ROYAL GOLD, INC. 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, 2019 filed
with the Securities and Exchange Commission (the "SEC") on August 8, 2019
("Fiscal 2019 10-K").
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We refer to "GSR," "NSR," "NVR," "metal stream (or "stream")" and other types of royalty or similar interests throughout this MD&A. These terms are defined
in our Fiscal 2019 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 thePeak Gold, LLC joint venture ("Peak Gold JV") as described further in our Fiscal 2019 10-K. Certain information provided in this report, including the Operator's Production Estimates by Stream and Royalty Interest for Calendar 2020 and Property Developments, has been provided to us by the operators of properties where we own interests or is publicly available information filed by these operators with applicable securities regulatory bodies, including theSEC .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. OverviewRoyal 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 ofMarch 31, 2020 , we owned seven stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for 71% and 72% of our total revenue for the three and nine months endedMarch 31, 2020 , compared to 71% and 70% for the three and nine months endedMarch 31, 2019 . 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 ofMarch 31, 2020 , we owned royalty interests on 36 producing properties, 14 development stage properties and 129 exploration stage properties, of which we consider 48 to be evaluation stage projects. We use "evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. Royalties accounted for 29% and 28% of our total revenue for the three and nine months endedMarch 31, 2020 , compared to 29% and 30% for the three and nine months endedMarch 31, 2019 . We do not conduct mining operations on the properties in which we hold stream and royalty interests, and except for our interest in the Peak Gold JV, we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties. 21 In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams and royalties on operating mines, to create new stream and royalty interests through the financing of mine development or exploration, or to acquire companies that hold stream and royalty interests. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial, legal and other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes. Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver and copper, together with the amounts of production from our producing stage stream and royalty interests. The price of gold, silver, copper and other metals has fluctuated widely in recent years. The marketability and the price of metals are influenced by numerous factors beyond the control of the Company and significant declines in the price of gold, silver or copper could have a material and adverse effect on the Company's results of operations and financial condition.
For the three and nine months ended
Three Months Ended Nine Months Ended
March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
Average Percentage Average Percentage Average Percentage Average Percentage
Metal Price of Revenue Price of Revenue Price of Revenue Price of Revenue
Gold ($/ounce) $ 1,583 79% $ 1,304 77% $ 1,512 77% $ 1,248 77%
Silver ($/ounce) $ 16.90 8% $ 15.57 9% $ 17.07 9% $ 15.04 9%
Copper ($/pound) $ 2.56 10% $ 2.82 9% $ 2.62 10% $ 2.80 9%
Other N/A 3% N/A 5% N/A 4% N/A 5%
Recent Business Developments
COVID-19 and current economic environment
Several of our operating counterparties have recently announced temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing COVID-19 pandemic, as discussed more fully in the individual property discussions throughout this MD&A. In addition, due to the uncertain environment, inApril 2020 we drew an additional$200 million on our revolving credit facility, as discussed more fully in the liquidity section of this MD&A. The economic and societal impacts associated with COVID-19 are fluid and changing rapidly, and we are currently unable to predict the nature or extent of any impact on our results of operations and financial condition. Please refer to our risk factors included in Part II, Item 1A of this Quarterly Report on Form 10-Q for more information about risks associated with COVID-19. Leadership changes
As previously announced, we recently made several key leadership changes as a result of our ongoing management succession planning. After a thorough search process, our Board of Directors appointedWilliam Heissenbuttel as our President and Chief Executive Officer and a member of the Board of Directors, effectiveJanuary 2, 2020 .Mr. Heissenbuttel most recently served as our Chief Financial Officer and Vice President Strategy. In addition, the Board of Directors promoted the following executives effectiveJanuary 2, 2020 :Mark Isto , Executive Vice President and Chief Operating Officer;Paul Libner , Chief Financial Officer and Treasurer; andRandy Shefman , Vice President and General Counsel. Alturas royalty acquisition
OnJanuary 29, 2020 , a wholly-owned subsidiary of the Company entered into an agreement with various private individuals for the acquisition of a net smelter return ("NSR") royalty of up to 1.06% (gold) and up to 1.59% (copper) on mining concessions included as part of the Alturas project, which is located within theCoquimbo Region ofChile and held by a subsidiary of Barrick Gold Corporation ("Barrick"), Compañia Minera Salitrales Limitada. Total consideration for the royalty is up to$41 million , of which$11 million was paid onJanuary 29, 2020 . A future payment of up to$20 million is conditional based on a project construction decision by Barrick and the size of the minable mineralized material 22
on the date of the construction decision. A further future payment of up to$10 million will be made to the private individuals upon first production from
the mining concessions.
InAugust 2019 , a subsidiary of the Company entered into an agreement with TriStar Gold Inc. and its subsidiaries (together "TriStar") to acquire (i) up to a 1.5% NSR royalty on the Castelo de Sonhos gold project ("CDS"), located inBrazil , and (ii) warrants to purchase up to 19,640,000 common shares of TriStar. Total consideration is$7.5 million and was payable over three payments, of which$4.5 million was paid inAugust 2019 ,$1.5 million was paid inNovember 2019 , and the final payment of$1.5 million was paid inMarch 2020 . Aggregate funds invested by the Company will be used by TriStar primarily to advance CDS to the feasibility stage, including advancing permitting activities. A Preliminary Economic Assessment for CDS was prepared by TriStar in calendar 2018 and was based on a total of 2.0 million ounces of mineralized material at an average grade of approximately 1.0 gram per tonne. SinceAugust 2019 , TriStar has completed reverse circulation drilling, which is being completed to support the preparation of a preliminary feasibility study. Refer to Note 2 of our notes to consolidated financial statements for further discussion.
Principal Stream and Royalty Interests
The Company considers both historical and future potential revenues in determining which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from both producing and development properties are 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 2019 10-K for further discussion of our principal producing stream and royalty interests.
Stream or royalty
interests
(Gold unless otherwise
Mine Location Operator stated)
Andacollo Region IV, Compañía Minera Teck Gold stream - 100% of
Chile Carmen de Andacollo gold produced (until
("Teck") 900,000 ounces
delivered; 50%
thereafter)
Cortez Nevada, USA Nevada Gold Mines GSR1: 0.40% to 5.0%
LLC ("NGM"), a joint sliding-scale GSR
venture between GSR2: 0.40% to 5.0%
Barrick and Newmont sliding-scale GSR
Corporation GSR3: 0.71% GSR NVR1:
("Newmont") 4.91% NVR; NVR1C 4.52%
NVR
Mount Milligan British Centerra Gold Inc. Gold stream - 35.00%
Columbia, ("Centerra") of payable gold
Canada
Copper stream - 18.75%
of payable copper
Peñasquito Zacatecas, Newmont 2.0% NSR (gold,
Mexico silver, lead, zinc)
Pueblo Viejo Sanchez Barrick (60%) Gold stream - 7.5% of
Ramirez, gold produced (until
Dominican 990,000 ounces
Republic delivered; 3.75%
thereafter)
Silver stream - 75% of
silver produced (until
50.0 million ounces
delivered; 37.5%
thereafter)
Rainy River Ontario, Canada New Gold, Inc. ("New Gold stream - 6.5% of
Gold") gold produced (until
230,000 ounces
delivered; 3.25%
thereafter)
Silver stream - 60% of
silver produced (until
3.1 million ounces
delivered; 30%
thereafter)
Wassa Western Region Golden Star Gold stream - 10.5% of
of Ghana Resources Ltd. gold produced (until
("Golden Star") 240,000 ounces
delivered; 5.5%
thereafter)(1)
(1) The 240,000 ounce threshold includes production from
mine.
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Operators' Production Estimates by Stream and Royalty Interest for Calendar 2020
We generally receive annual production estimates from many of the operators of our producing mines during the first quarter of each calendar year. In some instances, an operator may revise their original calendar year guidance throughout the year. The following table shows current production estimates for our principal producing properties for calendar 2020 as well as the actual production reported to us by the various operators throughMarch 31, 2020 . The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators' estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information. Please refer to "Property Developments" below within this MD&A for further discussion on our principal producing and development stage properties. Operators' Estimated and Actual Production by Stream and Royalty Interest for Calendar 2020 Principal Producing Properties Calendar 2020 Operator's Production Calendar 2020 Operator's Production Estimate(1) Actual(2) Gold Silver Base Metals Gold Silver Base Metals Stream/Royalty (oz.) (oz.) (lbs.) (oz.) (oz.) (lbs.) Stream: Andacollo(3) 53,000 14,800 Mount Milligan(4) 140,000 - 160,000 33,700 Copper 80 - 90 Million 20.1 Million Pueblo Viejo(5) 530,000 - 580,000 N/A 143,000 N/A Rainy River(6) Withdrawn Withdrawn 50,400 61,300 Wassa(7) 155,000 - 165,000 Not released yet Royalty: Cortez GSR1 66,500 27,700 Cortez GSR2 109,000 30,000 Cortez GSR3 145,700 17,200 Cortez NVR1 113,200 45,800 Cortez NVR1C 29,900 200 Peñasquito(8) Withdrawn Withdrawn 116,000 9.5 Million Lead Withdrawn 62 Million Zinc Withdrawn 135 Million
(1) Production estimates received from our operators are for calendar 2020,
unless otherwise noted in footnotes to this table. 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 II, Item 1A of this report and our Fiscal 2019
10-K for information regarding factors that could affect actual results.
(2) Actual production figures shown are from our operators and cover the period
to this table.
(3) The estimated and actual production figures shown for Andacollo are contained
gold in concentrate.
(4) Centerra has reported that its previously reported calendar year 2020
production guidance is under review due to the ongoing COVID-19 pandemic and
related impacts to operations. The actual production figures shown for Mount
Milligan are payable gold and copper in concentrate.
(5) The estimated and actual production figures shown for
payable gold in doré and represent Barrick's 60% interest in
The operator did not provide estimated or actual silver production.
(6) New Gold has withdrawn its previously reported calendar year 2020 production
guidance due to the COVID-19 pandemic. The actual production figures shown
are produced gold and silver in doré.
(7) The estimated and actual production figures shown for Wassa are payable gold
in doré.
(8) Newmont has withdrawn its previously reported calendar year 2020 production
guidance due to the COVID-19 pandemic. The actual gold and silver production
figures shown for Peñasquito are payable gold and silver in concentrate and
doré. The actual lead and zinc production figures shown are payable lead and
zinc in concentrate.
24
Property Developments
The following property development information is provided by the operators of
the properties, either to
Stream Interests Andacollo
Gold stream deliveries from Andacollo were approximately 9,500 ounces of gold
for the three months ended
As previously reported by Teck, Andacollo experienced a temporary suspension of operations during the quarter endedDecember 31, 2019 , due to a workers' strike. We anticipate the impact of the strike to be reflected in our financial results beginning with the quarter endedJune 30, 2020 , as we generally receive gold deliveries from Andacollo within six months of concentrate shipment.
With respect to COVID-19 pandemic impacts, Teck reported they maintained normal production levels while reducing the on-site workforce where possible and working with our contractors and the local communities to ensure adequate preventative measures are in place.
Khoemacau Project InFebruary 2019 , the Company's wholly-owned subsidiary,RGLD Gold AG ("RGLD Gold") entered into a silver stream withKhoemacau Copper Mining (Pty.) Limited ("KCM") for the purchase of silver produced from the Khoemacau project ("Khoemacau" or the "Project") located inBotswana . Please refer to our Fiscal 2019 10-K for further details on the Khoemacau silver stream acquisition. According to KCM, progress continued at Khoemacau during theMarch 2020 quarter and the project reached approximately 43% of construction completion as ofMarch 31, 2020 with 80% of the capital committed. According to KCM, activities are focused on underground development, boxcut construction, construction of accommodation, power and water infrastructure at Zone 5, completing construction of the haul road between Zone 5 and the Boseto mill, and refurbishment of the Boseto mill. KCM also reported that underground development on two of the five planned declines started in earlyFebruary 2020 and further two started in
earlyMarch 2020 . OnApril 3, 2020 , RGLD Gold made its third advance payment of$47.9 million , which brings the total contribution to$135.7 million . RGLD Gold expects to commit approximately$65 million during the remainder of calendar year 2020, and the total remaining commitment in calendar year 2021 is expected to range from approximately$11 million for the base stream of 80% of payable silver up to approximately$64 million should KCM elect to increase the stream from 80% to 100% of payable silver. Further payments are subject to certain conditions and are scheduled to be made on a quarterly basis using an agreed formula and certification process as project spending progresses. According to KCM, although a six-month state of emergency has been declared by the Government ofBotswana to help prevent the spread of COVID-19, mining has been designated an "essential service" and activity at Khoemacau is continuing.
Barring any potential delays caused by COVID-19 considerations, KCM continues to expect the first shipment of concentrate by mid-calendar 2021.
Mount Milligan
Gold stream deliveries fromMount Milligan were approximately 12,100 ounces for the three months endedMarch 31, 2020 , compared to approximately 23,100 ounces for the three months endedMarch 31, 2019 . Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods. Copper stream deliveries fromMount Milligan were approximately 3.40 million pounds during the three months endedMarch 31, 2020 , compared to approximately 2.46 million pounds during the three months endedMarch 31, 2019 . Increased deliveries resulted from differences in the timing of shipments and settlements during the periods. 25
OnMarch 26, 2020 , Centerra published an updated National Instrument 43-101 ("NI 43-101") technical report for theMount Milligan mine, which provides a detailed update to the life of mine plan contained in the previous NI 43-101 report forMount Milligan published by Centerra in calendar 2017. Centerra reported a reduction in proven and probable reserves due to increased costs, lower expected productivities, and lower process plant throughput compared to their calendar 2017 report, as well as an update to the resource model and re-estimation of metallurgical recoveries. Details for the reserves and updated mine plan, which does not contemplate any growth capital or inclusion of additional mineralized material, were reported by Centerra as follows:
Reserves as of
million pounds of copper (comprised of 191.0 million tonnes grading 0.39 grams
? per tonne of gold and 0.23% of copper). Reserves were calculated using a gold
price of
rate of
? Production based on a 9-year reserve life through calendar 2028;
? Average life of mine recoveries of 61.8% for gold and 80.6% for copper;
? Life of mine payable gold production of 1.45 million ounces, or an average of
161,000 ounces per year;
? Life of mine payable copper production of 735.6 million pounds, or an average
of 81.7 million pounds per year; and
Average life of mine all-in sustaining cost of
? by-product basis, which includes sustaining capital and copper revenue credits
(assuming a copper price of
As of
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment forRoyal Gold's stream and royalty interests. As part of the Company's regular asset impairment analysis, the Company determined that an impairment of our stream interest atMount Milligan was not necessary as (i) the earlier financial impairment taken by Centerra does not impact the mine operating performance, and (ii) the reduction in reserves and mineralized material atMount Milligan resulted in gold and copper depletion rates that are well below current and long-term consensus gold and copper prices. As ofMarch 31, 2020 , the gold and copper depletion rates at our Mount Milligan stream interest are$764 per ounce of gold and$1.48 per pound of copper. Depletion rates well below current and long-term metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable The Company will continue to monitor future developments atMount Milligan as part of its regular asset impairment analysis. OnApril 1, 2020 , Centerra announced that reductions of manpower and throughput to 50,000 tonnes per day atMount Milligan would occur as a result of actions implemented to combat the COVID-19 pandemic. OnMay 1, 2020 , Centerra announced that processing of surface ore stockpiles using only the primary crusher continued during this period of reduced operations, and a planned two-week maintenance shut-down occurred duringmid-April 2020 . Centerra further reported that process plant operations restarted in late April and mine operations are expected to ramp up production in mid-May, and the short-term decrease in activity is not expected to have a material impact on calendar 2020 production, or cause changes to calendar 2020 guidance.
Gold stream deliveries fromPueblo Viejo were approximately 10,200 ounces of gold for the three months endedMarch 31, 2020 , compared to approximately 12,400 ounces of gold for the three months endedMarch 31, 2019 . Silver stream deliveries were approximately 394,700 ounces of silver for the three months endedMarch 31, 2020 , compared to approximately 553,000 ounces of silver for the three months endedMarch 31, 2019 . Barrick reports that it continues to advance engineering and evaluation work towards a feasibility study for the process plant expansion and proposed tailings storage facility that could extend the mine life atPueblo Viejo to beyond calendar 26 2040. Barrick estimates that the process plant and tailings expansion project could significantly increase throughput and allow the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022 (on a 100% basis), and that the increase in tailings storage capacity has the potential to convert approximately 11 million ounces of mineralized material to reserves (on a 100% basis).Rainy River
Gold stream deliveries fromRainy River were approximately 3,600 ounces of gold for the three months endedMarch 31, 2020 , compared to 4,400 ounces of gold for the three months endedMarch 31, 2019 .
Silver stream deliveries were approximately 40,800 ounces of silver for the
three months ended
OnFebruary 13, 2020 , New Gold announced the results of an updated life of mine plan for theRainy River mine. The corresponding NI 43-101 technical report was filed onMarch 27, 2020 . New Gold reported that the mine plan was based on proven and probable reserves estimated at a gold price of$1,275 per ounce and a silver price of$17.00 per ounce, and it expects there may remain potential to extend the underground mine life beyond calendar 2028 should the prevailing gold price support the development of additional underground mining areas during that period and/or exploration efforts increase the resource inventory. Key highlights of the updated plan as reported by New Gold include:
A mine plan covering the calendar 2020 to 2028 period, which considers mining
from a smaller and higher-grade open pit through to early 2025, with concurrent
? mining from a smaller and more selective underground operation from 2022
through 2027. Processing of stockpiled low-grade open pit material is expected
to supplement underground mill feed during calendar 2026 to 2028;
? Overall gold grade of 1.10 grams per tonne mined and 1.06 grams per tonne
milled;
? Average gold recovery of 89%;
Average gold equivalent production of 289,000 ounces per year (including 3.6
? million ounces of silver converted to gold equivalent using a gold price of
? Proven and probable reserves of 2.636 million ounces of contained gold and
6.266 million ounces of contained silver as at
As of
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for the Company's stream and royalty interests. As a result of the new information from New Gold and as part of the Company's regular asset impairment analysis, the Company determined that an impairment on itsRainy River stream interest was not necessary as ofMarch 31, 2020 as the reduction in gold and silver reserves resulted in depletion rates that are well below current and long-term consensus gold and silver prices. As ofMarch 31, 2020 , the gold and silver depletion rates at ourRainy River stream interest are$848 per ounce of gold and$11.27 per ounce of silver. Depletion rates well below current and long-term consensus metal prices are a strong indicator the carrying value of our stream or royalty interests are recoverable. The Company will continue to monitor future developments atRainy River as part of its regular asset impairment analysis. According to New Gold, as a result of measures to address the spread of COVID-19,Rainy River completed a voluntary two-week shutdown fromMarch 20 to April 2, 2020 . OnApril 29, 2020 New Gold reported that the mill facility is operating at full capacity with ore supplied from the open pit and medium-grade stockpile, and the mine is operating at approximately 70% of the productivity achieved before the shutdown. New Gold announced that it has withdrawn its calendar 2020 guidance until the impact of COVID-19 is better understood. Wassa Gold stream deliveries from Wassa were approximately 3,800 ounces of gold for the three months endedMarch 31, 2020 , compared to approximately 4,600 ounces of gold for the three months endedMarch 31, 2019 . 27
OnMarch 27, 2020 ,Golden Star reported that deep drilling in calendar 2019 successfully extended the mineralization at Wassa by approximately 700 feet to the south where the deposit remains open to the south and down dip.Golden Star further reported that the exploration strategy during calendar 2020 would transition away from growth of the overall resource to infill drilling to help define the potential mine plans for the southern extension of the operation. According toGolden Star , as ofDecember 31, 2019 the proven mineral reserve at Wassa increased 87% over the prior year period to 1.4 million ounces of gold, and total underground mineralized material at Wassa contained approximately
11.2 million ounces of gold.Golden Star announced earlier it has taken a proactive response to the COVID-19 pandemic threat by implementing a range of procedures to protect and monitor the health and safety of their workforce and has not reported any production disruptions with respect to the pandemic. Royalty Interests Cortez Production attributable to the Company's royalty interest at Cortez increased to 57,700 ounces of gold over the prior year quarter of 32,700 ounces of gold, as a result of production ramping up at the Crossroads deposit, which is subject to the NVR1C, GSR2 and portions of the NVR1 and GSR3 royalty interests. During the current quarter, Barrick provided the Company with an updated reserve statement and life of mine plan for Cortez. According to Barrick, as ofDecember 31, 2019 , total proven and probable reserves subject to the Company's royalty interests contained 3.5 million ounces of gold (consisting of 87.0 million tonnes of ore at a grade of 1.26 grams per tonne). Reserves were calculated at a gold price of$1,200 per ounce. Further according to Barrick, total gold production at Cortez from the regions subject to the Company's interests is expected to be approximately 175,000 ounces in calendar 2020, increasing to an approximate average of 425,000 ounces from calendar 2021 through calendar 2026. The expected production increase from calendar 2020 to calendar 2021 is primarily due to higher contribution from the Crossroads deposit, which is expected to ramp up through calendar 2023 and offset declining production from the other royalty regions. Peñasquito
Gold, silver, lead and zinc production attributable to our royalty interest at Peñasquito increased approximately 161%, 76%, 76% and 71%, respectively, when compared to the prior year quarter. The increase in production resulted from improved operations and higher grades from the main Peñasco pit. OnMay 5, 2020 , Newmont announced that operations at Peñasquito were placed on care and maintenance onApril 12, 2020 due to a Mexican federal government decree to temporarily suspend all non-essential activities inMexico as part of a nationwide effort to help slow the spread of COVID-19. Newmont further stated that it has continued to engage with government at all levels on a restart plan, and the site is well positioned to ramp back up quickly and efficiently over a two-week period once operations are allowed to restart. Results of Operations
Quarter Ended
For the quarter endedMarch 31, 2020 , we recorded net income and comprehensive income attributable toRoyal Gold stockholders of$38.6 million , or$0.59 per basic and diluted share, as compared to net income and comprehensive income attributable toRoyal Gold stockholders of$28.8 million , or$0.44 per basic and diluted share, for the quarter endedMarch 31, 2019 . The increase in our earnings per share was primarily attributable to an increase in revenue and a decrease in our interest expense, each discussed further below. These increases were partially offset by an increase in our general and administrative expenses (discussed further below) and a decrease in the fair value of the marketable equity securities the Company holds. Refer to Note 4 of our notes to consolidated financial statements for further discussion on our marketable
equity securities.
28
For the quarter endedMarch 31, 2020 , we recognized total revenue of$136.4 million , comprised of stream revenue of$97.5 million and royalty revenue of$39.0 million at an average gold price of$1,583 per ounce, an average silver price of$16.90 per ounce and an average copper price of$2.56 per pound. This is compared to total revenue of$109.8 million for the three months endedMarch 31, 2019 , 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. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter endedMarch 31, 2020 compared to the quarter endedMarch 31, 2019 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended March 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
Three Months Ended Three Months Ended
March 31, 2020 March 31, 2019
Reported Reported
Stream/Royalty Metal(s) Revenue Production(1) Revenue Production(1)
Stream(2):
Mount Milligan $ 32,298 $ 26,938
Gold 14,000 oz. 15,200 oz.
Copper 4.3 Mlbs. 2.6 Mlbs.
Pueblo Viejo $ 28,302 $ 20,787
Gold 13,200 oz. 10,400 oz.
Silver 417,800 oz. 469,000 oz.
Andacollo Gold $ 22,055 13,900 oz. $ 15,638 12,000 oz.
Wassa Gold $ 8,647 5,600 oz. $ 5,773 4,400 oz.
Rainy River $ 4,838 $ 7,074
Gold 2,600 oz. 5,000 oz.
Silver 47,900 oz. 40,800 oz.
Other(3) Gold $ 1,320 800 oz. $ 1,555 1,200 oz.
Total stream revenue $ 97,460 $ 77,765
Royalty(2):
Peñasquito $ 7,425 $ 4,465
Gold 97,200 oz. 37,300 oz.
Silver 8.7 Moz. 4.9 Moz.
Lead 60.5 Mlbs. 34.5 Mlbs.
Zinc 124.5 Mlbs. 72.8 Mlbs.
Cortez Gold $ 6,400 57,700 oz. $ 4,127 32,700 oz.
Other(3) Various $ 25,152 N/A $ 23,421 N/A
Total royalty revenue $ 38,977 $ 32,013
Total Revenue $ 136,437 $ 109,778 (1) Reported production relates to the amount of metal sales subject to our
stream and royalty interests for the three months ended
2019 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) Individually, no stream or royalty included within the "Other" category for
royalties contributed greater than 5% of our total revenue for either period.
The increase in our total revenue for the three months endedMarch 31, 2020 , compared with the three months endedMarch 31, 2019 , resulted primarily from an increase in our stream revenue and an increase in the average gold and silver prices. The increase in our stream revenue was primarily attributable to an increase in gold sales at Andacollo andPueblo Viejo and higher copper sales atMount Milligan . These increases were partially offset by lower gold sales atRainy River andMount Milligan due to a decrease in deliveries. Please refer to "Property Developments" earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests. 29 Gold and silver ounces and copper pounds purchased and sold during the three months endedMarch 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as ofMarch 31, 2020 , andJune 30, 2019 , for our streaming interests were as follows: Three Months Ended Three Months Ended As of As of March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019 Gold Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.) Mount Milligan 12,100 14,000 23,100 15,200 8,500 7,100 Pueblo Viejo 10,200 13,200 12,400 10,400 10,200 9,500 Andacollo 9,400 13,900 9,900 12,000 300 4,300 Wassa 3,800 5,600 4,600 4,400 600 1,500 Rainy River 3,600 2,600 4,400 5,000 2,300 1,800 Other 900 800 1,200 1,200 400 400 Total 40,000 50,100 55,600 48,200 22,300 24,600 Three Months Ended Three Months Ended As of As of March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019 Silver Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.) Pueblo Viejo 394,700 417,800 553,000 469,000 394,700 475,600 Rainy River 40,800 47,900 35,700 40,800 41,300 36,500 Total 435,500 465,700 588,700 509,800 436,000 512,100 Three Months Ended Three Months Ended As of As of March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019 Copper Stream Purchases (Mlbs.) Sales (Mlbs.) Purchases (Mlbs.) Sales (Mlbs.) Inventory (Mlbs.) Inventory (Mlbs.) Mount Milligan 3.4 4.3 2.5 2.6 - 0.8 Cost of sales, which excludes depreciation, depletion and amortization, increased to$22.0 million for the three months endedMarch 31, 2020 from$19.1 million for the three months endedMarch 31, 2019 . The increase was primarily due to increased gold sales fromPueblo Viejo and Andacollo and increased gold and silver prices when compared to the prior year quarter. Cost of sales is specific to our stream agreements and is the result of RGLD Gold's purchase of gold, silver and copper for a cash payment. The cash payment for gold fromMount Milligan is the lesser of$435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan ) spot price near the date of metal delivery. General and administrative costs increased to$9.6 million for the three months endedMarch 31, 2020 from$6.8 million for the three months endedMarch 31, 2019 . The increase was due to additional non-cash stock compensation expense of approximately$3.3 million primarily as a result of the accelerated vesting of certain equity awards in connection with the recent retirement of our former President and Chief Executive Officer and our former Vice President and General Counsel.
Depreciation, depletion and amortization increased to$51.2 million for the three months endedMarch 31, 2020 from$39.4 million for the three months endedMarch 31, 2019 . The increase was primarily due to higher copper sales at Mount Milligan and higher gold sales atPueblo Viejo . An increase in the depletion rates atMount Milligan andRainy River as a result of updated reserves, as discussed above also contributed to the increase in our depletion expense. Interest and other expense decreased to$2.1 million for the three months endedMarch 31, 2020 , from$7.5 million for the three months endedMarch 31, 2019 . The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding when compared to the prior period. As discussed in our Fiscal 2019 10-K, the Company settled the$370 million aggregate principal amount due under its convertible senior notes that matured inJune 2019 . Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt. During the three months endedMarch 31, 2020 , we recognized an income tax expense totaling$8.7 million , compared with an income tax expense of$9.4 million during the three months endedMarch 31, 2019 . The income tax expense resulted in an effective tax rate of 18.5% in the current period, compared with 24.7% in the quarter endedMarch 31, 2020 . The three months endedMarch 31, 2020 effective tax rate included income tax benefits resulting from foreign exchange rate movements compared to theU.S. dollar. OnApril 30, 2020 , the Company entered into a settlement agreement with a foreign taxing authority related to an uncertain tax position recorded on our consolidated balance sheets as ofMarch 31, 2020 . We continue to analyze the impacts of the settlement on our consolidated financial statements, including the release of uncertain tax positions during our fourth quarter endingJune 30, 2020 . 30
Nine Months Ended
For the nine months endedMarch 31, 2020 , we recorded net income and comprehensive income attributable toRoyal Gold stockholders of$150.3 million , or$2.30 per basic share and$2.29 per diluted share, as compared to net income and comprehensive income attributable toRoyal Gold stockholders of$67.4 million , or$1.03 per basic and diluted share, for the nine months endedMarch 31, 2019 . The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a decrease in our interest expense and (iii) discrete income tax benefits recognized, primarily attributable to recent Swiss tax reform during the quarter endedSeptember 30, 2019 . Each are discussed further below. For the nine months endedMarch 31, 2020 , we recognized total revenue of$378.9 million , which is comprised of stream revenue of$274.1 million and royalty revenue of$104.8 million at an average gold price of$1,512 per ounce, an average silver price of$17.07 per ounce and an average copper price of$2.62 per pound. This is compared to total revenue of$307.4 million for the nine months endedMarch 31, 2019 , which was 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$2.80 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the nine months endedMarch 31, 2020 compared to the nine months endedMarch 31, 2019 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Nine Months Ended March 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
Nine Months Ended Nine Months Ended
March 31, 2020 March 31, 2019
Reported ReportedStream/Royalty Metal(s) Revenue Production(1) Revenue Production(1) Stream(2): Mount Milligan$ 93,423 $ 63,954 Gold 43,500 oz. 38,500 oz. Copper 10.9 Mlbs. 5.8 Mlbs. Pueblo Viejo$ 73,534 $ 58,504 Gold 33,100 oz. 28,500 oz. Silver 1.4 Moz. 1.5 Moz. Andacollo Gold$ 63,324 41,800 oz.$ 51,016 40,900 oz. Rainy River$ 19,566 $ 17,067 Gold 11,700 oz. 12,300 oz. Silver 133,500 oz. 108,300 oz. Wassa Gold$ 18,760 12,500 oz.$ 17,557 14,000 oz. Other(3) Gold$ 5,458 3,700 oz.$ 7,382 6,000 oz. Total stream revenue$ 274,065 $ 215,480 Royalty(2): Peñasquito$ 19,422 $ 12,763 Gold 228,500 oz. 141,000 oz. Silver 22.6 Moz. 14.1 Moz. Lead 151.7 Mlbs. 100.4 Mlbs. Zinc 303.6 Mlbs. 220.1 Mlbs. Cortez Gold$ 14,109 120,800 oz.$ 7,066 59,700 oz. Other(3) Various$ 71,257 N/A$ 72,053 N/A Total royalty revenue$ 104,788 $ 91,882 Total revenue$ 378,853 $ 307,362
(1)Reported production relates to the amount of metal sales subject to our
stream and royalty interests for the nine months ended
(2)Refer to "Property Developments" above for further discussion on our principal stream and royalty interests.
(3)Individually, no stream or royalty included within the "Other" category contributed greater than 5% of our total revenue for either period.
31
The increase in our total revenue for the nine months endedMarch 31, 2020 , compared with the nine months endedMarch 31, 2019 , resulted primarily from an increase in our stream revenue and an increase in the average gold and silver prices. The increase in our stream revenue was primarily attributable to an increase in gold and copper sales atMount Milligan and gold sales atPueblo Viejo . These increases were partially offset by lower gold sales atRainy River and Wassa.
Gold and silver ounces and copper pounds purchased and sold during the nine
months ended
Nine Months Ended Nine Months Ended As of As of
March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019
Gold Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.)
Mount Milligan 44,900 43,500 46,100 38,500 8,500 7,100
Andacollo 37,700 41,800 35,900 41,000 300 4,300
Pueblo Viejo 33,900 33,100 31,700 28,500 10,200 9,500
Wassa 11,600 12,500 12,300 14,000 600 1,500
Rainy River 12,200 11,700 12,500 12,300 2,300 1,800
Other 3,700 3,700 4,700 6,000 400 400
Total 144,000 146,300 143,200 140,300 22,300 24,600
Nine Months Ended Nine Months Ended As of As of
March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019
Silver Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.)
Pueblo Viejo 1,274,900 1,355,800 1,531,400 1,518,700 394,700 475,600
Rainy River 138,300 133,500 112,600 108,300 41,300 36,500
Total 1,413,200 1,489,300 1,644,000 1,627,000 436,000 512,100
Nine Months Ended Nine Months Ended As of As of
March 31, 2020 March 31, 2019 March 31, 2020 June 30, 2019
Copper Stream Purchases (Mlbs.) Sales (Mlbs.) Purchases (Mlbs.) Sales (Mlbs.) Inventory (Mlbs.) Inventory (Mlbs.)
Mount Milligan 10.2 11.0 6.6 5.8 - 0.8
Cost of sales increased to $63.2 million for the nine months ended
March 31, 2020 from $53.8 million for the nine months ended March 31, 2019 . The
increase was primarily due to increased gold and copper sales from Mount
Milligan , higher gold sales from Pueblo Viejo , and an increase in gold and
silver prices over the prior year quarter. Cost of sales is specific to our
stream agreements and is the result of RGLD Gold's purchase of gold, silver and
copper for a cash payment. The cash payment for gold from Mount Milligan is the
lesser of $435 per ounce or the prevailing market price of gold when purchased,
while the cash payment for our other streams is a set contractual percentage of
the gold, silver or copper (Mount Milligan ) spot price near the date of metal
delivery.
Depreciation, depletion and amortization increased to $130.0 million for the
nine months ended March 31, 2020 from $120.7 million for the nine months ended
March 31, 2019 . The increase was primarily attributable to higher gold and
copper sales and depletion rates at Mount Milligan and an increase in gold sales
and depletion rates at Pueblo Viejo . This increase was partially offset by lower
depletion at Wassa due to a decrease in gold sales over the prior period.
Interest and other expense decreased to $7.1 million for the nine months ended
March 31, 2020 , from $22.8 million for the nine months ended March 31, 2019 . The
decrease was primarily attributable to lower interest expense as a result of a
decrease in average debt amounts outstanding when compared to the prior period.
As discussed in our Fiscal 2019 10-K, the Company settled the $370 million
aggregate principal amount due under its convertible senior notes that matured
in June 2019 . Refer to Note 5 of our notes to consolidated financial statements
for further discussion on our outstanding debt.
During the nine months ended March 31, 2020 , we recognized an income tax benefit
totaling $3.7 million , compared with an income tax expense of $11.4 million
during the nine months ended March 31, 2019 . This resulted in an effective tax
rate of (2.6%) in the current period, compared with 15.1% during the nine months
ended March 31, 2019 . The decrease in the effective tax rate for the nine months
ended March 31, 2020 was primarily related to the remeasurement of certain
deferred tax assets and a net step-up in the basis of tax assets due to the
enactment of the Federal Act on Tax Reform and AHV Financing (Swiss Tax Reform)
during the September 2019 quarter. The effective tax rate for the nine months
ended March 31, 2019 included an income tax benefit related to the transition
tax as part of the Act, which was due to consideration of new U.S. Treasury
regulations and IRS guidance released during the period.
32
Liquidity and Capital Resources
Overview AtMarch 31, 2020 , we had current assets of$150.6 million compared to current liabilities of$49.8 million resulting in working capital of$100.8 million and a current ratio of approximately 3 to 1. This compares to current assets of$154.7 million and current liabilities of$33.6 million atJune 30, 2019 , resulting in working capital of$121.1 million and a current ratio of approximately 5 to 1. During the nine months endedMarch 31, 2020 , liquidity needs were met from$249.2 million in net cash provided by operating activities and our available cash resources. During the nine months endedMarch 31, 2020 , the Company repaid$115 million of the outstanding borrowings under the revolving credit facility. As ofMarch 31, 2020 , the Company had$105 million outstanding and$895 million available under its revolving credit facility. Working capital, combined with the Company's undrawn revolving credit facility, resulted in approximately$1 billion of total liquidity atMarch 31, 2020 . The Company was in compliance with each financial covenant under the revolving credit facility as ofMarch 31, 2020 . Refer to Note 5 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, including the conditional funding schedule in connection with the Khoemacau silver stream acquisition. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The Company currently, and generally at any time, has acquisition opportunities in various stages of active review. In the event of one or more substantial stream or royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary. We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2019 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.
Recent Liquidity and Capital Resource Developments
Revolving Credit Facility Drawdown
OnApril 3, 2020 , the Company drew an additional$200 million on its revolving credit facility at an interest rate of LIBOR plus 1.10% for an all-in rate of 2.54%, resulting in a total of$305 million outstanding and$695 million available. There is no immediate requirement for the additional funds. However, due to the uncertain environment caused by the COVID-19 pandemic and the impact on certain operations where we hold a stream or royalty interest, we believe the drawdown was a prudent precautionary measure to help ensure cash is readily available to support continued business activities. Summary of Cash Flows Operating Activities Net cash provided by operating activities totaled$249.2 million for the nine months endedMarch 31, 2020 , compared to$180.9 million for the nine months endedMarch 31, 2019 . The increase is primarily due to an increase in proceeds received from our stream interests, net of cost of sales, of approximately$51.7 million and lower income taxes paid of$6.0 million over the prior period.
Investing Activities Net cash used in investing activities totaled$105.1 million for the nine months endedMarch 31, 2020 , compared to net cash used in investing activities of$4.8 million for the nine months endedMarch 31, 2019 . The increase in cash used in investing activities is primarily due to an increase in the acquisition of stream and royalty interests. The Company has made advance payments totaling$87.8 million for the Khoemacau silver stream acquisition during the nine months endedMarch 31, 2020 . 33 Financing Activities Net cash used in financing activities totaled$169.9 million for the nine months endedMarch 31, 2020 , compared to$48.9 million for the nine months endedMarch 31, 2019 . The increase in cash used in financing activities is primarily due to an increase in repayments on our revolving credit facility. The Company repaid$115.0 million on our revolving credit facility during the nine months endedMarch 31, 2020 .
Recently Adopted Accounting Standards and Critical Accounting Policies
Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently adopted accounting standards. Refer to our Fiscal 2019 10-K for discussion on our critical accounting policies. Forward-Looking Statements This report and our other public communications include "forward-looking statements" within the meaning ofU.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from these statements. Forward-looking statements are often identified by words like "will," "may," "could," "should," "would," "believe," "estimate," "expect," "anticipate," "plan," "forecast," "potential," "intend," "continue," "project," or negatives of these words or similar expressions. Forward-looking statements include, among others, the following: statements about our expected financial performance, including revenue, expenses, earnings or cash flow; operators' expected operating and financial performance, including production, deliveries, mine plans and reserves, development, cash flows and capital expenditures; planned and potential acquisitions or dispositions, including funding schedules and conditions; liquidity, financing and dividends; our overall investment portfolio; macroeconomic and market conditions including the impacts of COVID-19; prices for gold, silver, copper, nickel and other metals; potential impairments; or tax changes. Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the following: a low-price environment for gold, silver, copper, nickel or other metals; operating activities or financial performance of properties on which we hold stream or royalty interests, including variations between actual and forecasted performance, operators' ability to complete projects on schedule and as planned, changes to mine plans and reserves, liquidity needs, mining and environmental hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our stream or royalty agreements; risks associated with doing business in foreign countries; our ability to identify, finance, value and complete acquisitions; adverse economic and market conditions; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; and other factors described elsewhere in this report and our otherSEC reports, including our Fiscal 2019 10-K and subsequent Quarterly Reports on Form 10-Q. Most of these factors are beyond our ability to predict or control.
Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
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