.    RISK FACTORS

 

Information regarding risk factors appears in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” and various risks faced by us are also discussed elsewhere in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.  In addition, risk factors are included in Part I, Item 1A of our Fiscal 2018 10-K.

 

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

 

Not applicable.

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4.     MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5.     OTHER INFORMATION

 

Not applicable.

 

ITEM 6.     EXHIBITS 

 

Exhibit
Number

    

Description

10.1*▲

 

Restricted Stock Unit Agreement in the form entered into between Royal Gold and Daniel Breeze, Vice President Corporate Development, RGLD Gold AG, under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan

 

 

 

10.2*▲

 

Performance Share Agreement in the form entered into between Royal Gold and Daniel Breeze, Vice President Corporate Development, RGLD Gold AG, under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan

 

 

 

10.3*▲

 

Stock Appreciation Rights Agreement in the form entered into between Royal Gold and Daniel Breeze, Vice President Corporate Development, RGLD Gold AG, under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan

 

 

 

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.

 

 

 

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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.INS*

 

XBRL Instance Document.

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document.


*Filed herewith.

Identifies each management contract or compensation plan or arrangement

Furnished herewith.

 

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SIGNATURES

 

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

 

 

ROYAL GOLD, INC. 

 

 

 

Date: May  2, 2019

 

 

 

By:

/s/ Tony Jensen

 

 

Tony Jensen

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date:  May  2, 2019

By:

/s/ William Heissenbuttel

 

 

William Heissenbuttel

 

 

Chief Financial Officer and Vice President Strategy

 

 

(Principal Financial and Accounting Officer)

 

 

37