ROYAL GOLD, INC. General Presentation
A discussion of the changes in our financial condition and results of operations for the fiscal years endedJune 30, 2020 , and 2019, has been omitted from this report, but may be found in Item 7, MD&A, of our Annual Report on Form 10-K for the year endedJune 30, 2020 , filed with theSEC onAugust 6, 2020 , which is available free of charge on theSEC's website at www.sec.gov and our website at www.royalgold.com. Overview of Our Business We acquire and manage precious metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or finance projects that are in production or in the development stage in exchange for stream or royalty interests.
We manage our business under two segments:
Acquisition and Management of Stream Interests - A metal stream is a purchase
agreement that provides, in exchange for an upfront deposit payment, the right
to purchase all or a portion of one or more metals produced from a mine, at a
price determined for the life of the transaction by the purchase agreement. As
? of
properties and two development stage properties. Stream interests accounted for
69% and 72% of our total revenue for the fiscal years ended
2020, respectively. We expect stream interests to continue representing a significant portion of our total revenue.
Acquisition and Management of Royalty Interests - Royalties are non-operating
interests in mining projects that provide the right to revenue or metals
produced from the project after deducting specified costs, if any. As of June
30, 2021, we owned royalty interests on 35 producing properties, 15 development
? stage properties and 129 exploration stage properties, of which we consider 50
to be evaluation stage projects. We use "evaluation stage" to describe
exploration stage properties that contain mineralized material and on which
operators are engaged in the search for reserves. Royalty interests accounted
for 31% and 28% of our total revenue for the fiscal years ended
and 2020, respectively. We do not conduct mining operations on the properties in which we hold stream and royalty interests, and we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties. We are continually reviewing opportunities to grow our portfolio, whether through the creation or acquisition of new or existing stream or royalty interests or other acquisition activity. We generally have acquisition opportunities in various stages of review. Our review process may include, for example, engaging consultants and advisors to analyze an opportunity; analysis of technical, financial, legal, and other confidential information of an opportunity; submission of indications of interest and term sheets; participation in preliminary discussions and negotiations; and involvement as a bidder in competitive processes.
Business Trends and Uncertainties
Metal Prices
Our financial results are primarily tied to the price of gold, silver, copper,
and other metals. Metal prices have fluctuated widely in recent years and we
expect this volatility to continue. The marketability and price of metals are
influenced by numerous factors beyond our control, and significant changes in
metal prices can have a material effect on our revenue.
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For the fiscal years ended
Year Ended
June 30, 2021 June 30, 2020
Average Percentage Average Percentage
Metal Price of Revenue Price of Revenue
Gold ($/ounce) $ 1,849 74% $ 1,560 79%
Silver ($/ounce) $ 25.38 10% $ 16.90 9%
Copper ($/pound) $ 3.60 12% $ 2.57 9%
Other N/A 4% N/A 3%
COVID-19 Pandemic
Throughout calendar year 2020 and into calendar year 2021, several of our
operating counterparties have instituted temporary operational curtailments due
to the ongoing COVID-19 pandemic. In addition, the pandemic and resulting
economic and societal impacts have made it difficult for operators to forecast
expected production amounts and, at times, operators have had to withdraw or
revise previously disclosed guidance. For the most part, our results of
operations and financial condition have not been materially impacted by these
measures to date. However, the effects of the pandemic will ultimately depend on
many factors that are outside of our control, including the severity and
duration of the pandemic, including the emergence of variant strains of the
virus, government and operator actions in response to the pandemic, and the
development, availability, and public acceptance of effective treatments and
vaccines. As a result, we are currently unable to predict the nature or extent
of any future impact on our results of operations and financial condition. We
continue to monitor the impact of developments associated with the pandemic on
stream and royalty interests as part of our regular asset impairment analysis.
Sale of Peak Gold JV Interest
On September 30, 2020 , we announced an agreement with Kinross to sell our
interest in the Manh Choh Project (formerly known as the Peak Gold Project ) and
our common share position in Contango Ore, Inc. ("Contango"), our partner in
Peak Gold, LLC and owner of the Manh Choh Project . Consideration received for
the sale of these interests included cash of $61.3 million , an incremental 28%
net smelter return royalty on silver produced from an area of interest which
includes the current Manh Choh Project resource area, and an incremental 1% net
smelter return royalty on certain State of Alaska mining claims acquired by a
wholly owned subsidiary of Contango in the transaction. Peak Gold, LLC retains
the right to acquire 50% of the incremental 28% net smelter return royaltyon silver for$4 million .
After this transaction, our interests in theManh Choh Project andState of Alaska mining claim property owned by Contango consist solely of net smelter return royalties. Refer to Note 3 of our notes to the consolidated financial statements for further discussion on the sale of the Peak Gold JV interest.
Separation of the Wassa and Prestea and Bogoso Stream Agreement
OnOctober 1, 2020 , we announced the separation of the Wassa gold stream and the Prestea and Bogoso gold streams into two separate stream agreements effectiveSeptember 30, 2020 . This separation was completed to facilitate the sale by Golden Star Resources Ltd. ("Golden Star ") of the Prestea and Bogoso mines toFuture Global Resources Limited ("FGR"). Refer to Note 4 of our notes to the consolidated financial statements for further discussion on the separation of the Wassa and Prestea and Bogoso stream agreement.
Completion of Base
OnJanuary 6, 2021 , we made the sixth advance payment of$32.6 million toward theKhoemacau Project silver stream. With this payment, we have completed the total$212 million advance payment required to earn the base silver stream of 80% of payable silver. A seventh advance payment of$10.6 million was made toward the option silver stream onApril 7, 2021 , and as of that date, we hold the right to purchase 84% of the payable silver from Khoemacau until the delivery of approximately 33.6 million ounces of silver, and 42% thereafter. 30 Table of Contents Côté Royalty Acquisition OnJune 7, 2021 , we acquired a 1.0% net smelter return royalty on certain claims covering the CôtéGold Project inNorthern Ontario, Canada . The CôtéGold Project is owned 92.5% by the Côté Gold Joint Venture (a joint venture owned 70% by IAMGOLD Corporation and 30% by Sumitomo Metal Mining Co., Ltd.), and 7.5% by a third party. The royalty covers the Chester 3 claims, which in turn cover approximately 70% of the current reserves of the CôtéGold Project , as well as other areas outside the current project area.Royal Gold acquired the royalty from a third-party royalty holder for$75 million in cash consideration.
NX Gold Mine Gold Stream Acquisition
OnJune 30, 2021 , we announced that we entered into a precious metals purchase agreement for gold produced from theNX Gold Mine inBrazil ("NX Gold Stream") withEro Gold Corp. , a wholly owned subsidiary of Ero Copper Corp., and certain of its affiliates (together, "Ero"). OnAugust 6, 2021 , we made an advance payment of$100 million upon closing of the transaction. We will make up to an additional$10 million of further payments from the beginning of calendar year 2022 through the end of calendar year 2024 based on Ero's achievement of meeting success-based targets related to regional exploration and resource additions. In return, we will receive 25% of the gold produced from theNX Gold Mine until the delivery of 93,000 ounces, and 10% thereafter. We will pay 20% of the spot gold price for each ounce delivered until the delivery of 49,000 ounces, and 40% of the spot gold price thereafter.
A delivery of approximately 2,500 ounces of gold based on mine production through to closing is expected to be received from Ero within five business days of closing the transaction.
Change in Fiscal Year End
OnAugust 9, 2021 , our board of directors approved a change in our fiscal year end fromJune 30 to December 31 effective as ofDecember 31, 2021 . As a result, we expect to file a Transitional Report on Form 10-KT inFebruary 2022 for the six-month stub period fromJuly 1, 2021 , toDecember 31, 2021 .
Operators' Production Estimates by Stream and Royalty Interest for Calendar Year 2021
We received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2021. In some instances, an operator may revise its original calendar year guidance throughout the year. The following table shows these production estimates for our principal producing properties for calendar year 2021 as well as the actual production reported to us by the various operators throughJune 30, 2021 . The estimates and production reports are prepared by the operators. 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 this information. Please refer to Part I, Item 2, Properties, of this report for further discussion on any updates at our principal producing properties. 31 Table of Contents Operators' Estimated and Actual Production by Stream and Royalty Interest for Calendar Year 2021 Principal Producing Properties Calendar Year 2021 Operator's Production Calendar Year 2021 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) N/A 19,700 Mount Milligan(4) 180,000 - 200,000 97,300 Copper 70 - 80 Million 38.4 Million Pueblo Viejo(5) 470,000 - 510,000 N/A 254,000 N/A Wassa(6) 145,000 - 155,000 78,000 Royalty: Cortez(7) 350,000 - 375,000 141,700 Peñasquito(8) 660,000 30 Million 348,000 15.6 Million Lead 190 Million 94 Million Zinc 475 Million 216 Million
(1) Production estimates received from our operators are for calendar year 2021.
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 this report 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 actual production figure shown for Andacollo is contained gold in
concentrate. The estimated production figure was not available on the date of
this report.
(4) The estimated and actual production figures shown for
payable gold and copper in concentrate.
(5) The estimated and actual production figures shown for Pueblo Viejo are
payable gold in doré and represent the 60% interest in Pueblo Viejo held by
Barrick. The operator did not provide estimated or actual silver production.
(6) The estimated and actual production figures shown for Wassa is payable gold
in doré.
(7) Production from Cortez subject to
(8) The estimated and actual gold and silver production figures shown for
Peñasquito are payable gold and silver in concentrate and doré. The estimated
and actual lead and zinc production figures shown are payable lead and zinc
in concentrate.
Historical Production
The following table discloses historical production for the past two fiscal years for the principal producing properties that are subject to our stream and royalty interests, as reported to us by the operators of the mines. We do not participate in the
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preparation or calculation of the operators' production reports and have not
independently assessed or verified, and disclaim all responsibility for, the
accuracy of such information.
Historical Production(1) by Stream and Royalty Interest
Principal Producing Properties
For the Fiscal Years Ended June 30, 2021 and 2020
Stream/Royalty Metal 2021 2020
Stream:
Mount Milligan Gold 54,200 oz. 63,700 oz.
Copper 15.9 Mlbs. 12.7 Mlbs.
Andacollo Gold 44,100 oz. 48,100 oz.
Pueblo Viejo Gold 42,100 oz. 43,300 oz.
Silver 1.5 Moz. 1.8 Moz.
Wassa Gold 17,300 oz. 15,000 oz.
Royalty:
Peñasquito Gold 701,500 oz. 312,200 oz.
Silver 30.9 Moz. 27.8 Moz.
Lead 185.6 Mlbs. 182.3 Mlbs.
Zinc 412.7 Mlbs. 393.9 Mlbs.
Cortez Gold 237,000 oz. 173,300 oz.
(1) Historical production for our stream interests relates to the amount of
stream metal sales for each fiscal year presented and may differ from stream
deliveries discussed in Item 2, Properties, or from the operators' public
reporting. For our royalty interests, historical production relates to the
payable metal amounts as reported to us by the operators of the mines subject
to our royalty rate for each fiscal year presented.
Results of Operations
Fiscal Year Ended
For the fiscal year endedJune 30, 2021 , we recorded net income attributable toRoyal Gold stockholders of$302.5 million , or$4.61 per basic share and$4.60 per diluted share, as compared to net income attributable toRoyal Gold stockholders of$199.3 million , or$3.04 per basic share and$3.03 per diluted share, for the fiscal year endedJune 30, 2020 . The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a one-time gain attributable to the sale of our Peak Gold JV interest during theSeptember 2020 quarter and (iii) various discrete income tax benefits recognized during theSeptember 2020 andJune 2021 quarters. These increases were partially offset by increases in our cost of sales and depreciation, depletion and amortization expense, each discussed further below. For the fiscal year endedJune 30, 2021 , we recognized total revenue of$615.9 million , which is comprised of stream revenue of$424.0 million and royalty revenue of$191.9 million , at an average gold price of$1,849 per ounce, an average silver price of$25.38 per ounce and an average copper price of$3.60 per pound, compared to total revenue of$498.8 million , which is comprised of stream revenue of$359.9 million and royalty revenue of$138.9 million , at an average gold price of$1,560 per ounce, an average silver price of$16.90 per ounce and an average copper price of$2.57 per pound, for the fiscal year endedJune 30, 2020 . 33 Table of Contents Revenue and the corresponding production, attributable to our stream and royalty interests, for the fiscal year endedJune 30, 2021 compared to the fiscal year endedJune 30, 2020 is as follows:
Revenue and Reported Production Subject to our Stream and Royalty Interests
Fiscal Years Ended June 30, 2021 and 2020
(In thousands, except reported production in ozs. and lbs.)
Year Ended Year Ended
June 30, 2021 June 30, 2020
Reported Reported
Stream/Royalty Metal(s) Revenue Production(1) Revenue Production(1)
Stream(2):
Mount Milligan $ 156,938 $ 131,425
Gold 54,200 oz. 63,700 oz.
Copper 15.9 Mlbs. 12.7 Mlbs.
Pueblo Viejo $ 115,583 $ 96,978
Gold 42,100 oz. 43,300 oz.
Silver 1.5 Moz. 1.8 Moz.
Andacollo Gold $ 82,164 44,100 oz. $ 74,219 48,100 oz.
Wassa Gold $ 31,772 17,300 oz. $ 23,203 15,000 oz.
Other(3) $ 37,532 $ 34,043
Gold 17,400 oz. 20,300 oz.
Silver 213,400 oz. 188,800 oz.
Total stream revenue $ 423,989 $ 359,868
Royalty(2):
Peñasquito $ 49,688 $ 25,498
Gold 701,500 oz. 312,200 oz.
Silver 30.9 Moz. 27.8 Moz.
Lead 185.6 Mlbs. 182.3 Mlbs.
Zinc 412.7 Mlbs. 393.9 Mlbs.
Cortez Gold $ 36,160 237,000 oz. $ 22,342 173,300 oz.
Other(3) Various $ 106,019 N/A $ 91,111 N/A
Total royalty revenue $ 191,867 $ 138,951
Total revenue $ 615,856 $ 498,819 (1) Reported production relates to the amount of metal sales, subject to our
stream and royalty interests, for the fiscal years ended
2020, and may differ from the operators' public reporting.
(2) Refer to Item 2, Properties, for further discussion on our principal stream
and royalty interests.
(3) Individually, with the exception of the
year 2021 and 2020), no stream or royalty included within the "Other"
category contributed greater than 5% of our total revenue for either period.
The increase in our total revenue for the fiscal year endedJune 30, 2021 , compared with the fiscal year endedJune 30, 2020 , resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within the royalty segment. 34
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Gold and silver ounces and copper pounds purchased and sold during the fiscal years endedJune 30, 2021 and 2020, as well as gold, silver and copper in inventory as ofJune 30, 2021 and 2020, for our stream interests were as follows: Year Ended Year Ended As of As of June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Gold Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.) Mount Milligan 62,300 54,200 59,900 63,700 11,400 3,300 Andacollo 46,400 44,100 43,900 48,100 2,400 100 Pueblo Viejo 40,800 42,100 45,000 43,300 9,800 11,100 Wassa 16,700 17,300 16,500 15,000 2,300 2,900 Other 17,100 17,400 19,500 20,300 1,300 1,500 Total 183,300 175,100 184,800 190,400 27,200 18,900 Year Ended Year Ended As of As of June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Silver Stream Purchases (oz.) Sales (oz.) Purchases (oz.) Sales (oz.) Inventory (oz.) Inventory (oz.) Pueblo Viejo 1,460,800 1,525,500 1,726,100 1,750,400 386,500 451,200 Other 288,900 213,400 175,700 188,800 98,900 23,400 Total 1,749,700 1,738,900 1,901,800 1,939,200 485,400 474,600 Year Ended Year Ended As of As of June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Copper Stream Purchases (Mlbs.) Sales (Mlbs.) Purchases
(Mlbs.) Sales (Mlbs.) Inventory (Mlbs.) Inventory (Mlbs.) Mount Milligan 16.9 15.9 12.6 12.7 1.7 0.8 Cost of sales increased to$92.9 million for the fiscal year endedJune 30, 2021 , from$83.9 million for the fiscal year endedJune 30, 2020 . The increase was primarily due to an increase in the gold, silver and copper prices and an increase in copper sales atMount Milligan when compared to the prior period. This increase was partially offset by a decrease in gold sales atMount Milligan and Andacollo when compared to the prior period. Cost of sales, which excludes depreciation, depletion and amortization, is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold 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 decreased to$28.4 million for the fiscal year endedJune 30, 2021 , from$30.2 million for the fiscal year endedJune 30, 2020 . The decrease was primarily due to additional non-cash stock compensation expense of approximately$3.3 million recognized in the prior year period due to the accelerated vesting of certain equity awards in connection with the retirement of our former President and Chief Executive Officer and our former Vice President and General Counsel inJanuary 2020 . Exploration costs decreased to$0.6 million for the fiscal year endedJune 30, 2021 , from$5.2 million for the fiscal year endedJune 30, 2020 . Exploration costs were specific to the exploration and advancement of the Peak Gold JV. OnSeptember 30, 2020 , we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 3 of our notes to consolidated financial statements. Depreciation, depletion and amortization increased to$183.6 million for the fiscal year endedJune 30, 2021 , from$175.4 million for the fiscal year endedJune 30, 2020 . The increase was primarily due to higher copper sales atMount Milligan and an increase in depletion rates atMount Milligan through the six months endedDecember 31, 2020 , as previously discussed in our Annual Report on Form 10-K for the year endedJune 30, 2020 . The increase in depreciation, depletion and amortization was offset by a decrease in gold sales atMount Milligan and Andacollo. We recognized a gain in fair value changes in equity securities of$6.0 million for the fiscal year endedJune 30, 2021 , compared to a gain in fair value changes in equity securities of$1.4 million for the fiscal year endedJune 30, 2020 . The change was primarily due to an increase in the fair value of marketable equity securities as discussed further in Note 5 of our notes to consolidated financial statements. 35
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Interest and other expense decreased to$6.4 million for the fiscal year endedJune 30, 2021 , from$9.8 million for the fiscal year endedJune 30, 2020 . The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding during the current period when compared to the prior period. Refer to Note 6 of our notes to consolidated financial statements for further discussion on our debt. During the fiscal year endedJune 30, 2021 , we recognized income tax expense totaling$36.9 million , compared with an income tax benefit of$3.7 million during the fiscal year endedJune 30, 2020 . This resulted in an effective tax rate of 10.9% during the current period, compared with (1.9%) in the prior period. The effective tax rate for the fiscal year endedJune 30, 2021 , was primarily impacted by the release of uncertain tax liabilities resulting from settlement agreements with foreign tax authorities in various jurisdictions. The effective tax rate for the fiscal year endedJune 30, 2020 , was primarily impacted by a net step-up of tax assets due to the enactment of the Federal Act on Tax Reform and AHV Financing inSwitzerland (Swiss Tax Reform) and the release of an uncertain tax liability resulting from a settlement agreement with a foreign tax authority.
Liquidity and Capital Resources
Overview
AtJune 30, 2021 , we had current assets of$297.1 million compared to current liabilities of$52.1 million resulting in working capital of$245.0 million and a current ratio of 6 to 1. This compares to current assets of$362.2 million and current liabilities of$43.6 million atJune 30, 2020 , resulting in working capital of$318.6 million and a current ratio of approximately 8 to 1. The decrease in our working capital was primarily attributable to the repayment of our outstanding debt, which is discussed further below under "Summary of Cash Flows." During the fiscal year endedJune 30, 2021 , liquidity needs were met from$407.2 million in net cash provided by operating activities and our available cash resources. As ofJune 30, 2021 , we had$1 billion available and no amounts outstanding under our revolving credit facility. Working capital, combined with available capacity under our revolving credit facility, resulted in approximately$1.2 billion of total liquidity atJune 30, 2021 . Refer to Note 6 of our notes to consolidated financial statements and below ("Recent Liquidity and Capital Resource Developments") for further discussion on our debt. InAugust 2021 , we borrowed$100 million under our revolving credit facility for business development activities and have$900 million available. We believe that our current financial resources and operating cash flows will be adequate to cover our operating needs for the foreseeable future. Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests, including any conditional funding schedules. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. We currently, and generally at any time, have acquisition opportunities in various stages of active review. In the event of one or more substantial stream or royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary. We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.
Please refer to our risk factors included in Part I, Item 1A of this report for a discussion of certain risks that may impact our liquidity and capital resources.
Recent Liquidity and Capital Resource Developments
Revolving Credit Facility Amendment
On
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Dividend Increase
On November 17, 2020 , we announced an increase in our annual dividend for
calendar year 2021 from $1.12 to $1.20 , payable on a quarterly basis of $0.30
per share. The newly declared dividend is 7% higher than the dividend paid
during calendar year 2020. We have steadily increased our annual dividend for 20
years, or since calendar year 2001. We expect to pay our annual dividend using
cash on hand.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $407.2 million for the fiscal
year ended June 30, 2021 , compared to $340.8 million for the fiscal year ended
June 30, 2020 . The change was primarily due to an increase in proceeds received
from our stream and royalty interests, net of cost of sales and production
taxes, of approximately $86.1 million over the fiscal year ended June 30, 2020 .
This increase was offset by $27.4 million of higher cash taxes paid, net of
refunds over the fiscal year ended June 30, 2020 . The increase in cash taxes
paid during the current period is primarily attributable to an increase in
required estimated tax payments due to increased taxable income and payments
that were deferred due to COVID-19.
Investing Activities
Net cash used in investing activities totaled$116.7 million for the fiscal year endedJune 30, 2021 , compared to net cash used in investing activities of$152.9 million for the fiscal year endedJune 30, 2020 . The decrease in net cash used in investing activities was primarily due to$49.2 million received for the sale of our Peak Gold JV investment and$21.3 million for the sale of equity securities. This decrease was partially offset by the$18.0 million KCM drew against the subordinated debt facility.
Financing Activities
Net cash used in financing activities totaled$383.6 million for the fiscal year endedJune 30, 2021 , compared to net cash provided by financing activities of$11.8 million for the fiscal year endedJune 30, 2020 . The increase in net cash used in financing activities was primarily due to an increase in repayments on our revolving credit facility. We repaid$305.0 million on our revolving credit facility during the fiscal year endedJune 30, 2021 , compared to$115.0 million during the fiscal year endedJune 30, 2020 .
Contractual Obligations
Our contractual obligations as of
Payments Due by Period (in thousands)
Less than More than
Contractual Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
Operating leases $ 8,154 $ 956 $ 1,938 $ 1,923 $ 3,337
Total $ 8,154 $ 956 $ 1,938 $ 1,923 $ 3,337 The above table does not include stream commitments as discussed in Note 15 of our notes to consolidated financial statements. We believe we will be able to fund all current obligations from net cash provided by operating activities.
Off-Balance-Sheet Arrangements
We do not have any off-balance-sheet arrangements.
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Critical Accounting Policies
Listed below are the accounting policies we believe are critical to our
financial statements due to the degree of uncertainty regarding the estimates or
assumptions involved and the magnitude of the asset, liability, revenue or
expense being reported. Please also refer to Note 2 of our notes to consolidated
financial statements for a discussion on recently adopted and issued accounting
pronouncements.
Use of Estimates
The preparation of our financial statements, in conformity with U.S. generally
accepted accounting principles ("U.S. GAAP"), requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period.
We rely on reserve estimates reported by the operators of the properties on
which we hold stream and royalty interests. These estimates and the underlying
assumptions affect the potential impairments of long-lived assets and the
ability to realize income tax benefits associated with deferred tax assets.
These estimates and assumptions also affect the rate at which we recognize
revenue or charge depreciation, depletion and amortization to earnings. On an
ongoing basis, management evaluates these estimates and assumptions; however,
actual amounts could differ from these estimates and assumptions. Differences
between estimates and actual amounts are adjusted and recorded in the period
that the actual amounts are known.
Stream and Royalty Interests in
Stream and royalty interests include acquired stream and royalty interests in production, development and exploration stage properties. The costs of acquired stream and royalty interests are capitalized as tangible assets as such interests do not meet the definition of a financial asset. Production stage stream and royalty interests are depleted using the units of production method over the life of the mineral property (as stream sales occur or royalty payments are recognized), which are estimated using proven and probable reserves as provided by the operator. Development stage mineral properties, which are not yet in production, are not depleted until the property begins production. Exploration stage mineral properties, where there are no proven and probable reserves, are not depleted. At such time as the associated exploration stage mineral interests are converted to proven and probable reserves, the mineral property is depleted over its life, using proven and probable reserves.
Asset Impairment
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable. The recoverability of the carrying value of stream and royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each stream and royalty interest using estimates of proven and probable reserves and other relevant information received from the operators. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold, silver, copper and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future, thus potentially affecting the future recoverability of our stream or royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Estimates of gold, silver, copper, and other metal prices, and operators' estimates of proven and probable reserves or mineralized material related to our stream or royalty properties are subject to certain risks and uncertainties which may affect the recoverability of our investment in these stream and royalty interests in mineral properties. It is possible that
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changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these stream and royalty interests. Refer to Note 4 of our notes to consolidated financial statements for a discussion of the impairment assessment results for the fiscal year endedJune 30, 2021 .
Revenue
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 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. 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.
Metal Sales
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 10 days and three months (depending on the frequency of deliveries under
the respective streaming agreement and our sales activity in effect at the time)
commencing shortly after receipt and purchase of the metal. Temporary
modifications may be made to our metal sales guidelines from time to time as
required
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to meet our needs. Revenue from gold, silver and copper sales is recognized on the date of the settlement, which is also the date that title to the metal passes to the purchaser.
Cost of Sales
Cost of sales, which excludes depreciation, depletion and amortization, is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold 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 spot price near the date of metal delivery. Exploration Costs Exploration costs were specific to our Peak Gold JV for exploration and advancement of the Peak Gold project as discussed further in Note 3 of our notes to consolidated financial statements. Exploration costs associated with the exploration and advancement of Peak Gold were expensed when incurred. As a result of the sale of our Peak Gold project as discussed further in this MD&A and in Note 3 to our consolidated financial statements, we do not expect to incur exploration costs in the future.
Income Taxes
Our annual tax rate is based on income, statutory tax rates in effect and tax
planning opportunities available to us in the various jurisdictions in which the
Company operates. Significant judgment is required in determining the annual tax
expense, current tax assets and liabilities, deferred tax assets and
liabilities, and our future taxable income, both as a whole and in various tax
jurisdictions, for purposes of assessing our ability to realize future benefit
from our deferred tax assets. Actual income taxes could vary from these
estimates due to future changes in income tax law, significant changes in the
jurisdictions in which we operate or unpredicted results from the final
determination of each year's liability by taxing authorities.
We treat global intangible low-taxed income ("GILTI") as a period cost and
therefore do not record deferred tax impacts of GILTI in our consolidated
financial statements. Our deferred income taxes reflect the impact of temporary
differences between the reported amounts of assets and liabilities for financial
reporting purposes and such amounts measured by tax laws and regulations. In
evaluating the realizability of the deferred tax assets, management considers
both positive and negative evidence that may exist, such as earnings history,
reversal of taxable temporary differences, forecasted operating earnings and
available tax planning strategies in each tax jurisdiction. A valuation
allowance may be established to reduce our deferred tax assets to the amount
that is considered more likely than not to be realized through the generation of
future taxable income and other tax planning strategies.
Our operations may involve dealing with uncertainties and judgments in the
application of complex tax regulations in multiple jurisdictions. The final
taxes paid are dependent upon many factors, including negotiations with taxing
authorities in various jurisdictions and resolution of disputes arising from
federal, state, and international tax audits. We recognize potential liabilities
and record tax liabilities for anticipated tax audit issues in the United States
and other tax jurisdictions based on our estimate of whether, and the extent to
which, additional taxes will be due. We adjust these reserves in light of
changing facts and circumstances, such as the progress of a tax audit; however,
due to the complexity of some of these uncertainties, the ultimate resolution
could result in a payment that is materially different from our current estimate
of the tax liabilities. These differences will be reflected as increases or
decreases to income tax expense in the period which they are determined. We
recognize interest and penalties, if any, related to unrecognized tax benefits
in income tax expense.
Forward-Looking Statements
This report and our other public communications include "forward-looking
statements" within the meaning of U.S. federal securities laws. Forward-looking
statements are any statements other than statements of historical fact.
Forward-looking statements are not guarantees of future performance, and actual
results may differ materially from these statements.
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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 and
outlook, including sale volume, revenue, expenses, tax rates, 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 stockholder
returns; our overall investment portfolio; macroeconomic and market conditions
including the impacts of COVID-19; prices for gold, silver, copper, nickel and
other metals; potential impairments; or tax changes.
Factors that could cause actual results to differ materially from these
forward-looking statements include, among others, the following: a lower-price
environment for gold, silver, copper, nickel or other metals; operating
activities or financial performance of properties on which we hold stream or
royalty interests, including variations between actual and forecasted
performance, operators' ability to complete projects on schedule and as planned,
changes to mine plans and reserves, liquidity needs, mining and environmental
hazards, labor disputes, distribution and supply chain disruptions, permitting
and licensing issues, contractual issues involving our stream or royalty
agreements, or operational disruptions due to COVID-19, including due to variant
strains of the virus; risks associated with doing business in foreign countries;
increased competition for stream and royalty interests; environmental risks,
included those caused by climate change; potential cyber-attacks, including
ransomware; 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. 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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