UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended DecemberMarch 31, 20152016
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 84-0835164 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation) |
| Identification No.) |
1660 Wynkoop Street, Suite 1000 |
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Denver, Colorado |
| 80202 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (303) 573-1660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
| Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o | |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
There were 62,260,91465,267,061 shares of the Company’s common stock, par value $0.01 per share, outstanding as of January 28,April 21, 2016.
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PART I | FINANCIAL INFORMATION | |
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| 3 | |
| Consolidated Statements of Operations and Comprehensive (Loss) Income | 4 |
| 5 | |
| 6 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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ROYAL GOLD, INC.
(Unaudited, in thousands except share data)
|
| December 31, 2015 |
| June 30, 2015 |
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| March 31, 2016 |
| June 30, 2015 |
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ASSETS |
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Cash and equivalents |
| $ | 117,600 |
| $ | 742,849 |
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| $ | 122,863 |
| $ | 742,849 |
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Royalty receivables |
| 22,913 |
| 37,681 |
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| 20,233 |
| 37,681 |
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Income tax receivable |
| 12,828 |
| 6,422 |
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| 21,578 |
| 6,422 |
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Stream inventory |
| 8,289 |
| 2,287 |
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| 5,402 |
| 2,287 |
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Available-for-sale securities (Note 4) |
| 3,861 |
| 6,273 |
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Prepaid expenses and other |
| 1,230 |
| 1,511 |
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| 1,243 |
| 1,511 |
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Total current assets |
| 162,860 |
| 790,750 |
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| 175,180 |
| 797,023 |
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Royalty and stream interests, net (Note 3) |
| 2,996,421 |
| 2,083,608 |
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| 2,863,440 |
| 2,083,608 |
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Available-for-sale securities (Note 4) |
| 8,411 |
| 6,273 |
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Other assets |
| 55,576 |
| 44,801 |
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| 60,622 |
| 44,801 |
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Total assets |
| $ | 3,223,268 |
| $ | 2,925,432 |
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| $ | 3,099,242 |
| $ | 2,925,432 |
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LIABILITIES |
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Accounts payable |
| 2,781 |
| 4,911 |
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| 3,413 |
| 4,911 |
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Dividends payable |
| 15,010 |
| 14,341 |
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| 15,011 |
| 14,341 |
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Foreign withholding taxes payable |
| — |
| 199 |
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Other current liabilities |
| 2,727 |
| 5,522 |
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| 5,778 |
| 5,721 |
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Total current liabilities |
| 20,518 |
| 24,973 |
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| 24,202 |
| 24,973 |
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Debt (Note 5) |
| 677,494 |
| 322,110 |
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| 630,252 |
| 322,110 |
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Deferred tax liabilities |
| 140,614 |
| 146,603 |
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| 139,861 |
| 146,603 |
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Uncertain tax positions (Note 9) |
| 15,935 |
| 15,130 |
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| 17,080 |
| 15,130 |
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Other long-term liabilities |
| 6,489 |
| 689 |
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| 6,489 |
| 689 |
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Total liabilities |
| 861,050 |
| 509,505 |
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| 817,884 |
| 509,505 |
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Commitments and contingencies (Note 12) |
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EQUITY |
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Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued |
| — |
| — |
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| — |
| — |
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Common stock, $.01 par value, 100,000,000 shares authorized; and 65,082,861 and 65,033,547 shares outstanding, respectively |
| 651 |
| 650 |
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Common stock, $.01 par value, 100,000,000 shares authorized; and 65,089,008 and 65,033,547 shares outstanding, respectively |
| 651 |
| 650 |
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Additional paid-in capital |
| 2,175,845 |
| 2,170,643 |
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| 2,178,011 |
| 2,170,643 |
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Accumulated other comprehensive loss |
| (1,154 | ) | (3,292 | ) | |||||||||
Accumulated other comprehensive income (loss) |
| 553 |
| (3,292 | ) | |||||||||
Accumulated earnings |
| 125,821 |
| 185,121 |
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| 43,153 |
| 185,121 |
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Total Royal Gold stockholders’ equity |
| 2,301,163 |
| 2,353,122 |
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| 2,222,368 |
| 2,353,122 |
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Non-controlling interests |
| 61,055 |
| 62,805 |
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| 58,990 |
| 62,805 |
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Total equity |
| 2,362,218 |
| 2,415,927 |
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| 2,281,358 |
| 2,415,927 |
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Total liabilities and equity |
| $ | 3,223,268 |
| $ | 2,925,432 |
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| $ | 3,099,242 |
| $ | 2,925,432 |
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The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss)
(Unaudited, in thousands except share data)
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| For The Three Months Ended |
| For The Six Months Ended |
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| For The Three Months Ended |
| For The Nine Months Ended |
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| December 31, |
| December 31, |
| December 31, |
| December 31, |
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| March 31, |
| March 31, |
| March 31, |
| March 31, |
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| 2015 |
| 2014 |
| 2015 |
| 2014 |
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| 2016 |
| 2015 |
| 2016 |
| 2015 |
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Revenue |
| $ | 98,118 |
| $ | 61,304 |
| $ | 172,173 |
| $ | 130,330 |
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| $ | 93,487 |
| $ | 74,110 |
| $ | 265,660 |
| $ | 204,439 |
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Costs and expenses |
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Cost of sales |
| 22,572 |
| 6,236 |
| 34,038 |
| 12,910 |
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| 17,921 |
| 10,542 |
| 51,960 |
| 23,452 |
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General and administrative |
| 5,841 |
| 8,511 |
| 15,352 |
| 15,652 |
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| 7,679 |
| 5,545 |
| 23,416 |
| 18,201 |
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Production taxes |
| 996 |
| 1,731 |
| 2,588 |
| 3,421 |
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| 958 |
| 935 |
| 3,546 |
| 4,356 |
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Exploration costs |
| 1,129 |
| — |
| 4,285 |
| — |
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| 1,851 |
| 155 |
| 6,135 |
| 155 |
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Depreciation, depletion and amortization |
| 40,407 |
| 20,278 |
| 67,555 |
| 42,490 |
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| 38,163 |
| 24,783 |
| 105,717 |
| 67,273 |
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Impairment of royalty and stream interests |
| — |
| 26,570 |
| — |
| 28,339 |
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Impairments of royalty and stream interests and royalty receivables (Note 3) |
| 98,973 |
| — |
| 98,588 |
| 31,335 |
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Total costs and expenses |
| 70,945 |
| 63,326 |
| 123,818 |
| 102,812 |
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| 165,545 |
| 41,960 |
| 289,362 |
| 144,772 |
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Operating income (loss) |
| 27,173 |
| (2,022 | ) | 48,355 |
| 27,518 |
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Operating (loss) income |
| (72,058 | ) | 32,150 |
| (23,702 | ) | 59,667 |
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Interest and other income |
| 386 |
| 228 |
| 615 |
| 279 |
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| 3,060 |
| 435 |
| 2,804 |
| 714 |
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Interest and other expense |
| (8,899 | ) | (6,358 | ) | (16,076 | ) | (13,070 | ) |
| (8,762 | ) | (6,433 | ) | (23,968 | ) | (19,502 | ) | ||||||||
Income (loss) before income taxes |
| 18,660 |
| (8,152 | ) | 32,894 |
| 14,727 |
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| (77,760 | ) | 26,152 |
| (44,866 | ) | 40,879 |
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Income tax (expense) benefit |
| (4,740 | ) | 1,827 |
| (63,917 | ) | (2,131 | ) | |||||||||||||||||
Net income (loss) |
| 13,920 |
| (6,325 | ) | (31,023 | ) | 12,596 |
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Income tax benefit (expense) |
| 8,262 |
| (1,041 | ) | (55,655 | ) | (3,172 | ) | |||||||||||||||||
Net (loss) income |
| (69,498 | ) | 25,111 |
| (100,521 | ) | 37,707 |
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Net loss (income) attributable to non-controlling interests |
| 1,194 |
| (223 | ) | 1,090 |
| (462 | ) |
| 1,842 |
| (97 | ) | 2,932 |
| (559 | ) | ||||||||
Net income (loss) attributable to Royal Gold common stockholders |
| $ | 15,114 |
| $ | (6,548 | ) | (29,933 | ) | $ | 12,134 |
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Net (loss) income attributable to Royal Gold common stockholders |
| $ | (67,656 | ) | $ | 25,014 |
| (97,589 | ) | $ | 37,148 |
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Net income (loss) |
| $ | 13,920 |
| $ | (6,325 | ) | $ | (31,023 | ) | $ | 12,596 |
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Net (loss) income |
| $ | (69,498 | ) | $ | 25,111 |
| $ | (100,521 | ) | $ | 37,707 |
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Adjustments to comprehensive income (loss) , net of tax |
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Unrealized change in market value of available-for-sale securities |
| 2,587 |
| (481 | ) | 2,138 |
| (1,820 | ) |
| 2,383 |
| (2,168 | ) | 4,521 |
| (3,988 | ) | ||||||||
Comprehensive income (loss) |
| 16,507 |
| (6,806 | ) | (28,885 | ) | 10,776 |
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Reclassification adjustment for gains included in net income |
| (675 | ) | — |
| (675 | ) | — |
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Comprehensive (loss) income |
| (67,790 | ) | 22,943 |
| (96,675 | ) | 33,719 |
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Comprehensive loss (income) attributable to non-controlling interests |
| 1,194 |
| (223 | ) | 1,090 |
| (462 | ) |
| 1,842 |
| (97 | ) | 2,932 |
| (559 | ) | ||||||||
Comprehensive income (loss) attributable to Royal Gold stockholders |
| $ | 17,701 |
| $ | (7,029 | ) | $ | (27,795 | ) | $ | 10,314 |
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Comprehensive (loss) income attributable to Royal Gold stockholders |
| $ | (65,948 | ) | $ | 22,846 |
| $ | (93,743 | ) | $ | 33,160 |
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Net income (loss) per share available to Royal Gold common stockholders: |
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Net (loss) income per share available to Royal Gold common stockholders: |
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Basic earnings (loss) per share |
| $ | 0.23 |
| $ | (0.10 | ) | $ | (0.46 | ) | $ | 0.19 |
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Basic (loss) earnings per share |
| $ | (1.04 | ) | $ | 0.38 |
| $ | (1.50 | ) | $ | 0.57 |
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Basic weighted average shares outstanding |
| 65,073,678 |
| 65,002,307 |
| 65,061,059 |
| 64,982,595 |
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| 65,085,225 |
| 65,033,547 |
| 65,069,056 |
| 64,999,331 |
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Diluted earnings (loss) per share |
| $ | 0.23 |
| $ | (0.10 | ) | $ | (0.46 | ) | $ | 0.19 |
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Diluted (loss) earnings per share |
| $ | (1.04 | ) | $ | 0.38 |
| $ | (1.50 | ) | $ | 0.57 |
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Diluted weighted average shares outstanding |
| 65,121,744 |
| 65,002,307 |
| 65,061,059 |
| 65,122,185 |
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| 65,085,225 |
| 65,129,362 |
| 65,069,056 |
| 65,122,313 |
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Cash dividends declared per common share |
| $ | 0.23 |
| $ | 0.22 |
| $ | 0.45 |
| $ | 0.43 |
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| $ | 0.23 |
| $ | 0.22 |
| $ | 0.68 |
| $ | 0.65 |
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The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)Cash Flows
(Unaudited, in thousands except share data)thousands)
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| For The Six Months Ended |
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| For The Nine Months Ended |
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| December 31, |
| December 31, |
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| March 31, |
| March 31, |
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| 2015 |
| 2014 |
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| 2016 |
| 2015 |
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Cash flows from operating activities: |
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Net (loss) income |
| $ | (31,023 | ) | $ | 12,596 |
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| $ | (100,521 | ) | $ | 37,707 |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
| 67,555 |
| 42,490 |
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| 105,717 |
| 67,273 |
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Non-cash employee stock compensation expense |
| 5,449 |
| 2,824 |
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| 7,789 |
| 3,660 |
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Impairments of royalty and stream interests and royalty receivables |
| 98,588 |
| 31,335 |
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Amortization of debt discount |
| 5,383 |
| 5,013 |
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| 8,142 |
| 7,624 |
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Impairment of royalty and stream interests |
| — |
| 28,339 |
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Gain on sale of available-for-sale securities |
| (675 | ) | — |
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Deferred tax benefit |
| (17,246 | ) | (34,199 | ) | |||||||||
Tax expense (benefit) of stock-based compensation exercises |
| 247 |
| (74 | ) |
| 247 |
| (74 | ) | ||||
Deferred tax benefit |
| (11,767 | ) | (17,103 | ) | |||||||||
Other |
| (390 | ) | — |
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| (390 | ) | — |
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Changes in assets and liabilities: |
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Royalty receivables |
| 14,768 |
| 9,340 |
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| 14,976 |
| 4,172 |
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Income taxes receivable |
| (2,996 | ) | 25,191 |
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Stream inventory |
| (6,002 | ) | 1,308 |
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| (3,115 | ) | 434 |
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Prepaid expenses and other assets |
| 3,100 |
| 2,036 |
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| 1,630 |
| 4,037 |
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Accounts payable |
| (2,092 | ) | (1,182 | ) |
| (1,533 | ) | (1,742 | ) | ||||
Foreign withholding taxes payable |
| (199 | ) | (1,999 | ) | |||||||||
Income taxes receivable |
| 3,530 |
| (1,778 | ) | |||||||||
Uncertain tax positions |
| 806 |
| 1,027 |
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| 1,950 |
| 1,736 |
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Other liabilities |
| 5,231 |
| (563 | ) |
| 8,084 |
| 1,040 |
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Net cash provided by operating activities |
| $ | 54,596 |
| $ | 82,274 |
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| $ | 120,647 |
| $ | 148,194 |
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Cash flows from investing activities: |
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Acquisition of royalty and stream interests |
| (1,324,984 | ) | (38,734 | ) |
| (1,326,256 | ) | (60,341 | ) | ||||
Andacollo royalty termination |
| 345,000 |
| — |
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| 345,000 |
| — |
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Golden Star term loan |
| (20,000 | ) | — |
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| (20,000 | ) | — |
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Proceeds from sale of available-for-sale securities |
| 6,933 |
| — |
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Tulsequah stream termination |
| — |
| 10,000 |
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Other |
| (271 | ) | (517 | ) |
| (302 | ) | (71 | ) | ||||
Net cash used in investing activities |
| $ | (1,000,255 | ) | $ | (39,251 | ) |
| $ | (994,625 | ) | $ | (50,412 | ) |
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Cash flows from financing activities: |
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Borrowings from revolving credit facility |
| 350,000 |
| — |
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| 350,000 |
| — |
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Net proceeds from issuance of common stock |
| — |
| 775 |
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Repayment of revolving credit facility |
| (50,000 | ) | — |
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Common stock dividends |
| (28,699 | ) | (27,369 | ) |
| (43,709 | ) | (41,712 | ) | ||||
Debt issuance costs |
| (1,049 | ) | — |
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Distribution to non-controlling interests |
| (636 | ) | (911 | ) |
| (829 | ) | (1,227 | ) | ||||
Net (payments) proceeds from issuance of common stock |
| (174 | ) | 775 |
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Tax (benefit) expense of stock-based compensation exercises |
| (247 | ) | 74 |
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| (247 | ) | 74 |
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Other |
| (8 | ) | — |
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Net cash provided by (used in) financing activities |
| $ | 320,410 |
| $ | (27,431 | ) |
| $ | 253,992 |
| $ | (42,090 | ) |
Net (decrease) increase in cash and equivalents |
| (625,249 | ) | 15,592 |
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| (619,986 | ) | 55,692 |
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Cash and equivalents at beginning of period |
| 742,849 |
| 659,536 |
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| 742,849 |
| 659,536 |
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Cash and equivalents at end of period |
| $ | 117,600 |
| $ | 675,128 |
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| $ | 122,863 |
| $ | 715,228 |
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The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING STANDARDS
Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties (or “royalty interests”), metal streams (or “stream interests”), and similar 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. 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.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and sixnine months ended DecemberMarch 31, 2015,2016, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2016. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed with the Securities and Exchange Commission on August 6, 2015 (“Fiscal 2015 10-K”).
Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements. Reclassified amounts were not material to the financial statements.
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 royalty and stream interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty and stream interest property 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, nickel 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 royalty or stream 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, nickel and other metal prices, operators’ estimates of proven and probable reserves or mineralized material related to our royalty or streaming properties, and operators’ estimates of operating and capital costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty and stream interests in mineral properties. It is possible
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
that changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these royalty and stream interests. Refer to Note 3 for discussion and the results of our quarterly impairment assessments for the three and nine months ended March 31, 2016.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Recently Issued Account Standards
In JanuaryMarch 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation with actual forfeitures as they occur, as well as certain classifications on the statement of cash flows. The new guidance is effective for the Company’s fiscal year beginning July 1, 2017. We are currently evaluating the impact this guidance will have on our consolidated financial statements and footnote disclosures.
In January 2016, the FASB issued guidance on the recognition and measurement of financial instruments. The amended guidance requires, among other things, that equity securities classified as available-for-sale to be measured at fair value with changes in fair value recognized in net income rather than other comprehensive income as required under previous guidance. The new guidance is effective for the Company’s fiscal year beginning July 1, 2018. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In November 2015, the FASB issued guidance on the presentation of deferred income taxes that requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as non-current on the balance sheet. As a result, each tax jurisdiction will now only have one net non-current deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective for the Company’s fiscal year beginning July 1, 2017 and will only result in a change in presentation of these deferred taxes on our consolidated balance sheets. Early adoption is permitted, and we are currently evaluating the impact of this guidance on our consolidated financial statements.
2. ACQUISITIONS
Acquisition and Amendment of Gold Stream on Wassa Bogoso and Prestea
On July 28, 2015, RGLD Gold AG (“RGLD Gold”), a wholly-owned subsidiary of the Company, closed a $130 million gold stream transaction with a wholly-owned subsidiary of Golden Star Resources Ltd. (together “Golden Star”). On December 30, 2015, the parties executed an amendment providing for an additional $15 million investment (for a total investment of $145 million) by RGLD Gold. At Golden Star’s option, RGLD Gold will increase its investment by a further $5 million (for a total investment of $150 million) subject to satisfaction of certain conditions, including Golden Star’s procurement of a minimum of $5 million of third party equity investment.
Also on July 28, 2015 and separate from the stream transaction by RGLD Gold, the Company also funded a $20 million, 4-year term loan to Golden Star and received warrants to purchase 5 million shares of Golden Star common stock, with a grant date fair value of approximately $0.8 million. Interest under the term loan is due quarterly at a rate equal to 62.5% of the average daily gold price for the relevant quarter divided by 10,000, but not to exceed 11.5%. The warrants have a term of four years and an exercise price of $0.27.
Pursuant to the stream transaction and subject to certain conditions, RGLD Gold will make $145 million in advance payments to Golden Star in stages. As of DecemberMarch 31, 2015,2016, RGLD Gold has advanced $75 million, includingmillion. On April 1, 2016, RGLD Gold made an advance payment of $20 million advanced at closing of the amendment. RGLD Goldand expects to advance
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
the balance in fourthree quarterly payments as follows: (i) $20 million on each of April 1, July 1 and October 1, 2016, and (ii) $10 million on January 1, 2017; however funds willthis schedule may be advancedmodified based on a pro rata basis withthe actual spending on the Wassa and Prestea underground projects and these funds are subject to satisfaction of certain conditions. Golden Star will deliver to RGLD Gold 9.25% of gold produced from the Wassa Bogoso and Prestea mines, until the earlier of (i) December 31, 2017 or (ii) the date at which the Wassa and Prestea underground projects achieve commercial production. At that point, the stream percentage will increase
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
to 10.5% (or to 10.9% if the total investment increases to $150 million) of gold produced from the Wassa Bogoso and Prestea projects until an aggregate 240,000 ounces have been delivered (or 250,000 ounces if the total investment increases to $150 million). Once the applicable delivery threshold is met, the stream percentage will decrease to 5.5% for the remaining life of the mines.
RGLD Gold will pay Golden Star a cash price equal to 20% of the spot price for each ounce of gold delivered at the time of delivery until the applicable delivery threshold is met, and 30% of the spot price for each ounce of gold delivered thereafter.
The Wassa Bogoso and Prestea gold stream acquisition has been accounted for as an asset acquisition. The $75 million paid as part of the aggregate advance payments of $145 million, plus direct acquisition costs, hashave been recorded as separate components of a production stage stream interest withinRoyalty and stream interests, neton our consolidated balance sheets. Accordingly, approximately $62.5 million and $13.7 million was allocated to production stage and exploration stage stream interest, respectively, as of December 31, 2015. Future advance payments, plus any direct acquisition costs incurred, will be recorded as a production stage or an exploration stream interest accordingly. The acquisition costscost of the production stageWassa and Prestea gold stream interest will be depleted using the units of production method, which is estimated using aggregate proven and probable reserves, for Wassa, Bogoso and Prestea, as provided by Golden Star.
The $20 million four-year term loan and the received warrants have been recorded within Other assetson our consolidated balance sheets. The warrants have been classified as a financial asset instrument and are recorded at fair value at each reporting period using the Black-Scholes model. Any change in the fair value of the warrants at subsequent reporting periods will be recorded within Interest and other on our consolidated statements of operations and comprehensive income.
Acquisition of Gold and Silver Stream at Pueblo Viejo
On September 29, 2015, RGLD Gold closed its Precious Metals Purchase and Sale Agreement with Barrick Gold Corporation (“Barrick”) and its wholly-owned subsidiary, BGC Holdings Ltd. (“BGC”) for a percentage of the gold and silver production attributable to Barrick’s 60% interest in the Pueblo Viejo mine located in the Dominican Republic. Pursuant to the Precious Metals Purchase and Sale Agreement, RGLD Gold made a single advance payment of $610 million to BGC as part of the closing. The transaction is effective as of July 1, 2015 for the gold stream and January 1, 2016 for the silver stream.
BGC will deliver gold to RGLD Gold in amounts equal to 7.50% of Barrick’s interest in the gold produced at the Pueblo Viejo mine from July 1, 2015 until 990,000 ounces of gold have been delivered, and 3.75% of Barrick’s interest in gold produced thereafter. RGLD Gold will pay BGC 30% of the spot price per ounce of gold delivered until 550,000 ounces of gold have been delivered, and 60% of the spot price per ounce delivered thereafter. RGLD Gold began receiving gold deliveries during the quarter ended December 31, 2015.
BGC will deliver silver to RGLD Gold in amounts equal to 75% of Barrick’s interest in the silver produced at the Pueblo Viejo mine, beginning on January 1, 2016subject to a minimum silver recovery of 70%, until 50 million ounces of silver have been delivered, and 37.50% of Barrick’s interest in silver produced thereafter. RGLD Gold will pay BGC 30% of the spot price per ounce of silver delivered until 23.10 million ounces of silver have been delivered, and 60% of the spot price per ounce of silver delivered thereafter.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The Pueblo Viejo gold and silver stream acquisition has been accounted for as an asset acquisition. The advance payment of $610 million, plus direct transaction costs, have been recorded as a production stage stream interest within Royalty and stream interests, neton our consolidated balance sheets. The acquisition cost of the Pueblo Viejo gold and silver stream interest will be depleted using the units of
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
production method, which is estimated using aggregate proven and probable reserves, as provided by Barrick.
Acquisition of Gold and Silver Stream at Rainy River
On July 20, 2015, RGLD Gold entered into a $175 million Purchase and Sale Agreement with New Gold, Inc. (“New Gold”), for a percentage of the gold and silver production from the Rainy River Project located in Ontario, Canada (“Rainy River”). Pursuant to the Purchase and Sale Agreement, RGLD Gold made an advance payment to New Gold, consisting of $100 million on July 20, 2015, and will make an additional advance payment of $75 million once capital spending at Rainy River is 60% complete (currently expected by mid-calendar 2016). Also underUnder the Purchase and Sale Agreement, New Gold will deliver to RGLD Gold 6.50% of the gold produced at Rainy River until 230,000 gold ounces have been delivered, and 3.25% thereafter. New Gold also will deliver to RGLD Gold 60% of the silver produced at Rainy River until 3.10 million silver ounces have been delivered, and 30% thereafter. RGLD Gold will pay New Gold 25% of the spot price per ounce of gold and silver at the time of delivery.
The Rainy River gold and silver stream acquisition has been accounted for as an asset acquisition. The $100 million paid as part of the aggregate advance payments of $175 million, plus direct transaction costs, have been recorded as a development stage stream interest within Royalty and stream interests, net on our consolidated balance sheets.
Acquisition of Gold Stream at Carmen de Andacollo
On July 9, 2015, RGLD Gold entered into a Long Term Offtake Agreement (the “Andacollo Stream Agreement”) with Compañía Minera Teck Carmen de Andacollo (“CMCA”), a 90% owned subsidiary of Teck Resources Limited (“Teck”). Pursuant to the Andacollo Stream Agreement, CMCA will sell and deliver to RGLD Gold 100% of payable gold from the Carmen de Andacollo (“Andacollo”) copper-gold mine located in Chile until 900,000 ounces have been delivered, and 50% thereafter, subject to a fixed payable percentage of 89%. RGLD Gold made a $525 million advance payment in cash to CMCA upon entry into the Andacollo Stream Agreement, and RGLD Gold will also pay CMCA 15% of the monthly average gold price for the month preceding the delivery date for all gold purchased under the Andacollo Stream Agreement.
The transaction encompasses certain of CMCA’s presently owned mining concessions on the Andacollo mine, as well as any other mining concessions presently owned or acquired by CMCA or any of its affiliates within aan approximate 1.5 kilometer area of interest, and certain other mining concessions that CMCA or its affiliates may acquire. The Andacollo Stream Agreement iswas effective July 1, 2015, and applies to all final settlements of gold received on or after that date. Deliveries to RGLD Gold will be made monthly, and RGLD Gold began receiving gold deliveries during the quarter ended September 30, 2015.
The Company accounted for the acquisition of the stream interest at Andacollo as an asset acquisition. For US GAAP financial reporting purposes on the date of acquisition, the Company’s new consolidated carrying value in its stream interest at Andacollo was approximately $388.2 million, which included direct acquisition costs, and has been recorded as a production stage stream interest within Royalty and stream interests, net on our consolidated balance sheets. The Andacollo gold stream interest will be
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
depleted using the units of production method, which is estimated using aggregate proven and probable reserves, as provided by Teck.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Termination of Royalty Interest at Carmen de Andacollo
On July 9, 2015, Royal Gold Chile Limitada (“RG Chile”), a wholly owned subsidiary of the Company, entered into a Royalty Termination Agreement with CMCA. The Royalty Termination Agreement terminated an amended Royalty Agreement originally dated January 12, 2010, which provided RG Chile with a royalty equivalent to 75% of the gold produced from the sulfide portion of the Andacollo mine until 910,000 payable ounces have been produced, and 50% of the gold produced thereafter. CMCA paid total consideration of $345 million to RG Chile in connection with the Royalty Termination Agreement. The net carrying value of the Andacollo royalty on the date of termination was approximately $207.5 million. The royalty termination transaction was taxable in Chile and the United States.
3. ROYALTY AND STREAM INTERESTS
The following tables summarize the Company’s royalty and stream interests as of DecemberMarch 31, 20152016 and June 30, 2015.
As of December 31, 2015 (Amounts in thousands): |
| Cost |
| Accumulated |
| Net |
| ||||||||||||||||
As of March 31, 2016 (Amounts in thousands): |
| Cost |
| Accumulated |
| Impairments |
| Net |
| ||||||||||||||
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Voisey’s Bay |
| $ | 150,138 |
| $ | (82,897 | ) | $ | 67,241 |
|
| $ | 205,724 |
| $ | (85,671 | ) | $ | — |
| $ | 120,053 |
|
Peñasquito |
| 99,172 |
| (28,334 | ) | 70,838 |
|
| 99,172 |
| (29,439 | ) | — |
| 69,733 |
| |||||||
Holt |
| 34,612 |
| (15,656 | ) | 18,956 |
|
| 34,612 |
| (16,391 | ) | — |
| 18,221 |
| |||||||
Cortez |
| 10,630 |
| (9,970 | ) | 660 |
|
| 10,630 |
| (9,987 | ) | — |
| 643 |
| |||||||
Other |
| 531,734 |
| (324,204 | ) | 207,530 |
|
| 531,734 |
| (333,196 | ) | (18,605 | ) | 179,933 |
| |||||||
Total production stage royalty interests |
| 826,286 |
| (461,061 | ) | 365,225 |
|
| 881,872 |
| (474,684 | ) | (18,605 | ) | 388,583 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mount Milligan |
| 783,046 |
| (55,980 | ) | 727,066 |
|
| 783,046 |
| (65,329 | ) | — |
| 717,717 |
| |||||||
Pueblo Viejo |
| 610,400 |
| (5,612 | ) | 604,788 |
|
| 610,404 |
| (13,344 | ) | — |
| 597,060 |
| |||||||
Andacollo |
| 388,182 |
| (6,514 | ) | 381,668 |
|
| 388,182 |
| (12,497 | ) | — |
| 375,685 |
| |||||||
Wassa/Bogoso/Prestea |
| 62,507 |
| (4,620 | ) | 57,887 |
|
| 76,427 |
| (6,000 | ) | — |
| 70,427 |
| |||||||
Total production stage stream interests |
| 1,844,135 |
| (72,726 | ) | 1,771,409 |
|
| 1,858,059 |
| (97,170 | ) | — |
| 1,760,889 |
| |||||||
Production stage royalty and stream interests |
| 2,670,421 |
| (533,787 | ) | 2,136,634 |
|
| 2,739,931 |
| (571,854 | ) | (18,605 | ) | 2,149,472 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Pascua-Lama |
| 380,657 |
| — |
| 380,657 |
|
| 380,657 |
| — |
| — |
| 380,657 |
| |||||||
Other |
| 66,415 |
| — |
| 66,415 |
|
| 66,415 |
| — |
| — |
| 66,415 |
| |||||||
Total development stage royalty interests |
| 447,072 |
| — |
| 447,072 |
|
| 447,072 |
| — |
| — |
| 447,072 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Rainy River |
| 100,684 |
| — |
| 100,684 |
|
| 100,684 |
| — |
| — |
| 100,684 |
| |||||||
Other |
| 87,822 |
| (86 | ) | 87,736 |
|
| 87,881 |
| (153 | ) | (75,702 | ) | 12,026 |
| |||||||
Total development stage stream interests |
| 188,506 |
| (86 | ) | 188,420 |
|
| 188,565 |
| (153 | ) | (75,702 | ) | 112,710 |
| |||||||
Development stage royalty and stream interests |
| 635,578 |
| (86 | ) | 635,492 |
|
| 635,637 |
| (153 | ) | (75,702 | ) | 559,782 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Exploration stage royalty interests |
| 210,584 |
| — |
| 210,584 |
|
| 155,997 |
| — |
| (1,811 | ) | 154,186 |
| |||||||
Exploration stage stream interests |
| 13,711 |
| — |
| 13,711 |
|
| — |
| — |
| — |
| — |
| |||||||
Total royalty and stream interests |
| $ | 3,530,294 |
| $ | (533,873 | ) | $ | 2,996,421 |
|
| $ | 3,531,565 |
| $ | (572,007 | ) | $ | (96,118 | ) | $ | 2,863,440 |
|
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
As of June 30, 2015 (Amounts in thousands): |
| Cost |
| Accumulated |
| Impairments |
| Net |
|
| Cost |
| Accumulated |
| Impairments |
| Net |
| ||||||||
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Andacollo |
| $ | 272,998 |
| $ | (65,467 | ) | $ | — |
| $ | 207,531 |
|
| $ | 272,998 |
| $ | (65,467 | ) | $ | — |
| $ | 207,531 |
|
Voisey’s Bay |
| 150,138 |
| (76,141 | ) | — |
| 73,997 |
|
| 150,138 |
| (76,141 | ) | — |
| 73,997 |
| ||||||||
Peñasquito |
| 99,172 |
| (24,555 | ) | — |
| 74,617 |
|
| 99,172 |
| (24,555 | ) | — |
| 74,617 |
| ||||||||
Mulatos |
| 48,092 |
| (32,313 | ) |
|
| 15,779 |
|
| 48,092 |
| (32,313 | ) |
|
| 15,779 |
| ||||||||
Holt |
| 34,612 |
| (13,950 | ) | — |
| 20,662 |
|
| 34,612 |
| (13,950 | ) | — |
| 20,662 |
| ||||||||
Robinson |
| 17,825 |
| (12,748 | ) |
|
| 5,077 |
|
| 17,825 |
| (12,748 | ) |
|
| 5,077 |
| ||||||||
Cortez |
| 10,630 |
| (9,933 | ) | — |
| 697 |
|
| 10,630 |
| (9,933 | ) | — |
| 697 |
| ||||||||
Other |
| 495,763 |
| (265,727 | ) | (27,586 | ) | 202,450 |
|
| 495,763 |
| (265,727 | ) | (27,586 | ) | 202,450 |
| ||||||||
Total production stage royalty interests |
| 1,129,230 |
| (500,834 | ) | (27,586 | ) | 600,810 |
|
| 1,129,230 |
| (500,834 | ) | (27,586 | ) | 600,810 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Mount Milligan |
| 783,046 |
| (35,195 | ) | — |
| 747,851 |
|
| 783,046 |
| (35,195 | ) | — |
| 747,851 |
| ||||||||
Production stage royalty and stream interests |
| 1,912,276 |
| (536,029 | ) | (27,586 | ) | 1,348,661 |
|
| 1,912,276 |
| (536,029 | ) | (27,586 | ) | 1,348,661 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pascua-Lama |
| 372,105 |
| — |
| — |
| 372,105 |
|
| 372,105 |
| — |
| — |
| 372,105 |
| ||||||||
Other |
| 67,017 |
| — |
| — |
| 67,017 |
|
| 67,017 |
| — |
| — |
| 67,017 |
| ||||||||
Total development stage royalty interests |
| 439,122 |
| — |
| — |
| 439,122 |
|
| 439,122 |
| — |
| — |
| 439,122 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Phoenix Gold |
| 75,843 |
| — |
| — |
| 75,843 |
|
| 75,843 |
| — |
| — |
| 75,843 |
| ||||||||
Other |
| 8,183 |
| — |
| (603 | ) | 7,580 |
|
| 8,183 |
| — |
| (603 | ) | 7,580 |
| ||||||||
Total development stage stream interests |
| 84,026 |
| — |
| (603 | ) | 83,423 |
|
| 84,026 |
| — |
| (603 | ) | 83,423 |
| ||||||||
Development stage royalty and stream interests |
| 523,148 |
| — |
| (603 | ) | 522,545 |
|
| 523,148 |
| — |
| (603 | ) | 522,545 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Exploration stage royalty interests |
| 212,552 |
| — |
| (150 | ) | 212,402 |
|
| 212,552 |
| — |
| (150 | ) | 212,402 |
| ||||||||
Total royalty and stream interests |
| $ | 2,647,976 |
| $ | (536,029 | ) | $ | (28,339 | ) | $ | 2,083,608 |
|
| $ | 2,647,976 |
| $ | (536,029 | ) | $ | (28,339 | ) | $ | 2,083,608 |
|
Impairment of royalty and stream interests and royalty receivables
In accordance with our impairment accounting policy discussed in Note 1, impairments in the carrying value of each royalty or stream interest are measured and recorded to the extent that the carrying value in each royalty or stream interest exceeds its estimated fair value, which is generally calculated using estimated future discounted cash-flows. As part of the Company’s regular asset impairment analysis, which included the presence of impairment indicators, the Company did not record anyrecorded impairment charges for the three and sixnine months ended DecemberMarch 31, 2015. See Note 13 for further discussion on our Phoenix Gold streaming interest. The Company recorded impairment charges for the fiscal year ended June 30,2016 and 2015, as discussed furthersummarized in the Company’s Fiscal 2015 10-K.following table:
|
| For The Three Months |
| For The Nine Months Ended |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
|
| (Amounts in thousands) |
| (Amounts in thousands) |
| ||||||||
Phoenix Gold(1) |
| $ | 75,702 |
| $ | — |
| $ | 75,702 |
| $ | — |
|
Inata(2) |
| 11,982 |
| — |
| 11,982 |
| — |
| ||||
Wolverine(2) |
| 5,307 |
| — |
| 5,307 |
| 25,967 |
| ||||
Other |
| 3,127 |
| — |
| 3,127 |
| 2,372 |
| ||||
Total impairment of royalty and stream interests |
| $ | 96,118 |
| $ | — |
| $ | 96,118 |
| $ | 28,339 |
|
Inata |
| 2,855 |
| — |
| 2,855 |
| — |
| ||||
Wolverine |
| — |
| — |
| (385 | ) | 2,996 |
| ||||
Total impairment of royalty and stream interests and royalty receivables |
| $ | 98,973 |
| $ | — |
| $ | 98,588 |
| $ | 31,335 |
|
(1) Included in Other development stage stream interests in the above royalty and stream interests table.
(2) Included in Other production stage royalty interests in the above royalty and stream interests table.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Phoenix Gold
RGLD Gold owns the right to purchase 6.30% of any gold produced from the Phoenix Gold Project until 135,000 ounces have been delivered, and 3.15% thereafter. The Phoenix Gold Project is located in Red Lake, Ontario, Canada, and operated by Rubicon Minerals Corporation (“Rubicon”). On January 11, 2016, Rubicon provided an updated geologic model and mineralized material statement for the Phoenix Gold Project, which included a significant reduction in mineralized material compared to previous statements provided by Rubicon. Rubicon also announced that they are evaluating strategic alternatives, including merger and divestiture opportunities either at the corporate or asset level, obtaining new financing or capital restructurings. A significant reduction in mineralized material, along with recent decreases in the long-term metal price assumptions used by the industry, are indicators of impairment.
During the quarter ended March 31, 2016, the Company independently evaluated the updated geologic model and mineralized material statement in an effort to properly assess the recoverability of our carrying value. The Company’s technical evaluation was completed by internal and external qualified personnel and included an econcomic analysis of the Phoenix Gold Project and a detailed review of the geological model and mineralized material statement.
Based upon the results of the Company’s review of the updated geological model and mineralized material statement, and other factors, it was determined that our stream interest at the Phoenix Gold Project should be written down to zero as of March 31, 2016. The Company will continue to pursue commercial alternatives for potential recovery of our investment.
Inata
The Company owns a 2.5% gross smelter return royalty on all gold and silver produced from the Inata mine, located in Burkina Faso, West Africa, and operated by a subsidiary of Avocet Mining PLC (“Avocet”). The Company’s carrying value for its royalty interest at Inata was approximately $12.0 million as of December 31, 2015. As part of the Company’s impairment assessment for the three months ended March 31, 2016, the Company was notified of an updated mine plan at Inata, which included a significant reduction in the life of the mine. Based upon our review of the updated mine plan, it was determined that our royalty interest should be written down to zero as of March 31, 2016.
The Company also has a royalty receivable of approximately $2.8 million associated with past due royalty payments on the Inata interest. As a result of Avocet’s financial and operational difficulties and our review of the updated mine plan at Inata, the Company believes payment of the receivable is uncertain and provided for an allowance against the entire royalty receivable as of March 31, 2016. The Company will continue to pursue collection of all past due payments.
Wolverine
The Company owns a 0.00% to 9.445% sliding-scale NSR royalty on all gold and silver produced from the Wolverine underground mine and milling operation located in Yukon Territory, Canada, and formerly operated by Yukon Zinc Corporation (“Yukon Zinc”). As discussed further in the Company’s Fiscal 2015 10-K, the Company recognized an impairment of approximately $26.0 million on the Wolverine royalty interest and an allowance against the entire royalty receivable of approximately $3.0 million during the three months ended December 31, 2014. The Company’s remaining carrying value at Wolverine as of December 31, 2015, was approximately $5.3 million.
During the second half of calendar 2015, Yukon Zinc completed bankruptcy proceedings in the Supreme Court of British Columbia and during the quarter ended March 31, 2016, we were made aware of no
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
further intentions to recommission the mine. Based upon the updated developments and limited remaining mineralized material at Wolverine, the Company determined the remaining carrying value at Wolverine should be written down to zero as of March 31, 2016.
Other
As part of the Company’s regular asset impairment analysis during the three months ended March 31, 2016, including consideration of recent operator/property updates and developments, the Company determined that one production stage royalty interest and three exploration stage royalty interests should be written down to zero for a total impairment of approximately $3.1 million.
4. AVAILABLE-FOR-SALE SECURITIES
The Company’s available-for-sale securities as of DecemberMarch 31, 20152016 and June 30, 2015 consist of the following:
|
| As of December 31, 2015 |
|
| As of March 31, 2016 |
| ||||||||||||||||||||
|
|
|
| (Amounts in thousands) |
|
|
|
|
|
| (Amounts in thousands) |
|
|
| ||||||||||||
|
|
|
| Unrealized |
|
|
|
|
|
| Unrealized |
|
|
| ||||||||||||
|
| Cost Basis |
| Gain |
| Loss |
| Fair Value |
|
| Cost Basis |
| Gain |
| Loss |
| Fair Value |
| ||||||||
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Seabridge |
| $ | 9,565 |
| — |
| (1,154 | ) | $ | 8,411 |
|
| $ | 3,307 |
| 554 |
| — |
| $ | 3,861 |
| ||||
|
| $ | 9,565 |
| $ | — |
| $ | (1,154 | ) | $ | 8,411 |
|
| $ | 3,307 |
| $ | 554 |
| $ | — |
| $ | 3,861 |
|
|
| As of June 30, 2015 |
| ||||||||||
|
|
|
| (Amounts in thousands) |
|
|
| ||||||
|
|
|
| Unrealized |
|
|
| ||||||
|
| Cost Basis |
| Gain |
| Loss |
| Fair Value |
| ||||
Non-current: |
|
|
|
|
|
|
|
|
| ||||
Seabridge |
| $ | 9,565 |
| — |
| (3,292 | ) | $ | 6,273 |
| ||
|
| $ | 9,565 |
| $ | — |
| $ | (3,292 | ) | $ | 6,273 |
|
Our only significant available-for-sale security is the investment in Seabridge Gold, Inc. (“Seabridge”) common stock, acquired in June 2011. The Company’s policy for determining whether declines in fair value of available-for-sale securities are other than temporary includes a quarterly analysis of During the investments and a review by management of all investments for which the cost exceeds the fair value. Any temporary declines in fair value are recorded as a charge to other comprehensive income. If such impairment is determined bythree months ended March 31, 2016, the Company to besold 666,666 shares of its Seabridge common stock, resulting in a realized gain of approximately $0.7 million. The realized gain is recorded within Interest and other than temporary, the investment’s cost basis is written down to fair value and recorded in net income during the period the Company determines such impairment to be other than temporary. Based on the Company’s quarterly analysisconsolidated statements of its investmentsoperations and our ability and intent to hold these investmentscomprehensive income for a reasonable period of time, there were no write downs on our available-for-sale securities during the three and sixnine months ended DecemberMarch 31, 2015. T2016.he Company will continue to evaluate its investment in Seabridge common stock considering additional facts and circumstances as they arise, including, but not limited to, the progress of development of Seabridge’s KSM project.
5.DEBT
The Company’s non-current debt as of December 31, 2015 and June 30, 2015 consists of the following:
|
| As of |
| As of |
| ||
|
| December 31, 2015 |
| June 30, 2015 |
| ||
|
| Non-current |
| Non-current |
| ||
|
| (Amounts in thousands) |
| ||||
Convertible notes due 2019, net |
| $ | 327,494 |
| $ | 322,110 |
|
Revolving credit facility |
| 350,000 |
| — |
| ||
Total debt |
| $ | 677,494 |
| $ | 322,110 |
|
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
5.DEBT
The Company’s non-current debt as of March 31, 2016 and June 30, 2015 consists of the following:
|
| As of |
| As of |
| ||
|
| March 31, 2016 |
| June 30, 2015 |
| ||
|
| Non-current |
| Non-current |
| ||
|
| (Amounts in thousands) |
| ||||
Convertible notes due 2019, net |
| $ | 330,252 |
| $ | 322,110 |
|
Revolving credit facility |
| 300,000 |
| — |
| ||
Total debt |
| $ | 630,252 |
| $ | 322,110 |
|
Convertible Senior Notes Due 2019
In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”). The 2019 Notes bear interest at the rate of 2.875% per annum, and the Company is required to make semi-annual interest payments on the outstanding principal balance of the 2019 Notes on June 15 and December 15 of each year, beginning December 15, 2012. The 2019 Notes mature on June 15, 2019. Interest expense recognized on the 2019 Notes for the three and sixnine months ended DecemberMarch 31, 2015,2016, was $5.7 million and $11.3$17.1 million, respectively, compared to $5.5$5.6 million and $10.9$16.5 million, respectively, for the three and sixnine months ended DecemberMarch 31, 2014,2015, and included the contractual coupon interest, the accretion of the debt discount and amortization of the debt issuance costs.
Revolving credit facility
The Company maintains a $650 million revolving credit facility. As of DecemberMarch 31, 2015,2016, the Company had $350.0$300.0 million outstanding and $300.0$350.0 million available under the revolving credit facility. Borrowings under the revolving credit facility bear interest at a floating rate of LIBOR plus a margin of 1.25% to 3.00%, based on Royal Gold’s defined leverage ratio. As of DecemberMarch 31, 2015,2016, the interest rate on borrowings under the revolving credit facility was LIBOR plus 2.25% for an all-in rate of 2.82%2.87%. During the three months ended March 31, 2016, the Company repaid $50.0 million of the outstanding borrowings under the revolving credit facility. Royal Gold may repay borrowings under the revolving credit facility at any time without premium or penalty.
On March 16, 2016, the Company entered into Amendment No. 2 (the “Amendment”) to the Sixth Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014 (as amended by Amendment No. 1 thereto as of April 29, 2015, the “Revolving Credit Agreement”), by and among the Company, certain subsidiaries of the Company as guarantors, certain lenders from time to time party thereto, and HSBC Bank USA, National Association, as administrative agent for the lenders. The Amendment revises the Revolving Credit Agreement to extend the scheduled maturity date from January 29, 2019 to March 16, 2021.
As discussed in Note 6 to the notes to consolidated financial statements in the Company’s Fiscal 2015 10-K, the Company has financial covenants associated with its revolving credit facility. At DecemberMarch 31, 2015,2016, the Company was in compliance with each financial covenant.
6.REVENUE
Revenue is comprised of the following:
|
| For The Three Months Ended |
| For The Six Months Ended |
| ||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| ||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| ||||
|
| (Amounts in thousands) |
| (Amounts in thousands) |
| ||||||||
Stream interests |
| $ | 67,312 |
| $ | 17,318 |
| $ | 105,168 |
| $ | 36,975 |
|
Royalty interests |
| 30,806 |
| 43,986 |
| 67,005 |
| 93,355 |
| ||||
Total revenue |
| $ | 98,118 |
| $ | 61,304 |
| $ | 172,173 |
| $ | 130,330 |
|
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
6.REVENUE
Revenue is comprised of the following:
|
| For The Three Months Ended |
| For The Nine Months Ended |
| ||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
|
| (Amounts in thousands) |
| (Amounts in thousands) |
| ||||||||
Stream interests |
| $ | 63,439 |
| $ | 29,718 |
| $ | 168,607 |
| $ | 66,693 |
|
Royalty interests |
| 30,048 |
| 44,392 |
| 97,053 |
| 137,746 |
| ||||
Total revenue |
| $ | 93,487 |
| $ | 74,110 |
| $ | 265,660 |
| $ | 204,439 |
|
7. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
| For The Three Months Ended |
| For The Six Months Ended |
|
| For The Three Months Ended |
| For The Nine Months Ended |
| ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||||||
|
| (Amounts in thousands) |
| (Amounts in thousands) |
|
| (Amounts in��thousands) |
| (Amounts in thousands) |
| ||||||||||||||||
Stock options |
| $ | 115 |
| $ | 106 |
| $ | 224 |
| $ | 219 |
|
| $ | 116 |
| $ | 112 |
| $ | 339 |
| $ | 331 |
|
Stock appreciation rights |
| 424 |
| 338 |
| 816 |
| 693 |
|
| 430 |
| 361 |
| 1,246 |
| 1,054 |
| ||||||||
Restricted stock |
| 774 |
| 157 |
| 2,144 |
| 1,327 |
|
| 747 |
| 637 |
| 2,892 |
| 1,964 |
| ||||||||
Performance stock |
| (91 | ) | (226 | ) | 2,265 |
| 585 |
|
| 1,047 |
| (274 | ) | 3,312 |
| 311 |
| ||||||||
Total stock-based compensation expense |
| $ | 1,222 |
| $ | 375 |
| $ | 5,449 |
| $ | 2,824 |
|
| $ | 2,340 |
| $ | 836 |
| $ | 7,789 |
| $ | 3,660 |
|
Stock-based compensation expense is included within general and administrative in the consolidated statements of operations and comprehensive income.
During the three and six months ended December 31, 2015 and 2014, the Company granted the following stock-based compensation awards:
|
| For The Three Months Ended |
| For The Six Months Ended |
| ||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
|
| (Number of shares) |
| (Number of shares) |
| ||||
Stock options |
| 1,125 |
| — |
| 25,437 |
| 19,760 |
|
Stock appreciation rights |
| — |
| — |
| 97,817 |
| 87,890 |
|
Restricted stock |
| 1,125 |
| — |
| 73,187 |
| 55,589 |
|
Performance stock |
| 1,125 |
| — |
| 48,422 |
| 46,800 |
|
Total stock-based compensation expense |
| 3,375 |
| — |
| 244,863 |
| 210,039 |
|
As of DecemberMarch 31, 2015,2016, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards was as follows:
|
| Unrecognized |
| Weighted- |
|
| Unrecognized |
| Weighted-average vesting |
| ||
Stock options |
| $ | 735 |
| 2.1 |
|
| $ | 625 |
| 1.9 |
|
Stock appreciation rights |
| 2,707 |
| 2.0 |
|
| 2,322 |
| 1.9 |
| ||
Restricted stock |
| 6,817 |
| 3.3 |
|
| 6,177 |
| 3.1 |
| ||
Performance stock |
| 4,014 |
| 1.6 |
|
| 3,053 |
| 1.5 |
|
8. EARNINGS PER SHARE (“EPS”)
Basic earnings (loss) per common share were computed using the weighted average number of shares of common stock outstanding during the period, considering the effect of participating securities. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share pursuant
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company’s unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. The Company’s unexercised stock options, unexercised SSARs and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings (loss) used to determine basic earnings (loss) per common share are reduced by an amount allocated to participating securities. Use of the two-class method has an immaterial impact on the calculation of basic and diluted earnings (loss) per common share.
The following tables summarize the effects of dilutive securities on diluted EPS for the period:
|
| For The Three Months Ended |
| For The Six Months Ended |
|
| For The Three Months Ended |
| For The Nine Months Ended |
| ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||||||
|
| (in thousands, except per share data) |
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| (in thousands, except per share data) |
| ||||||||||||||||
Net income (loss) available to Royal Gold common stockholders |
| $ | 15,114 |
| $ | (6,548 | ) | $ | (29,933 | ) | $ | 12,134 |
| |||||||||||||
Net (loss) income available to Royal Gold common stockholders |
| $ | (67,656 | ) | $ | 25,014 |
| $ | (97,589 | ) | $ | 37,148 |
| |||||||||||||
Weighted-average shares for basic EPS |
| 65,073,678 |
| 65,002,307 |
| 65,061,059 |
| 64,982,595 |
|
| 65,085,225 |
| 65,033,547 |
| 65,069,056 |
| 64,999,331 |
| ||||||||
Effect of other dilutive securities |
| 48,066 |
| — |
| — |
| 139,590 |
|
| — |
| 95,815 |
| — |
| 122,982 |
| ||||||||
Weighted-average shares for diluted EPS |
| 65,121,744 |
| 65,002,307 |
| 65,061,059 |
| 65,122,185 |
|
| 65,085,225 |
| 65,129,362 |
| 65,069,056 |
| 65,122,313 |
| ||||||||
Basic earnings (loss) per share |
| $ | 0.23 |
| $ | (0.10 | ) | $ | (0.46 | ) | $ | 0.19 |
| |||||||||||||
Diluted earnings (loss) per share |
| $ | 0.23 |
| $ | (0.10 | ) | $ | (0.46 | ) | $ | 0.19 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Basic (loss) earnings per share |
| $ | (1.04 | ) | $ | 0.38 |
| $ | (1.50 | ) | $ | 0.57 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Diluted (loss) earnings per share |
| $ | (1.04 | ) | $ | 0.38 |
| $ | (1.50 | ) | $ | 0.57 |
|
The calculation of weighted average shares includes all of our outstanding common stock. The Company intends to settle the principal amount of the 2019 Notes in cash. As a result, there will be no impact to diluted earnings per share unless the share price of the Company’s common stock exceeds the conversion price of $105.31.
9. INCOME TAXES
|
| For The Three Months Ended |
| For The Six Months Ended |
|
| For The Three Months Ended |
| For The Nine Months Ended |
| ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||||||
|
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) |
|
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Income tax (expense) benefit |
| $ | (4,740 | ) | $ | 1,827 |
| $ | (63,917 | ) | $ | (2,131 | ) | |||||||||||||
Income tax benefit (expense) |
| $ | 8,262 |
| $ | (1,041 | ) | $ | (55,655 | ) | $ | (3,172 | ) | |||||||||||||
Effective tax rate |
| 25.4 | % | 22.4 | % | 194.3 | % | 14.5 | % |
| 10.6 | % | 4.0 | % | 124.0 | % | 7.8 | % |
The higher effective tax rate for the three months ended DecemberMarch 31, 20152016, was primarily related to higher discrete period charges as comparedimpacted due to the three months ended December 31, 2014.impairment charges and appreciation of the Canadian dollar. The increase in the effective tax rate for the sixnine months ended DecemberMarch 31, 20152016 is primarily related to the discrete tax impacts attributable to the Company’s Andacollo transactions (Note 2) and, the liquidation of our Chilean subsidiary.subsidiary, and the impact of current period impairment charges.
As of DecemberMarch 31, 20152016 and June 30, 2015, the Company had $15.9$17.1 million and $15.1 million of total gross unrecognized tax benefits, respectively. If recognized, these unrecognized tax benefits would positively impact the Company’s effective income tax rate.
The Company’s continuing practice is to recognize potential interest and/or penalties related to unrecognized tax benefits as part of its income tax expense. At DecemberMarch 31, 20152016 and June 30, 2015, the amount of accrued income-tax-related interest and penalties was $5.7 million and $4.6 million, respectively.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
the amount of accrued income-tax-related interest and penalties was $5.3 million and $4.6 million, respectively.
10. SEGMENT INFORMATION
The Company manages its business under two reportable segments, consisting of the acquisition and management of royalty interests and the acquisition and management of stream interests. Royal Gold’s long-lived assets (royalty and stream interests, net) are geographically distributed as shown in the following table:
|
| As of December 31, 2015 |
| |||||||
|
| Royalty interest |
| Stream interest |
| Total royalty and stream |
| |||
Canada |
| $ | 240,500 |
| $ | 903,519 |
| $ | 1,144,019 |
|
Chile |
| 453,629 |
| 381,668 |
| $ | 835,297 |
| ||
Dominican Republic |
| — |
| 604,789 |
| $ | 604,789 |
| ||
Mexico |
| 124,192 |
| — |
| $ | 124,192 |
| ||
United States |
| 106,893 |
| — |
| $ | 106,893 |
| ||
Australia |
| 46,667 |
| — |
| $ | 46,667 |
| ||
Africa |
| 12,727 |
| 71,598 |
| $ | 84,325 |
| ||
Other |
| 38,273 |
| 11,966 |
| $ | 50,239 |
| ||
Total |
| $ | 1,022,881 |
| $ | 1,973,540 |
| $ | 2,996,421 |
|
|
| As of June 30, 2015 |
| |||||||
|
| Royalty interest |
| Stream interest |
| Total royalty and stream |
| |||
Canada |
| $ | 251,688 |
| $ | 823,091 |
| $ | 1,074,779 |
|
Chile |
| 653,019 |
| — |
| $ | 653,019 |
| ||
Mexico |
| 131,742 |
| — |
| $ | 131,742 |
| ||
United States |
| 110,286 |
| — |
| $ | 110,286 |
| ||
Australia |
| 50,119 |
| — |
| $ | 50,119 |
| ||
Africa |
| 12,760 |
| — |
| $ | 12,760 |
| ||
Dominican Republic |
| — |
| — |
| $ | — |
| ||
Other |
| 42,720 |
| 8,183 |
| $ | 50,903 |
| ||
Total |
| $ | 1,252,334 |
| $ | 831,274 |
| $ | 2,083,608 |
|
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
| As of March 31, 2016 |
| As of June 30, 2015 |
| ||||||||||||||
|
| Royalty |
| Stream |
| Total royalty and |
| Royalty |
| Stream |
| Total royalty and |
| ||||||
Canada |
| $ | 230,170 |
| $ | 818,402 |
| $ | 1,048,572 |
| $ | 251,688 |
| $ | 823,091 |
| $ | 1,074,779 |
|
Chile |
| 453,629 |
| 375,685 |
| $ | 829,314 |
| 653,019 |
| — |
| 653,019 |
| |||||
Dominican Republic |
| — |
| 597,060 |
| $ | 597,060 |
| — |
| — |
| — |
| |||||
Mexico |
| 121,269 |
| — |
| $ | 121,269 |
| 131,742 |
| — |
| 131,742 |
| |||||
United States |
| 104,785 |
| — |
| $ | 104,785 |
| 110,286 |
| — |
| 110,286 |
| |||||
Africa |
| 719 |
| 70,427 |
| $ | 71,146 |
| 12,760 |
| — |
| 12,760 |
| |||||
Australia |
| 44,488 |
| — |
| $ | 44,488 |
| 50,119 |
| — |
| 50,119 |
| |||||
Other |
| 34,781 |
| 12,025 |
| $ | 46,806 |
| 42,720 |
| 8,183 |
| 50,903 |
| |||||
Total |
| $ | 989,841 |
| $ | 1,873,599 |
| $ | 2,863,440 |
| $ | 1,252,334 |
| $ | 831,274 |
| $ | 2,083,608 |
|
The Company’s revenue, cost of sales and net revenue by reportable segment for the three and sixnine months ended DecemberMarch 31, 20152016 and 2014,2015, is geographically distributed as shown in the following table:
|
| For The Three Months Ended December 31, 2015 |
| |||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| |||
Royalties: |
|
|
|
|
|
|
| |||
Mexico |
| $ | 10,287 |
| $ | — |
| $ | 10,287 |
|
United States |
| 8,484 |
| — |
| 8,484 |
| |||
Canada |
| 7,206 |
| — |
| 7,206 |
| |||
Australia |
| 2,325 |
| — |
| 2,325 |
| |||
Africa |
| 474 |
| — |
| 474 |
| |||
Other |
| 2,030 |
| — |
| 2,030 |
| |||
Total royalties |
| $ | 30,806 |
| $ | — |
| $ | 30,806 |
|
|
|
|
|
|
|
|
| |||
Streams: |
|
|
|
|
|
|
| |||
Canada |
| $ | 42,418 |
| $ | 16,860 |
| $ | 25,558 |
|
Africa |
| 9,776 |
| 1,988 |
| 7,788 |
| |||
Dominican Republic |
| 9,400 |
| 2,832 |
| 6,568 |
| |||
Chile |
| 5,718 |
| 892 |
| 4,826 |
| |||
Total streams |
| $ | 67,312 |
| $ | 22,572 |
| $ | 44,740 |
|
Total royalties and streams |
| $ | 98,118 |
| $ | 22,572 |
| $ | 75,546 |
|
|
| For The Three Months Ended December 31, 2014 |
|
| For The Three Months Ended March 31, 2016 |
| For The Three Months Ended March 31, 2015 |
| |||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| |||||||||
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
United States |
| $ | 10,482 |
| $ | — |
| $ | 10,482 |
|
| $ | 8,522 |
| $ | — |
| $ | 8,522 |
| $ | 10,975 |
| $ | — |
| $ | 10,975 |
|
Mexico |
| 8,353 |
| — |
| 8,353 |
| 11,016 |
| — |
| 11,016 |
| ||||||||||||||||
Canada |
| 10,403 |
| — |
| 10,403 |
|
| 8,029 |
| — |
| 8,029 |
| 7,527 |
| — |
| 7,527 |
| |||||||||
Mexico |
| 8,435 |
| — |
| 8,435 |
| ||||||||||||||||||||||
Australia |
| 2,031 |
| — |
| 2,031 |
|
| 2,834 |
| — |
| 2,834 |
| 2,466 |
| — |
| 2,466 |
| |||||||||
Africa |
| 562 |
| — |
| 562 |
|
| 570 |
| — |
| 570 |
| 722 |
| — |
| 722 |
| |||||||||
Other |
| 12,073 |
| — |
| 12,073 |
|
| 1,740 |
| — |
| 1,740 |
| 11,686 |
| — |
| 11,686 |
| |||||||||
Total royalties |
| $ | 43,986 |
| $ | — |
| $ | 43,986 |
|
| $ | 30,048 |
| $ | — |
| $ | 30,048 |
| $ | 44,392 |
| $ | — |
| $ | 44,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Canada |
| $ | 17,318 |
| $ | 6,236 |
| $ | 11,082 |
|
| $ | 29,946 |
| $ | 11,095 |
| $ | 18,851 |
| $ | 29,718 |
| $ | 10,542 |
| $ | 19,176 |
|
Chile |
| — |
| — |
| — |
|
| 15,730 |
| 2,255 |
| 13,475 |
| — |
| — |
| — |
| |||||||||
Dominican Republic |
| 13,608 |
| 3,787 |
| 9,821 |
| — |
| — |
| — |
| ||||||||||||||||
Africa |
| — |
| — |
| — |
|
| 4,155 |
| 784 |
| 3,371 |
| — |
| — |
| — |
| |||||||||
Dominican Republic |
| — |
| — |
| — |
| ||||||||||||||||||||||
Total streams |
| $ | 17,318 |
| $ | 6,236 |
| $ | 11,082 |
|
| $ | 63,439 |
| $ | 17,921 |
| $ | 45,518 |
| $ | 29,718 |
| $ | 10,542 |
| $ | 19,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total royalties and streams |
| $ | 61,304 |
| $ | 6,236 |
| $ | 55,068 |
|
| $ | 93,487 |
| $ | 17,921 |
| $ | 75,566 |
| $ | 74,110 |
| $ | 10,542 |
| $ | 63,568 |
|
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
| For The Six Months Ended December 31, 2015 |
| |||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| |||
Royalties: |
|
|
|
|
|
|
| |||
Mexico |
| $ | 21,092 |
| $ | — |
| $ | 21,092 |
|
United States |
| 18,697 |
| — |
| 18,697 |
| |||
Canada |
| 17,607 |
| — |
| 17,607 |
| |||
Australia |
| 4,776 |
| — |
| 4,776 |
| |||
Africa |
| 731 |
| — |
| 731 |
| |||
Other |
| 4,102 |
| — |
| 4,102 |
| |||
Total royalties |
| $ | 67,005 |
| $ | — |
| $ | 67,005 |
|
|
|
|
|
|
|
|
| |||
Streams: |
|
|
|
|
|
|
| |||
Canada |
| $ | 65,935 |
| $ | 25,988 |
| $ | 39,947 |
|
Chile |
| 16,433 |
| 2,496 |
| 13,937 |
| |||
Africa |
| 13,400 |
| 2,722 |
| 10,678 |
| |||
Dominican Republic |
| 9,400 |
| 2,832 |
| 6,568 |
| |||
Total streams |
| $ | 105,168 |
| $ | 34,038 |
| $ | 71,130 |
|
Total royalties and streams |
| $ | 172,173 |
| $ | 34,038 |
| $ | 138,135 |
|
|
| For The Six Months Ended December 31, 2014 |
|
| For The Nine Months Ended March 31, 2016 |
| For The Nine Months Ended March 31, 2015 |
| |||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| |||||||||
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mexico |
| $ | 18,439 |
| $ | — |
| $ | 18,439 |
|
| $ | 29,446 |
| $ | — |
| $ | 29,446 |
| $ | 29,454 |
| $ | — |
| $ | 29,454 |
|
United States |
| 27,220 |
| — |
| 27,220 |
| 32,639 |
| — |
| 32,639 |
| ||||||||||||||||
Canada |
| 21,730 |
| — |
| 21,730 |
|
| 25,635 |
| — |
| 25,635 |
| 29,256 |
| — |
| 29,256 |
| |||||||||
United States |
| 21,664 |
| — |
| 21,664 |
| ||||||||||||||||||||||
Australia |
| 3,924 |
| — |
| 3,924 |
|
| 7,610 |
| — |
| 7,610 |
| 6,390 |
| — |
| 6,390 |
| |||||||||
Africa |
| 1,874 |
| — |
| 1,874 |
|
| 1,301 |
| — |
| 1,301 |
| 2,595 |
| — |
| 2,595 |
| |||||||||
Other |
| 25,724 |
| — |
| 25,724 |
|
| 5,841 |
| — |
| 5,841 |
| 37,412 |
| — |
| 37,412 |
| |||||||||
Total royalties |
| $ | 93,355 |
| $ | — |
| $ | 93,355 |
|
| $ | 97,053 |
| $ | — |
| $ | 97,053 |
| $ | 137,746 |
| $ | — |
| $ | 137,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Canada |
| $ | 36,975 |
| $ | 12,910 |
| $ | 24,065 |
|
| $ | 95,881 |
| $ | 37,084 |
| $ | 58,797 |
| $ | 66,693 |
| $ | 23,452 |
| $ | 43,241 |
|
Chile |
| — |
| — |
| — |
|
| 32,163 |
| 4,751 |
| 27,412 |
| — |
| — |
| — |
| |||||||||
Dominican Republic |
| 23,008 |
| 6,619 |
| 16,389 |
| — |
| — |
| — |
| ||||||||||||||||
Africa |
| — |
| — |
| — |
|
| 17,555 |
| 3,506 |
| 14,049 |
| — |
| — |
| — |
| |||||||||
Dominican Republic |
| — |
| — |
| — |
| ||||||||||||||||||||||
Total streams |
| $ | 36,975 |
| $ | 12,910 |
| $ | 24,065 |
|
| $ | 168,607 |
| $ | 51,960 |
| $ | 116,647 |
| $ | 66,693 |
| $ | 23,452 |
| $ | 43,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total royalties and streams |
| $ | 130,330 |
| $ | 12,910 |
| $ | 117,420 |
|
| $ | 265,660 |
| $ | 51,960 |
| $ | 213,700 |
| $ | 204,439 |
| $ | 23,452 |
| $ | 180,987 |
|
11. FAIR VALUE MEASUREMENTS
FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1: Quoted prices for identical instruments in active markets;
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
| At December 31, 2015 |
|
| At March 31, 2016 |
| ||||||||||||||||||||||||||
|
| Carrying |
| Fair Value |
|
| Carrying |
| Fair Value |
| ||||||||||||||||||||||
|
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Marketable equity securities(1) |
| $ | 8,411 |
| $ | 8,411 |
| $ | 8,411 |
| $ | — |
| $ | — |
|
| $ | 3,861 |
| $ | 3,861 |
| $ | 3,861 |
| $ | — |
| $ | — |
|
Warrants(2) |
| $ | 414 |
| $ | 414 |
| $ | — |
| $ | 414 |
| $ | — |
|
| $ | 1,615 |
| $ | 1,615 |
| $ | — |
| $ | 1,615 |
| $ | — |
|
Total assets |
|
|
| $ | 8,825 |
| $ | 8,411 |
| $ | 414 |
| $ | — |
|
|
|
| $ | 5,476 |
| $ | 3,861 |
| $ | 1,615 |
| $ | — |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Debt(3) |
| $ | 404,494 |
| $ | 335,313 |
| $ | 335,313 |
| $ | — |
| $ | — |
|
| $ | 407,252 |
| $ | 354,275 |
| $ | 354,275 |
| $ | — |
| $ | — |
|
Total liabilities |
|
|
| $ | 335,313 |
| $ | 335,313 |
| $ | — |
| $ | — |
|
|
|
| $ | 354,275 |
| $ | 354,275 |
| $ | — |
| $ | — |
|
(1) Included in Available for sale securities on the Company’s consolidated balance sheets.
(2) Included in Other assets on the Company’s consolidated balance sheets.
(3) Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital on the Company’s consolidated balance sheets.
The Company’s marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets. The fair value of the Level 1 marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company. The Company’s debt classified within Level 1 of the fair value hierarchy is valued using quoted prices in an active market. The carrying value of the Company’s revolving credit facility (Note 5) approximates fair value as of DecemberMarch 31, 2015. 2016.During the sixnine months ended DecemberMarch 31, 2015,2016, the warrants issued by Golden Star (Note 2) were added to the Level 2 fair value hierarchy.
As of DecemberMarch 31, 2015,2016, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with royalty and stream interests, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if any of these assets are determined to be impaired. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
12. COMMITMENTS AND CONTINGENCIES
Rainy River Gold and Silver Stream Acquisition
As of DecemberMarch 31, 2015,2016, the Company has a remaining commitment, subject to certain conditions, of $75.0 million as part of its Rainy River gold and silver stream acquisition in August 2015 (Note 2).
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Wassa Bogoso and Prestea Gold Stream Acquisition and Amendment
As of DecemberMarch 31, 2015,2016, the Company has a remaining commitment, subject to certain conditions, of $70.0 million as part of its Wassa Bogoso and Prestea gold stream acquisition (July 2015) and amendment (December 2015) as discussed further in Note 2.
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Ilovica Gold Stream Acquisition
As of DecemberMarch 31, 2015,2016, the Company has a remaining commitment, subject to certain conditions, of $163.75 million as part of its Ilovica gold stream acquisition in October 2014.
Voisey’s Bay
The Company indirectly owns a royalty on the Voisey’s Bay mine in Newfoundland and Labrador owned by Vale Newfoundland & Labrador Limited (“VNL”). The royalty is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary, Canadian Minerals Partnership, is the general partner and 89.99% owner. The remaining interests in LNRLP are owned by Altius Investments Ltd. (10%), a company unrelated to Royal Gold, and the Company’s wholly-owned indirect subsidiary, Voisey’s Bay Holding Corporation (0.01%).
On December 5, 2014, LNRLP filed amendments to its October 16, 2009 Statement of Claim in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited, now known as Vale Canada Limited (“Vale Canada”) and its wholly-owned subsidiaries, Vale Inco Atlantic Sales Limited and VNL, related to calculation of the NSR on the sale of concentrates, including nickel concentrates, from the Voisey’s Bay mine. LNRLP asserts that the defendants have incorrectly calculated the NSR since production at Voisey’s Bay began in late 2005, have indicated an intention to calculate the NSR in a manner LNRLP believes will violate the royalty agreement as Voisey’s Bay concentrates are processed at Vale’s new Long Harbour processing facility, and have breached their contractual duties of good faith and honest performance in several ways. LNRLP requests an order in respect of the correct calculation of future payments, and unspecified damages for non-payment and underpayment of past royalties to the date of the claim, together with additional damages until the date of trial, interest, costs and other damages. The litigation is in the discovery phase.
13.SUBSEQUENT EVENT
Phoenix Gold
RGLD Gold owns the right to purchase 6.30% of any gold produced from the Phoenix Gold Project until 135,000 ounces have been delivered, and 3.15% thereafter. The Phoenix Gold Project is located in Red Lake, Ontario, Canada, and operated by Rubicon Minerals Corporation (“Rubicon”). The Company’s carrying value for its stream interest at Phoenix Gold is $75.8 million as of December 31, 2015.
On January 11, 2016, Rubicon provided an updated geologic model and mineralized material statement for the Phoenix Gold Project, which included a significant reduction in mineralized material compared to previous statements provided by Rubicon. Rubicon also announced that they are evaluating strategic alternatives, including merger and divestiture opportunities either at the corporate or asset level, obtaining new financing or capital restructurings.
A significant reduction in mineralized material, along with recent decreases in the long-term metal price assumptions used by the industry, are indicators of potential impairment. The Company is currently
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
evaluating the updated geologic model and mineralized material statement in an effort to properly assess the recoverability of our carrying value. The Company’s technical evaluation will include a detailed review of the geological model and mineralized material statement by internal and external qualified personnel. Other factors under consideration by the Company as part of its recoverability analysis include any developments with respect to Rubicon’s stragetic alternatives, which may have implications on RGLD Gold’s $75 million security interest on the assets of the Phoenix Gold Project.
The Company anticipates that it will conclude its technical evaluation of the revised geologic model and mineralized material statement prior to the release of our financial results for the period ended March 31, 2016. Upon completion of our evaluation and upon consideration of any strategic developments with Rubicon or the Phoenix Gold Project, the Company could determine that an impairment in the near future is necessary.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”), recommends that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed with the Securities and Exchange Commission (the “SEC”) on August 6, 2015 (the “Fiscal 2015 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,” “metal stream”stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 2015 10-K.
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties, metal streams, and similar 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. 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. We seek to acquire existing royalty and stream interests or to finance projects that are in production or in the development stage in exchange for royalty or stream interests. In the ordinary course of business, we engage in a continual review of opportunities to acquire existing royalty and stream interests, establishingto establish new streams on operating mines, to create new royalty and stream interests through the financing of mine development or exploration, or to acquire companies that hold royalty and stream 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, analysis of technical, financial and other confidential information, submission of indications of interest, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.
As of DecemberMarch 31, 2015,2016, the Company owned stream interests on four producing properties and three development stage properties and owned royalty interests on 34 producing properties, 21 development stage properties and 135131 exploration stage properties, of which the Company considers 49 to be evaluation stage projects. The Company uses “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. We do not conduct mining operations on the properties in which we hold royalty and streamingstream interests, and except for our interest in Peak Gold, LLC joint venture, we are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties. During the three months ended DecemberMarch 31, 2015,2016, we focused on the management of our existing royalty and stream interests and the acquisition of additional royalty and stream interests.
Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver, copper and nickel, together with the amounts of production from our producing stage royalty and stream interests. The price of gold, silver, copper, nickel and other metals has fluctuated widely in recent years and most recently has experienced declines from highs experienced in the first half of our fiscal year 2013. 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, copper or nickel could have a material and adverse effect on the Company’s results of operations and financial condition.
For the three and sixnine months ended DecemberMarch 31, 20152016 and 2014,2015, gold, silver, copper and nickel price averages and percentage of revenue by metal were as follows:
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||||||||||||||||||||
|
| December 31, 2015 |
| December 31, 2014 |
| December 31, 2015 |
| December 31, 2014 |
|
| March 31, 2016 |
| March 31, 2015 |
| March 31, 2016 |
| March 31, 2015 |
| ||||||||||||||||||||||||
Metal |
| Average |
| Percentage of |
| Average |
| Percentage of |
| Average |
| Percentage of |
| Average |
| Percentage of |
|
| Average |
| Percentage of |
| Average |
| Percentage of |
| Average |
| Percentage of |
| Average |
| Percentage of |
| ||||||||
Gold ($/ounce |
| $ | 1,106 |
| 90 | % | $ | 1,201 |
| 78 | % | $ | 1,116 |
| 86 | % | $ | 1,243 |
| 77 | % |
| $ | 1,183 |
| 90 | % | $ | 1,218 |
| 85 | % | $ | 1,138 |
| 87 | % | $ | 1,235 |
| 80 | % |
Silver ($/ounce) |
| $ | 14.77 |
| 2 | % | $ | 16.50 |
| 3 | % | $ | 14.84 |
| 2 | % | $ | 18.14 |
| 4 | % |
| $ | 14.85 |
| 2 | % | $ | 16.71 |
| 3 | % | $ | 14.84 |
| 2 | % | $ | 17.67 |
| 3 | % |
Copper ($/pound) |
| $ | 2.22 |
| 3 | % | $ | 3.00 |
| 5 | % | $ | 2.30 |
| 4 | % | $ | 3.09 |
| 8 | % |
| $ | 2.12 |
| 5 | % | $ | 2.64 |
| 6 | % | $ | 2.24 |
| 4 | % | $ | 2.94 |
| 7 | % |
Nickel ($/pound) |
| $ | 4.28 |
| 2 | % | $ | 7.17 |
| 10 | % | $ | 4.54 |
| 4 | % | $ | 7.80 |
| 7 | % |
| $ | 3.86 |
| 1 | % | $ | 6.50 |
| 1 | % | $ | 4.32 |
| 3 | % | $ | 7.38 |
| 5 | % |
Other |
| N/A |
| 3 | % | N/A |
| 4 | % | N/A |
| 4 | % | N/A |
| 4 | % |
| N/A |
| 2 | % | N/A |
| 5 | % | N/A |
| 4 | % | N/A |
| 5 | % |
Recent Business Developments
Acquisition and Amendment of Gold Stream on Wassa Bogoso and Prestea
On July 28, 2015, RGLD Gold AG (“RGLD Gold”), a wholly-owned subsidiary of the Company, closed a $130 million gold stream transaction with a wholly-owned subsidiary of Golden Star Resources Ltd. (together “Golden Star”). On December 30, 2015, the parties executed an amendment providing for an additional $15 million investment (for a total investment of $145 million) by RGLD Gold. At Golden Star’s option, RGLD Gold will increase its investment by a further $5 million (for a total investment of $150 million) subject to satisfaction of certain conditions, including Golden Star’s procurement of a minimum of $5 million of third party investment.
Funds will be used for ongoing development of Golden Star’s Wassa Bogoso and Prestea mines in Ghana, including underground development at Wassa and Prestea.Ghana. As of DecemberMarch 31, 2015,2016, RGLD Gold has advanced $75 million, includingmillion. On April 1, 2016, RGLD Gold made an advance payment of $20 million advanced at closing of the amendment. RGLD Goldand expects to advance the balance in fourthree quarterly payments as follows: (i) $20 million on each of April 1, July 1 and October 1, 2016, and (ii) $10 million on January 1, 2017; however funds willthis schedule may be advancedmodified based on a pro rata basis withthe actual spending on the Wassa and Prestea underground projects and these funds are subject to satisfaction of certain conditions.
In return, Golden Star will deliver to RGLD Gold 9.25% of gold produced from the Wassa Bogoso and Prestea mines, until the earlier of (i) December 31, 2017 or (ii) the date at which the Wassa and Prestea underground projects achieve commercial production. At that point, the stream percentage will increase to 10.5% (or to 10.9% if the total investment increases to $150 million) of gold produced from the Wassa Bogoso and Prestea mines until an aggregate 240,000 ounces have been delivered (or 250,000 ounces if the total investment increases to $150 million). Once the applicable delivery threshold is met, the stream percentage will decrease to 5.5% for the remaining term of the transaction.
RGLD Gold will pay Golden Star a cash price equal to 20% of the spot price for each ounce of gold delivered at the time of delivery until the applicable delivery threshold is met, and 30% of the spot price for each ounce of gold delivered thereafter.
RGLD Gold sold approximately 12,000 ounces of gold delivered from Golden Star during the six months ended December 31, 2015, and has approximately 700 ounces of gold remaining in inventory as of such date.
The Wassa mine is located approximately 90 miles west of Accra and has operated continuously since 2005. Golden Star forecasts calendar 2016 production of 100,000 to 110,000 ounces of gold from the single Wassa open pit. Open pit proven and probable reserves are 812,000878,000 ounces at 1.421.59 grams per
tonne, as of December 31, 2014.2015. RGLD Gold’s investment will fund development of the Wassaunderground deposit, which has 746,000796,000 ounces of proven and probable gold reserves at 4.274.59 grams per tonne. Once the underground deposit is in production, Golden Star expects average annual gold production of 150,000 ounces of gold over the life of mine from the combined open pit and underground at Wassa.
Bogoso and Prestea areis located approximately 125 miles west of Accra and havehas produced over 9 million ounces of gold from both open pit and underground sources over the last 100 years. Prestea underground probable gold reserves are 469,000 ounces at 14.02 grams per tonne as of December 31, 2015. Golden Star forecasts calendar 2016 production of 60,000 to 70,000 ounces of gold from the open pit operations. Underground development at Prestea is already well advanced and Golden Star plans to modify the Bogoso plant to process Prestea material.advanced. Golden Star expects to spend $63 million of capital investment on Prestea, which includes hoist and shaft upgrades, electrical infrastructure, ventilation and a process plant upgrade. Once in full production, Golden Star expects annual production of approximately 75,000 ounces from Prestea, with estimated life of mine production of 450,000 ounces. Golden Star forecasts underground gold production from the Wassa and Prestea mines by mid-calendar 2016 and early calendar 2017, respectively.
Also on July 28, 2015 and separate from the stream transaction by RGLD Gold, the Company funded a $20 million, 4-year term loan to a wholly-owned subsidiary of Golden Star and received warrants to purchase 5 million shares of Golden Star common stock. Interest under the term loan is due quarterly at a rate equal to 62.5% of the average daily gold price for the relevant quarter divided by 10,000, but not to exceed 11.5%. The warrants have a term of four years and an exercise price of $0.27.
Acquisition of Gold and Silver Stream at Pueblo Viejo
On September 29, 2015, RGLD Gold entered into a Precious Metals Purchase and Sale Agreement with Barrick Gold Corporation (“Barrick”) and its wholly-owned subsidiary, BGC Holdings Ltd. (“BGC”) for a percentage of the gold and silver production attributable to Barrick’s 60% interest in the Pueblo Viejo mine located in the Dominican Republic. Pursuant to the Precious Metals Purchase and Sale Agreement, RGLD Gold made a single advance payment of $610 million to BGC as part of the closing. The transaction is effective as of July 1, 2015 for the gold stream and January 1, 2016 for the silver stream.
BGC will deliver gold to RGLD Gold in amounts equal to 7.50% of Barrick’s interest in the gold produced at the Pueblo Viejo mine from July 1, 2015 until 990,000 ounces of gold have been delivered, and 3.75% of Barrick’s interest in gold produced thereafter. RGLD Gold will pay BGC 30% of the spot price per ounce of gold delivered until 550,000 ounces of gold have been delivered, and 60% of the spot price per ounce delivered thereafter. RGLD Gold received its first delivery of approximately 20,600 ounces of gold from Pueblo Viejo on December 15, 2015, for gold production during the period July 1, 2015 to November 30, 2015.
BGC will deliver silver to RGLD Gold in amounts equal to 75% of Barrick’s interest in the silver produced at the Pueblo Viejo mine, beginning on January 1, 2016subject to a minimum silver recovery of 70%, until 50.0 million ounces of silver have been delivered, and 37.50% of Barrick’s interest in silver produced thereafter. RGLD Gold will pay BGC 30% of the spot price per ounce of silver delivered until 23.10 million ounces of silver have been delivered, and 60% of the spot price per ounce of silver delivered thereafter. RGLD Gold received its first delivery of 209,800 ounces of silver from Pueblo Viejo on March 15, 2016 for the period January through February 2016.
The Pueblo Viejo mine is an open-pit mining operation located approximately 60 miles northwest of Santo Domingo, in the Dominican Republic, and is owned by a joint venture in which Barrick ownsholds a 60% interest and is responsible for operations, and in which Goldcorp Inc. (“Goldcorp”) ownsholds a 40% interest. The mine began production in 2013. Barrick reported preliminary calendar 20152016 production forecast, on a 60% basis, of 572,000600,000-650,000 ounces of gold. Barrick also reported proven and probable gold reserves attributable to Barrick of 9.39.0 million contained ounces at 3.302.97 grams per tonne, and attributable proven
and probable silver reserves of 58.354.1 million contained ounces grading 20.717.9 grams per tonne, in each case as of December 31, 2014.2015.
Acquisition of Gold and Silver Stream at Rainy River
On July 20, 2015, RGLD Gold entered into a $175 million Purchase and Sale Agreement with New Gold, Inc. (“New Gold”), for a percentage of the gold and silver production from the Rainy River Project located in Ontario, Canada (“Rainy River”). Pursuant to the Purchase and Sale Agreement, RGLD Gold made an advance payment to New Gold, consisting of $100 million on July 20, 2015, and will make an additional advance payment of $75 million once capital spending at Rainy River is 60% complete (currently expected by mid-calendar 2016). Also underUnder the Purchase and Sale Agreement, New Gold will deliver to RGLD Gold 6.50% of the gold produced at Rainy River until 230,000 gold ounces have been delivered, and 3.25% thereafter. New Gold also will deliver to RGLD Gold 60% of the silver produced at Rainy River until 3.10 million silver ounces have been delivered, and 30% thereafter. RGLD Gold will pay New Gold 25% of the spot price per ounce of gold and silver at the time of delivery.
The Rainy River Project is located approximately 40 miles northwest of Fort Frances in western Ontario, Canada. Over its first nine years of full production, the 21,000 tonne per day, combined open pit-underground operation is scheduled to produce an average of 325,000 ounces of gold per year. Construction was initiated in calendar 2015 and at the end of the third quarter of calendar 2015 detailed engineeringFebruary 2016, overall construction was complete, site earthworks over 50% complete and key initial mining equipment successfully commissioned and 19%% of the total development capital estimate of $877 million has been spent.25% complete. Rainy River has an estimated fourteen year mine life based on current reserves and is projected by New Gold to start-up in mid-calendar 2017.
Acquisition of Gold Stream at Carmen de Andacollo
On July 9, 2015, RGLD Gold entered into a Long Term Offtake Agreement (the “Andacollo Stream Agreement”) with Compañía Minera Teck Carmen de Andacollo (“CMCA”), a 90% owned subsidiary of Teck Resources Limited (“Teck”). Pursuant to the Andacollo Stream Agreement, CMCA will sell and deliver to RGLD Gold 100% of payable gold from the Carmen de Andacollo (“Andacollo”) copper-gold mine until 900,000 ounces have been delivered, and 50% thereafter, subject to a fixed payable percentage of 89%. RGLD Gold made a $525 million advance payment in cash to CMCA upon entry into the Andacollo Stream Agreement, and RGLD Gold will also pay CMCA 15% of the monthly average gold price for the month preceding the delivery date for all gold purchased under the Andacollo Stream Agreement.
The transaction encompasses certain of CMCA’s presently owned mining concessions on the Andacollo mine, as well as any other mining concessions presently owned or acquired by CMCA or any of its affiliates within a 1.5 kilometer area of interest, and certain other mining concessions that CMCA or its affiliates may acquire. The Andacollo Stream Agreement is effective as of July 1, 2015, and applies to all final settlements of gold received on or after that date. RGLD Gold sold approximately 14,700 ounces of gold delivered from CMCA during the six months ended December 31, 2015, and has approximately 5,200 ounces of gold remaining in inventory as of such date.
Termination of Royalty Interest at Carmen de Andacollo
On July 9, 2015, Royal Gold Chile Limitada (“RG Chile”), a wholly owned subsidiary of the Company, entered into a Royalty Termination Agreement with CMCA. The Royalty Termination Agreement terminated an amended Royalty Agreement originally dated January 12, 2010, which provided RG Chile with a royalty equivalent to 75% of the gold produced from the sulfide portion of the Andacollo mine until 910,000 payable ounces have been produced, and 50% of the gold produced thereafter. CMCA paid
total consideration of $345 million to RG Chile in connection with the Royalty Termination Agreement. The royalty termination transaction was taxable in Chile and the United States.
Principal Royalty and Stream Interests
The Company considers both historical and future potential revenues in determining which royalty and stream 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 royalty and stream 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 royalty and stream interests are no longer principal to our business. Our principal producing and development royalty and stream interests are listed alphabetically in the following tables.
Please refer to our Fiscal 2015 10-K for further discussion of our principal producing and development royalty and stream interests.
Principal Producing Properties
|
|
|
|
|
| Royalty or stream interests |
Mine |
| Location |
| Operator |
| (Gold unless otherwise stated) |
Andacollo(1) |
| Region IV, Chile |
| Compañía Minera Teck Carmen de Andacollo |
| Gold stream - 100% of gold produced (until 900,000 ounces delivered; 50% thereafter) |
Cortez |
| Nevada, USA |
| Barrick |
| GSR1: 0.40% to 5.0% sliding-scale GSR |
GSR2: 0.40% to 5.0% sliding-scale GSR | ||||||
GSR3: 0.71% GSR | ||||||
NVR1: 1.014% NVR; 0.618% NVR (Crossroads) | ||||||
Holt |
| Ontario, Canada |
| Kirkland Lake Gold, Inc. (“Kirkland Lake”) |
| 0.00013 x quarterly average gold price NSR |
Mt. Milligan |
| British Columbia, Canada |
| Thompson Creek Metals Company Inc. (“Thompson Creek”) |
| Gold stream - 52.25% of payable gold |
Peñasquito |
| Zacatecas, Mexico |
| Goldcorp |
| 2.0% NSR (gold, silver, lead, zinc) |
Pueblo Viejo(1) |
| Sanchez Ramirez, Domincan Republic |
| Barrick (60%) |
| Gold stream - 7.5% of gold produced (until 990,000 ounces delivered; 3.75% thereafter) Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter) |
Voisey’s Bay |
| Newfoundland and Labrador, Canada |
| Vale Newfoundland & Labrador Limited (“Vale”) |
| 2.7% NSR (nickel, copper, cobalt) |
Wassa/ |
| Western Region of Ghana |
| Golden Star |
| Gold stream - 8.5% of gold produced for the six months ended December 31, 2015; 9.25% of the gold produced effective January 1, 2016. |
(1) The gold and silver stream at Pueblo Viejo and the gold streamstreams at Wassa/Bogoso/Prestea and Andacollo were acquired during the three months ended September 30, 2015. Please refer to “Recent Business Developments” above for further discussion on these acquisitions.
Principal Development Properties
|
|
|
|
|
| Royalty or stream interests |
Mine |
| Location |
| Operator |
| (Gold unless otherwise stated) |
Rainy River(1) |
| Ontario, Canada |
| New Gold |
| Gold stream - 6.5% of gold produced (until 230,000 ounces delivered; 3.25% thereafter) Silver stream - 60% of silver produced (until 3.1 million ounces delivered; 30% thereafter) |
Pascua-Lama(1) |
| Region III, Chile |
| Barrick |
| 0.78% to 5.45% sliding-scale NSR 1.09% fixed rate royalty (copper) |
(1) The gold and silver stream at Rainy River and thean additional royalty interest at Pascua-Lama were acquired during the three months ended September 30, 2015. Please refer to “Recent Business Developments” above for further discussion on these acquisitions.the Rainy River acquisition.
Operators’ Production Estimates by Royalty and Stream Interest for Calendar 20152016
We received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2015.2016. The following table shows such production estimates for our principal producing properties for calendar 20152016 as well as the actual production reported to us by the various operators through DecemberMarch 31, 2015.2016. 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 the accuracy of such information. Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing or development properties.
Operators’ Estimated and Actual Production by Royalty and Stream Interest for Calendar 2015
2016
Principal Producing Properties
For the period January 1, 20152016 through DecemberMarch 31, 20152016
|
| Calendar 2015 Operator’s Production |
| Calendar 2015 Operator’s Production |
| ||||||||
|
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
|
Royalty/Stream |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
|
Andacollo(5) |
| 52,200 |
| — |
| — |
| 47,600 |
| — |
| — |
|
Cortez GSR1 |
| 104,100 |
| — |
| — |
| 113,700 |
| — |
| — |
|
Cortez GSR2 |
| 27,900 |
| — |
| — |
| 35,000 |
| — |
| — |
|
Cortez GSR3 |
| 132,000 |
| — |
| — |
| 148,700 |
| — |
| — |
|
Cortez NVR1 |
| 97,200 |
| — |
| — |
| 110,100 |
| — |
| — |
|
Holt |
| 64,000 |
| — |
| — |
| 63,000 |
| — |
| — |
|
Mount Milligan(6) |
| 200,000-220,000 |
| — |
| — |
| 218,100 |
| — |
| — |
|
Penasquito(7),(8) |
| 700,000-750,000 |
| 24-26 million |
| — |
| 690,400 |
| 19.5 million |
| — |
|
Lead(7),(8) |
|
|
|
|
| 175-185 million |
|
|
|
|
| 133.4 million |
|
Zinc(7),(8) |
|
|
|
|
| 400-415 million |
|
|
|
|
| 299.5 million |
|
Pueblo Viejo(9) |
| 625,000-675,000 |
|
|
|
|
| 572,000 |
| — |
| — |
|
Wassa/Bogoso/Prestea(10) |
| 205,000-215,000 |
|
|
|
|
| 222,400 |
|
|
|
|
|
|
| Calendar 2016 Operator’s Production |
| Calendar 2016 Operator’s Production |
| ||||||||
|
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
|
Royalty/Stream |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
|
Andacollo(5) |
| 57,600 |
| — |
| — |
| 13,600 |
| — |
| — |
|
Cortez GSR1 |
| 119,200 |
| — |
| — |
| 16,700 |
| — |
| — |
|
Cortez GSR2 |
| 1,300 |
| — |
| — |
| 1,700 |
| — |
| — |
|
Cortez GSR3 |
| 120,500 |
| — |
| — |
| 18,400 |
| — |
| — |
|
Cortez NVR1 |
| 68,900 |
| — |
| — |
| 13,300 |
| — |
| — |
|
Mount Milligan(6) |
| 240,000-270,000 |
| — |
| — |
| 53,300 |
| — |
| — |
|
Penasquito(7),(8) |
| 520,000-580,000 |
| 22-24 million |
| — |
| N/A |
| N/A |
| — |
|
Lead(7),(8) |
|
|
|
|
| 145-155 million |
|
|
|
|
| N/A |
|
Zinc(7),(8) |
|
|
|
|
| 375-400 million |
|
|
|
|
| N/A |
|
Pueblo Viejo(9) |
| 600,000-650,000 |
| Not provided |
|
|
| 172,000 |
| Not provided |
| — |
|
Wassa/Prestea(10) |
| 205,000-215,000 |
|
|
|
|
| 53,000 |
|
|
|
|
|
(1) Production estimates received from our operators are for calendar 2015.2016. There can be no assurance that production estimates received from our operators will be achieved. Please refer to our cautionary language regarding forward-looking statements following this MD&A, as well as the Risk Factors identified in Part I, Item 1A, of our Fiscal 2015 10-K for information regarding factors that could affect actual results.
(2) Vale and Kirkland Lake did not release public calendar 2016 production guidance for calendar 2015,Voisey’s Bay and Holt, respectively, thus estimated and actual production information for Voisey’s Bay and Holt is not shown in the table.
(3) Actual production figures shown are for the period January 1, 20152016 through DecemberMarch 31, 2015,2016, unless otherwise noted.
(4) Actual production figures for Andacollo and Cortez are based on information provided to us by the operators, and actual production figures for Holt,Andacollo, Mount Milligan, Peñasquito (gold) and Wassa/Bogoso/Prestea are the operators’ publicly reported figures.
(5) The estimated and actual production figures shown for Andacollo are contained gold in concentrate.
(6) The estimated and actual production figures shown for Mount Milligan are payable gold in concentrate.
(7) The estimated gold and silver production figures reflect payable gold and silver in concentrate and doré, while the estimated lead and zinc production figures reflect payable metal in concentrate.
(8) The actual gold production figure for gold reflects payable gold in concentrate and doré as reported by the operator. The actual production for silver, lead and zinc were not publicly available. The Company’s royalty interest at Peñasquito includes gold, silver, lead and zinc. Actual production shown is for the nine monthsquarter ended September 30, 2015. Full year 2015 informationMarch 31, 2016, was not available from the operator as of the date of this report.
(9) The gold and silver stream at Pueblo Viejo was acquired during the quarter ended September 30, 2015 and the first gold delivery is expected in December 2015 for the period July 1 — November 30, 2015. Please refer to “Recent Business Developments” above for further information. The estimated and actual production figures shown are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo.
(10) The gold stream at Wassa/Bogoso/Prestea was acquired during the quarter ended September 30, 2015. Please refer to “Recent Business Developments” above for further information. The estimated production figure shown is payable gold in doré.
Property Developments
The following information is provided by the operators of the property, either to Royal Gold or in various documents made publicly available.
Andacollo
Production attributable to our interest at Andacollo decreased nearly 50%increased approximately 42% when compared to the prior year quarter. The area near Andacollo experiencedincrease, partially related to an earthquakeincrease in September 2015, which resultedproduction, was a result of our interest changing from a 75% royalty to a 100% stream on gold production in some downtime at the operations and port facilities and impacted timing of sales.July 2015.
Andacollo delivers goldConsistent with the mine plan, copper grades are expected to RGLDcontinue to gradually decline in calendar 2016 and in future years, which Teck expects to offset by planned throughput improvements. Gold within five business days following the end of the monthgrade and production in which final smelter settlement occurs. RGLD Gold typically sells gold ounces over a few weeks following physical receipt. Andacollo final settlements generally take fivecalendar 2016 are expected to six months from the bill-of-lading date. The difference in timing between Andacollo quarterly production and final smelter settlements may result in the divergence of produced ounces reported by Teck and those reported as sold by Royal Gold for future quarters.exceed calendar 2015 production.
Cortez
Production attributable to our royalty interest at Cortez decreased approximately 72% over the prior year quarter as mining continued at Cortez Hills. Barrick indicated earlier that mining during calendar 2015 would include Cortez Hills, which is not subject to our royalty interest.
Holt
Production attributable to our royalty interest at Holt increased 5%74% over the prior year quarter. Head grades were slightly higher than expected but lower than the previous quarterThe decrease was primarily due to stope sequencing. The average throughput forhigher production in the quarter was similarPipeline and Gap pits, where our royalty applies, in the prior year quarter. Calendar 2016 gold production at Cortez, subject to the previous quarters. Mill recoveries wereour royalty interests, is expected to be down compared to calendar 2015 production. Waste stripping at theirCrossroads is expected level of 94%. The development of the lower Zone 6 on the 925m Level started during the current quarter and will continue in calendar 2016. St Andrew Goldfields (“St Andrew”) expects Zone 6 to provide a new mining horizonrestart later in calendar 2016.
On January 26, 2016, Kirkland Lake and St Andrew announced the completion of their previously announced plan of arrangement, whereby Kirkland Lake has acquired all of the outstanding common shares of St Andrew. Upon closing of the arrangement, St Andrew became a wholly-owned subsidiary of Kirkland Lake.
Mount Milligan
Thompson Creek reported production of 58,30053,300 ounces of payable gold during the quarter, which represents an increase of 42%approximately 16% over the prior year quarter. Mill throughput averaged 48,17658,099 tonnes, per day for the quarter, an increase of 10%47% over the prior year quarter. Thompson Creek surpassed the mill design capacity of 60,000 tonnes per day during the last week of December when mill throughput averaged 61,212 tonnes with highest daily throughput in December being 64,478 tonnes. Thompson Creek continues to optimize the operation and expects to make a decision on construction of the permanent secondary crusher during the March 2016 quarter.
Gold grades averaged 0.630.55 grams per tonne, an increasea decrease of 17%13% over the prior year quarter and gold recoveries averaged 67.3%59.3% for the quarter, an increasea decrease of 11% over the prior year quarter. Copper and gold recoveries were lower in the current period primarily as a result of changes in the operational conditions resulting from increased throughput. Gold recoveries were further impacted during the current quarter as a result of lower gold grades when compared to the prior period. Thompson Creek stated it will continue to optimize the mine and mill operations to increase recoveries during calendar 2016.
For calendar 2016, Thompson Creek forecasts annual gold payable productionstated that construction of 240,000the permanent secondary crushing circuit remains on schedule, and they expect to 270,000 ounces, an increasecomplete construction and commissioning by the end of approximately 10% to 24% over calendar year 2015 production of approximately 218,000 ounces.2016.
Thompson Creek announced in November 2015 that they have engaged Moelis & Company and BMO Capital Markets to assist them in evaluating strategic and financial alternatives, including debt refinancing and
restructuring, new capital transaction and asset sales. The Company continues to monitor Thompson Creek’s financial situation and is working to ensure our interests at Mount Milligan are protected.
Thompson Creek delivers gold to RGLD Gold within two business days of receipt of final smelter settlement proceeds and RGLD Gold typically sells gold ounces over a few weeks following physical receipt. Mount Milligan final settlements generally take five months from the bill-of-lading date. The difference in timing between Mount Milligan quarterly production results and final smelter settlements may result in the divergence of produced ounces reported by Thompson Creek and those reported as sold by Royal Gold for each quarter.
Peñasquito
Gold, silver, lead and zinc production attributable to our royalty interest at Peñasquito increaseddecreased approximately 56%32%, 33%20%, 41%23% and 17%11%, respectively, over the prior year quarter.quarter, as Goldcorp’s mine plan calls for production from a lower grade portion of the pit in calendar 2016.
During the December 2015 quarter, Goldcorp continued withcompleted the Metallurgical Enhancement Project (“MEP”) feasibility study,Feasibility Study and determined that the Concentrate Enrichment Process component of the MEP no longer met Goldcorp’s required rates of return due to improved fundamentals in the concentrate smelting market. An investment decision on the Pyrite Leach Plant component of the MEP is expected by mid-calendar 2016, which, remains on scheduleif approved, is expected to be completedincrease gold production starting in earlylate calendar 2016.2018.
Phoenix Gold
On January 11, 2016, Rubicon Minerals Corporation (“Rubicon”) provided an updated geological model and mineralized material statement for the Phoenix Gold Project that included a significant reduction in mineralized material compared to previous statements provided by Rubicon. statements. Rubicon stated the decrease in reported mineralized material was mainly the result of new drilling information, changes in modeling approach and restrictions to the depth of the interpreted extent of gold mineralization. Rubicon suspended activities related to their previously announced Phoenix Project Implementation Plan hasand retained BMO Capital Markets, TD Securities, and Stikeman Elliott LLP as advisors to assist in evaluating strategic alternatives available to Rubicon.
A significant reduction in mineralized material, along with recent decreases in the long-term metal price assumptions used by the industry, are indicators of potential impairment that required Royal Gold to consider the carrying value of this asset. Royal Gold is currently evaluating the updated geologic model Operating activities, other than care and mineralized material statement in an effort to properly assess the recoverability of our carrying value. Royal Gold anticipates that it will conclude its technical evaluation of the revised geologic model and
mineralized material statement prior to the release of our financial results for the period ended March 31, 2016. Upon completion of our evaluation and upon consideration of any strategic developments with Rubicon ormaintenance, remain suspended at the Phoenix Gold Project at this time.
Refer to Note 3 of our notes to consolidated financial statements for further discussion on the Company could determine that an impairment of its carrying value inassessment and results for the near future is necessary.Phoenix Gold Project during the quarter ended March 31, 2016.
Pueblo Viejo and Pascua-Lama
On January 21, 2016, Barrick announced that it is in the process of carrying out its annual impairment review. Barrick indicated that its preliminary analysis suggests a potential asset impairment charge in the range of $1.0-$1.2 billion primarily related to Pascua-Lama and Pueblo Viejo. Barrick did not provide any further information on what the impairment charges were attributable to atStream deliveries from Pueblo Viejo or Pascua-Lama. Barrick is scheduled to report final impairment resultswere 10,600 ounces of gold and provide a reserve and mineralized material update on February 17, 2016. Consistent with our asset impairment policy, Royal Gold will evaluate and review Barrick’s updated reserve and mineral material report for Pueblo Viejo and Pascua-Lama as part209,800 ounces of our third quarter fiscal 2016 impairment analysis.
silver during the quarter. In November 2015, Barrick announced that two of three electric motors at the Pueblo Viejo oxygen plant experienced unexpected failures and were shipped to the United States for repair. Athat a comprehensive plan to mitigate the impact of the motor failure was implemented by Barrick in December 2015, which involved installing a number of portable compressorscompressors. Barrick achieved 85% capacity by early January 2016 and bringing forward100% capacity by mid-January 2016 with portable compressor motors. The first repaired motor was reinstalled and commissioned in late January 2016 and the second motor was repaired and reinstalled early February 2016.
In calendar 2016, Barrick expects improved throughput and plant availability as compared to calendar 2015 primarily due to overcoming the issues related to the oxygen plant motor failures which negatively impacted 2015 throughput. In addition, Barrick is focused on improving efficiency and throughput through projects such as ore blending optimization, increasing autoclave availability, and optimization of maintenance that was originally scheduled for January 2016. Onestrategies.
Barrick delivers gold and silver to RGLD Gold on a quarterly basis (mid-March, June, September and December) based on Barrick’s 60% indirect share of any provisional and final offtake settlements in the prior three calendar month period, subject to certain specific terms of the two repaired motors has arrivedagreement (including a fixed silver recovery assumption of 70%). RGLD Gold usually sells gold and silver ounces over the three month period following physical receipt. All of these factors will result in the Dominican Republica difference of produced ounces reported by Barrick and will be installed and testedthose reported as sold by the end of January 2016. The second motor is due to arrive on-site in mid-February 2016.Royal Gold for each quarter.
Voisey’s Bay
In AprilSince the June 2015 quarter, we announced our intention to recognizehave recognized Voisey’s Bay royalty revenue on a cash basis, or in the period in which actual payment information is received from Vale, beginning with the June 2015 quarter. Production attributable to our royalty interest at Voisey’s Bay for the December 2015 quarter (from Vale’s productionVale. Payment received during the September 2015 quarter) was 15.2current quarter related to 39.2 million pounds of copper and 23.619.3 million pounds of nickel.nickel production.
Vale reported that it will transition frombegan processing a blend of nickel matte from its Indonesian operations andonly nickel concentrates from Voisey’s Bay at its new Long Harbour hydrometallurgical plant and will begin processing only Voisey’s Bay concentrate at Long Harbour by the firstbeginning of calendar quarter of 2016. We received the first three quarterly royalty payments relating to processing Voisey’s Bay nickel concentrates at Long Harbour. Vale has made clear its intention to deductcurrently deducts full Long Harbour operating costs, depreciation and cost of capital from actual proceeds when calculating the net smelter return royalty, which could havehas the effect of further reducing or eliminating royalty payments. Royal Gold strongly disagrees with Vale’s position that full operating costs, capital costsdepreciation and cost of capital are permissible net smelter return deductions pursuant to the royalty agreement and is aggressively pursuing its legal remedies. See Note 12 to the consolidated financial statements for discussion of litigation between the Company and Vale.
Wassa and Prestea
Golden Star announced gold production of approximately 52,00053,000 ounces of gold during the December 2015current quarter. Production in the current quarter was from the open pit operations with approximately 31,30022,000 ounces attributable toof production from Prestea and approximately 31,000 ounces from Wassa. The open pit operations at both Wassa and approximately 20,700 ounces attributablePrestea are expected to Prestea. Forbe the primary source of production through calendar 2016 Golden Star forecasts annual goldas development work continues on the respective underground projects. The new underground projects are scheduled to begin contributing to production of 180,000 to 205,000 ounces, which is a slight decrease from actualbeginning late this calendar year 2015 production of approximately 222,000 ounces.
Golden Star reported thatfrom the Wassa Undergroundunderground project made substantial progress during calendar 2015, with stope development of the upper mineralization expected to commenceand in the June 2016 quarter and first ore production anticipated mid-calendar 2016. Infill drilling early in calendar 2015 was successful in expanding the F Shoot target and further drilling will be conducted to determine additional mineral potential in the area. Golden Star also reported work on2017 for the Prestea Undergroundunderground project, is progressing as scheduled with first orethereby increasing annualized production expectedlevels by approximately 25% beginning in earlylate calendar 2017.
Golden Star delivers gold to RGLD Gold within five business days of its receipt of final smelter settlement proceeds and RGLD Gold typically sells gold ounces overstated preliminary cash operating costs estimated for the quarter are below $750 per ounce, reflecting a few weeks following physical receipt.level that is consistent with the new lower cost strategy established by Golden Star.
Results of Operations
Quarter Ended DecemberMarch 31, 2015,2016, Compared to Quarter Ended DecemberMarch 31, 20142015
For the quarter ended DecemberMarch 31, 2015,2016, we recorded net income attributable to Royal Gold stockholders of $15.1 million, or $0.23 per basic and diluted share, as compared to a net loss attributable to Royal Gold stockholders of $6.5$67.7 million, or ($0.10)1.04) per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $25.0 million, or $0.38 per basic and diluted share, for the quarter ended DecemberMarch 31, 2014.2015. The increasedecrease in our earnings per share in the current period was primarily attributable to an increase in our revenue, as discussed below. During the prior year quarter, the Company recognized impairment charges of approximately $29.6$99.0 million (including a royalty receivable write down of $3.0approximately $2.9 million) on our stream interest at the Phoenix Gold Project and certain other non-principal royalty interests, as discussed further below. This decrease was partially offset by an increase in our revenue, which impacted earningsis also discussed below. The effect of the impairment charges during the quarter ended March 31, 2016, was $1.33 per share by $0.34 perbasic share, after taxes.
For the quarter ended DecemberMarch 31, 2015,2016, we recognized total revenue of $98.193.5 million, which is comprised of stream revenue of $67.3$63.4 million and royalty revenue of $30.8$30.1 million, at an average gold price of $1,106$1,183 per ounce, an average silver price of $14.77$14.85 per ounce, an average nickel price of $4.28$3.86 per pound and an average copper price of $2.22$2.12 per pound. This is compared to total revenue of $61.3$74.1 million for the three months ended DecemberMarch 31, 2014,2015, which was comprised of royalty revenue of $44.0$44.4 million and stream revenue of $17.3$29.7 million, at an average gold price of $1,201$1,218 per ounce, an average silver price of $16.50$16.71 per ounce, an average nickel price of $7.17$6.50 per pound and an average copper price of $3.00$2.64 per pound for the quarter ended DecemberMarch 31, 2014.2015. Revenue and the corresponding production attributable to our royalty and stream interests for the quarter ended DecemberMarch 31, 20152016 compared to the quarter ended DecemberMarch 31, 20142015 is as follows:
Revenue and Reported Production Subject to Our Royalty and Stream Interests
Quarter Ended DecemberMarch 31, 20152016 and 20142015
(In thousands, except reported production ozs. and lbs.)
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
|
| Three Months Ended |
| Three Months Ended |
| ||||||||||||
|
|
|
| December 31, 2015 |
| December 31, 2014 |
|
|
|
| March 31, 2016 |
| March 31, 2015 |
| ||||||||||||
|
|
|
|
|
| Reported |
|
|
| Reported |
|
|
|
|
|
| Reported |
|
|
| Reported |
| ||||
Royalty/Stream |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
|
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| ||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mount Milligan |
| Gold |
| $ | 42,294 |
| 38,700 oz. |
| $ | 17,318 |
| 14,300 oz. |
|
| Gold |
| $ | 29,806 |
| 25,400 | oz. | $ | 29,718 |
| 24,200 | oz. |
Andacollo |
| Gold |
| $ | 15,730 |
| 13,500 | oz. | N/A |
| N/A |
| ||||||||||||||
Pueblo Viejo |
| Gold |
| $ | 13,608 |
| 11,800 | oz. | N/A |
| N/A |
| ||||||||||||||
Wassa/Prestea |
| Gold |
| $ | 9,776 |
| 8,800 oz. |
| N/A |
| N/A |
|
| Gold |
| $ | 4,155 |
| 3,500 | oz. | N/A |
| N/A |
| ||
Pueblo Viejo |
| Gold |
| $ | 9,400 |
| 8,800 oz. |
| N/A |
| N/A |
| ||||||||||||||
Andacollo |
| Gold |
| $ | 5,718 |
| 5,200 oz. |
| N/A |
| N/A |
| ||||||||||||||
Other(4) |
| Gold |
| $ | 124 |
| 100 oz. |
| N/A |
| N/A |
|
| Gold |
| $ | 140 |
| 100 | oz. | N/A |
| N/A |
| ||
Royalty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Peñasquito |
|
|
| $ | 6,952 |
|
|
| $ | 5,573 |
|
|
|
|
|
| $ | 5,210 |
|
|
| $ | 7,253 |
|
|
|
|
| Gold |
|
|
| 195,400 oz. |
|
|
| 125,000 oz. |
|
| Gold |
|
|
| 120,300 | oz. |
|
| 177,200 | oz. | ||||
|
| Silver |
|
|
| 6.8 Moz. |
|
|
| 5.1 Moz. |
|
| Silver |
|
|
| 4.8 | Moz. |
|
| 6.0 | Moz. | ||||
|
| Lead |
|
|
| 41.7 Mlbs. |
|
|
| 29.5 Mlbs. |
|
| Lead |
|
|
| 30.2 | Mlbs. |
|
| 39.5 | Mlbs. | ||||
|
| Zinc |
|
|
| 98.0 Mlbs. |
|
|
| 84.0 Mlbs. |
|
| Zinc |
|
|
| 73.1 | Mlbs. |
|
| 82.6 | Mlbs. | ||||
Voisey’s Bay |
|
|
| $ | 2,822 |
|
|
| $ | 6,117 |
|
|
|
|
|
| $ | 2,778 |
|
|
| $ | 1,919 |
|
|
|
|
| Nickel |
|
|
| 23.6 Mlbs. |
|
|
| 19.6 Mlbs. |
|
| Nickel |
|
|
| 17.2 | Mlbs. |
|
| 17.2 | Mlbs. | ||||
|
| Copper |
|
|
| 15.2 Mlbs. |
|
|
| 30.1 Mlbs. |
|
| Copper |
|
|
| 39.2 | Mlbs. |
|
| N/A |
| ||||
Holt |
| Gold |
| $ | 2,391 |
| 15,000 oz. |
| $ | 2,676 |
| 14,300 oz. |
|
| Gold |
| $ | 2,451 |
| 13,500 | oz. | $ | 3,208 |
| 16,700 | oz. |
Cortez |
| Gold |
| $ | 1,175 |
| 17,000 oz. |
| $ | 5,001 |
| 60,400 oz. |
|
| Gold |
| $ | 1,853 |
| 18,400 | oz. | $ | 5,025 |
| 65,200 | oz. |
Andacollo(3) |
| Gold |
| $ | — |
| — oz. |
| $ | 9,594 |
| 10,500 oz. |
|
| Gold |
| $ | — |
| — | oz. | $ | 8,507 |
| 9,500 | oz. |
Other(4) |
| Various |
| $ | 17,466 |
| N/A |
| $ | 15,025 |
| N/A |
|
| Various |
| $ | 17,756 |
| N/A |
| $ | 18,480 |
| N/A |
|
Total Revenue |
|
|
| $ | 98,118 |
|
|
| $ | 61,304 |
|
|
|
|
|
| $ | 93,487 |
|
|
| $ | 74,110 |
|
|
|
(1) Reported production relates to the amount of metal sales, subject to our royalty and stream interests, for the three months ended DecemberMarch 31, 20152016 and 2014, as reported to us by the operators of the mines,2015, and may differ from the operators’ public reporting.
(2) Refer to “Property Developments” above for further discussion on our principal stream interests. Our streams at Andacollo, Pueblo Viejo and Wassa/Bogoso/Prestea were acquired during the quarter ended September 30, 2015. The first gold delivery as part of the Pueblo Viejo gold stream was received in December 2015. Refer to “Recent Business Developments” above for further discussion on the recent stream acquisitions.
(3) Refer to “Recent Business Developments” above for further discussion on the recent Andacollo royalty sale.
(4) Individually, 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 three months ended DecemberMarch 31, 2015,2016, compared with the three months ended DecemberMarch 31, 2014,2015, resulted primarily from an increase in our stream revenue, which was a result of increased production at Mount Milligan and new production from our recently acquired streams at Pueblo Viejo, and Wassa/Prestea and Andacollo. Gold and silver ounces purchased and sold during the three months ended DecemberMarch 31, 2016 and 2015, and 2014,gold and goldsilver ounces in inventory as of DecemberMarch 31, 2015,2016, for our streaming interests waswere as follows:
|
| Three months ended December 31, |
| Three months ended December 31, |
| As of |
|
| Three months ended March 31, 2016 |
| Three months ended March 31, 2015 |
| As of March 31, |
| ||||||||||||||
Stream |
| Gold |
| Gold |
| Average |
| Gold |
| Gold |
| Average |
| Gold |
| |||||||||||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Ounces in |
| |||||||||||||||||
Mount Milligan |
| 38,700 |
| 38,700 |
| $ | 1,093 |
| 13,000 |
| 14,300 |
| $ | 1,208 |
| 8,068 |
|
| 17,400 |
| 25,400 |
| 26,200 |
| 24,200 |
| 16 |
|
Wassa/Prestea |
| 6,300 |
| 8,800 |
| $ | 1,116 |
| N/A |
| N/A |
| N/A |
| 699 |
|
| 4,400 |
| 3,500 |
| N/A |
| N/A |
| 1,536 |
| |
Pueblo Viejo |
| 20,600 |
| 8,800 |
| $ | 1,068 |
| N/A |
| N/A |
| N/A |
| 11,769 |
|
| 10,600 |
| 11,800 |
| N/A |
| N/A |
| 10,633 |
| |
Andacollo |
| 10,100 |
| 5,200 |
| $ | 1,102 |
| N/A |
| N/A |
| N/A |
| 5,152 |
|
| 8,300 |
| 13,500 |
| N/A |
| N/A |
| 22 |
| |
Phoenix Gold |
| 100 |
| 100 |
| $ | 1,126 |
| N/A |
| N/A |
| N/A |
| — |
|
| 100 |
| 100 |
| N/A |
| N/A |
| — |
| |
Total |
| 75,800 |
| 61,600 |
| $ | 1,094 |
| 13,000 |
| 14,300 |
| $ | 1,208 |
| 25,688 |
|
| 40,800 |
| 54,300 |
| 26,200 |
| 24,200 |
| 12,207 |
|
|
| Three months ended March 31, 2016 |
| Three months ended March 31, 2015 |
| As of March 31, |
| ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Ounces in |
|
Pueblo Viejo |
| 209,800 |
| — |
| N/A |
| N/A |
| 209,800 |
|
Our royalty revenue decreased during the quarter ended DecemberMarch 31, 2015,2016, compared with the quarter ended DecemberMarch 31, 2014,2015, due to decreases in the average gold, silver, copper and nickelmetal prices, and due to a production decrease at Cortez and the recent sale of the Andacollo royalty. Theseroyalty, and production decreases were partially offset by increased production at Cortez and Peñasquito. Please refer to “Recent Business Developments” and “Property Developments” earlier within this MD&A for further discussion on any recent developments regarding properties covered by certain of our royalty and stream interests.
Cost of sales were approximately $22.6$17.9 million for the three months ended DecemberMarch 31, 2015,2016, compared to $6.2$10.5 million for the three months ended DecemberMarch 31, 2014.2015. The increase is primarily attributable to an increase innew production at Mount Milligan and new stream productionfrom our recently acquired streams at Andacollo, Pueblo Viejo and Wassa/Prestea. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold and silver for a cash payment. ForThe cash payment at Mount Milligan the cash payment 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 or silver spot price near the date of metal delivery.
General and administrative expenses decreasedincreased to $5.87.7 million for the three months ended DecemberMarch 31, 2015,2016, from $8.5$5.5 million for the three months ended DecemberMarch 31, 2014.2015. The decreaseincrease during the current quarter was primarily due to recognition of an allowance on the outstanding receivable associated with our Wolverine interestincrease in non-cash stock based compensation of approximately $3.0$1.5 million duringas a result of management’s change in estimate for the prior year quarter.number of performance shares that are expected to vest.
Depreciation, depletion and amortization increased to $40.438.2 million for the three months ended DecemberMarch 31, 2015,2016, from $20.3$24.8 million for the quarter ended DecemberMarch 31, 2014.2015. The increase was primarily attributable to the ramp-up in production at Mount Milligan ($8.2 million) and new production from the recently acquired streams at Pueblo Viejo ($5.67.7 million), Andacollo ($3.9 million) and Wassa/Prestea ($3.61.4 million).
Impairment of royalty and stream interests and royalty receivables was $99.0 million for the quarter ended March 31, 2016. The impairment of royalty and stream interests ($96.1 million) was the result of our regular impairment analysis conducted during the three months ended March 31, 2016, and was primarily due to the presence of impairment indicators on our stream interest at the Phoenix Gold Project and two non-principal producing royalty interests, Inata and Wolverine. Also during the current quarter, the Company recognized an allowance of approximately $2.9 million on the entire outstanding royalty receivable associated with the Inata interest. The Company will continue to pursue collection efforts of all past due payments. Refer to Note 3 of our notes to consolidated financial statements for further discussion on the impairments and bad debt expense.
Interest and other income increased to $3.1 million for the quarter ended March 31, 2016, from $0.4 million for the quarter ended March 31, 2015. The increase was primarily attributable to the change in
fair value of our Golden Star warrants of approximately $1.3 million and a realized gain on the sale of our Seabridge Gold, Inc. (“Seabridge”) common shares of approximately $0.7 million during the current quarter. Please refer to Note 2 of our notes to consolidated financial statements for further discussion on the Golden Star warrants and Note 4 for further discussion on our available-for-sale securities.
Interest and other expense increased to $8.9$8.8 million for the three months ended DecemberMarch 31, 2015,2016, from $6.4 million for the quarter ended DecemberMarch 31, 2014.2015. The increase was primarily due to an increase in interest expense associated with the outstanding balance on our revolving credit facility. The Company had $350.0$300.0 million outstanding under the revolving credit facility as of DecemberMarch 31, 2015.2016. The Company did not have any amounts outstanding under the revolving credit facility during the quarter ended DecemberMarch 31, 2014.2015.
During the three months ended DecemberMarch 31, 2015,2016, we recognized income tax expense totaling $4.7 million compared with an income tax benefit totaling $8.2 million compared with income tax expense of $1.8$1.0 million during the three months ended DecemberMarch 31, 2014.2015. This resulted in an effective tax rate of 25.4%10.6% in the current period, compared with 22.4%4.0% in the quarter ended DecemberMarch 31, 2014.2015. The highercurrent period effective tax rate for the three months ended December 31, 2015 was primarily related to higher discrete period charges as comparednegatively impacted due to the three months ended December 31, 2014.impairment charges in the quarter and appreciation of the Canadian dollar. For further discussion of the factors that influence our effective tax rate, refer to Note 11 to the notes to consolidated financial statements in the Company’s Fiscal 2015 10-K.
SixNine Months Ended DecemberMarch 31, 2015,2016, Compared to SixNine Months Ended DecemberMarch 31, 20142015
For the sixnine months ended DecemberMarch 31, 2015,2016, we recorded a net loss attributable to Royal Gold stockholders of $29.9$97.6 million, or ($0.46)1.50) per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $12.1$37.1 million, or $0.19$0.57 per basic and diluted share, for the sixnine months ended DecemberMarch 31, 2014.2015. The decrease in our earnings per share was primarily attributable to impairment charges of approximately $99.0 million (including a royalty receivable write down of approximately $2.9 million) on our stream interest at the Phoenix Gold Project and certain other non-principal royalty interests during the current quarter, as discussed further below. The decrease in our earnings per share was also attributable to an increase in tax expense due to the Company’s termination of the Andacollo royalty interest, as discussed below, and the planned liquidation of our Chilean subsidiary of approximately $56.0 million during the quarter ended September 30, 2015. This decrease wasThese decreases were partially offset by an increase in our revenue, which is also discussed below. The effect of the impairment charges during the quarter ended March 31, 2016, was $1.33 per basic share, after taxes, while the effect of the tax expense attributable to the termination of the Andacollo royalty interest during the quarter ended September 30, 2015, was $0.86 per share. During the prior year period, our earnings per share waswere negatively impacted by impairment charges of approximately $31.3 million (including a royalty receivable write down of $3.0 million) on certain non-principal royalty interests. The effect of the impairment charges during the sixnine months ended DecemberMarch 31, 2014,2015, was $0.37 per basic share, after taxes.
For the sixnine months ended DecemberMarch 31, 2015,2016, we recognized total revenue of $172.2$265.7 million, which is comprised of stream revenue of $105.2$168.6 million and royalty revenue of $67.0$97.1 million, at an average gold price of $1,116$1,138 per ounce, an average silver price of $14.84 per ounce, an average nickel price of $4.54$4.32 per pound and an average copper price of $2.30$2.24 per pound. This is compared to total revenue of $130.3$204.4 million for the sixnine months ended DecemberMarch 31, 2014,2015, which is comprised of royalty revenue of $93.3$137.7 million and stream revenue of $37.0$66.7 million, at an average gold price of $1,243$1,235 per ounce, an average silver price of $18.14$17.67 per ounce, an average nickel price of $7.80$7.38 per pound and an average copper price of $3.09$2.94 per pound for the sixnine months ended DecemberMarch 31, 2014.2015. Revenue and the corresponding production attributable to our royalty and stream interests for the sixnine months ended DecemberMarch 31, 20152016 compared to the sixnine months ended DecemberMarch 31, 20142015 is as follows:
Revenue and Reported Production Subject to Our Royalty and Stream Interests
SixNine Months Ended DecemberMarch 31, 20152016 and 20142015
(In thousands, except reported production ozs. and lbs.)
|
|
| Six Months Ended |
| Six Months Ended |
|
|
|
| Nine Months Ended |
| Nine Months Ended |
| |||||||||||||
|
|
| December 31, 2015 |
| December 31, 2014 |
|
|
|
| March 31, 2016 |
| March 31, 2015 |
| |||||||||||||
|
|
|
|
|
| Reported |
|
|
| Reported |
|
|
|
|
|
| Reported |
|
|
| Reported |
| ||||
Royalty/Stream |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
|
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| ||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mount Milligan |
| Gold |
| $ | 65,758 |
| 59,600 oz. |
| $ | 36,975 |
| 29,700 oz. |
|
| Gold |
| $ | 95,564 |
| 85,100 | oz. | $ | 66,693 |
| 53,900 | oz. |
Andacollo |
| Gold |
| $ | 16,433 |
| 14,700 oz. |
| N/A |
| N/A |
|
| Gold |
| $ | 32,163 |
| 28,200 | oz. | N/A |
| N/A |
| ||
Pueblo Viejo |
| Gold |
| $ | 23,008 |
| 20,600 | oz. | N/A |
| N/A |
| ||||||||||||||
Wassa/Prestea |
| Gold |
| $ | 13,400 |
| 12,000 oz. |
| N/A |
| N/A |
|
| Gold |
| $ | 17,555 |
| 15,500 | oz. | N/A |
| N/A |
| ||
Pueblo Viejo |
| Gold |
| $ | 9,400 |
| 8,800 oz. |
| N/A |
| N/A |
| ||||||||||||||
Other(4) |
| Gold |
| $ | 177 |
| 200 oz. |
| N/A |
| N/A |
|
| Gold |
| $ | 317 |
| 200 | oz. | N/A |
| N/A |
| ||
Royalty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Peñasquito |
|
|
| $ | 14,998 |
|
|
| $ | 12,684 |
|
|
|
|
|
| $ | 20,208 |
|
|
| $ | 19,936 |
|
|
|
|
| Gold |
|
|
| 421,900 oz. |
|
|
| 268,100 oz. |
|
| Gold |
|
|
| 542,100 | oz. |
|
| 445,300 | oz. | ||||
|
| Silver |
|
|
| 14.1 Moz. |
|
|
| 11.6 Moz. |
|
| Silver |
|
|
| 18.8 | Moz. |
|
| 17.6 | Moz. | ||||
|
| Lead |
|
|
| 90.8 Mlbs. |
|
|
| 70.8 Mlbs. |
|
| Lead |
|
|
| 120.9 | Mlbs. |
|
| 110.2 | Mlbs. | ||||
|
| Zinc |
|
|
| 216.7 Mlbs. |
|
|
| 169.4 Mlbs. |
|
| Zinc |
|
|
| 289.8 | Mlbs. |
|
| 252.0 | Mlbs. | ||||
Voisey’s Bay |
|
|
| $ | 8,266 |
|
|
| $ | 11,726 |
|
|
|
|
|
| $ | 11,044 |
|
|
| $ | 13,645 |
|
|
|
|
| Nickel |
|
|
| 61.4 Mlbs. |
|
|
| 36.7 Mlbs. |
|
| Nickel |
|
|
| 78.6 | Mlbs. |
|
| 53.8 | Mlbs. | ||||
|
| Copper |
|
|
| 16.9 Mlbs. |
|
|
| 52.1 Mlbs. |
|
| Copper |
|
|
| 56.2 | Mlbs. |
|
| 44.0 | Mlbs. | ||||
Holt |
| Gold |
| $ | 5,069 |
| 31,300 oz. |
| $ | 5,835 |
| 29,100 oz. |
|
| Gold |
| $ | 7,520 |
| 44,800 | oz. | $ | 9,043 |
| 45,800 | oz. |
Cortez |
| Gold |
| $ | 2,987 |
| 39,600 oz. |
| $ | 9,736 |
| 119,900 oz. |
|
| Gold |
| $ | 4,840 |
| 58,000 | oz. | $ | 14,761 |
| 185,100 | oz. |
Andacollo(3) |
| Gold |
| $ | — |
| — oz. |
| $ | 20,093 |
| 21,500 oz. |
|
| Gold |
| $ | — |
| — | oz. | $ | 28,599 |
| 31,000 | oz. |
Other(3) |
| Various |
| $ | 35,685 |
| N/A |
| $ | 33,281 |
| N/A |
|
| Various |
| $ | 53,441 |
| N/A |
| $ | 51,762 |
| N/A |
|
Total Revenue |
|
|
| $ | 172,173 |
|
|
| $ | 130,330 |
|
|
|
|
|
| $ | 265,660 |
|
|
| $ | 204,439 |
|
|
|
(1) Reported production relates to the amount of metal sales, subject to our royalty and stream interests, for the sixnine months ended DecemberMarch 31, 20152016 and 2014, as reported to us by the operators of the mines,2015, and may differ from the operatorsoperators’ public reporting.
(2) Refer to “Property Developments” above for further discussion on our principal stream interests. Our streams at Andacollo, Pueblo Viejo and Wassa/Bogoso/Prestea were acquired during the quarter ended September 30, 2015. Refer to “Recent Business Developments” above for further discussion on the recent stream acquisitions.
(3) Refer to “Recent Business Developments” above for further discussion on the recent Andacollo royalty sale and Andacollo gold stream acquisition.
(4) Individually, 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 sixnine months ended DecemberMarch 31, 2015,2016, compared with the sixnine months ended DecemberMarch 31, 2014,2015, resulted primarily from an increase in our stream revenue, which was a result of increased production at Mount Milligan and new production from our recently acquired streams, Wassa/Prestea, Pueblo Viejo and Andacollo. Gold and silver ounces purchased and sold during the sixnine months ended DecemberMarch 31, 2016 and 2015, and 2014,gold and silver ounces in inventory as of March 31, 2016, for our streaming interests waswere as follows:
|
| Six months ended December 31, 2015 |
| Six months ended December 31, 2014 |
| As of |
|
| Nine months ended March 31, 2016 |
| Nine months ended March 31, 2016 |
| As of March 31, |
| ||||||||||||||
Stream |
| Gold |
| Gold |
| Average |
| Gold |
| Gold |
| Average |
| Gold |
| |||||||||||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Ounces in |
| |||||||||||||||||
Mount Milligan |
| 62,400 |
| 59,600 |
| $ | 1,103 |
| 26,600 |
| 29,700 |
| $ | 1,246 |
| 8,068 |
|
| 79,800 |
| 85,100 |
| 52,900 |
| 53,900 |
| 16 |
|
Andacollo |
| 19,800 |
| 14,700 |
| $ | 1,118 |
| N/A |
| N/A |
| N/A |
| 5,152 |
|
| 28,200 |
| 28,200 |
| N/A |
| N/A |
| 1,536 |
| |
Wassa/Prestea |
| 12,700 |
| 12,000 |
| $ | 1,116 |
| N/A |
| N/A |
| N/A |
| 699 |
|
| 17,100 |
| 15,500 |
| N/A |
| N/A |
| 10,633 |
| |
Pueblo Viejo |
| 20,600 |
| 8,800 |
| $ | 1,068 |
| N/A |
| N/A |
| N/A |
| 11,769 |
|
| 31,200 |
| 20,600 |
| N/A |
| N/A |
| 22 |
| |
Phoenix Gold |
| 200 |
| 200 |
| $ | 1,128 |
| N/A |
| N/A |
| N/A |
| — |
|
| 300 |
| 200 |
| N/A |
| N/A |
| — |
| |
Total |
| 115,700 |
| 95,300 |
| $ | 1,104 |
| 26,600 |
| 29,700 |
| $ | 1,246 |
| 25,688 |
|
| 156,600 |
| 149,600 |
| 52,900 |
| 53,900 |
| 12,207 |
|
|
| Nine months ended March 31, 2016 |
| Nine months ended March 31, 2015 |
| As of March 31, |
| ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Ounces in |
|
Pueblo Viejo |
| 209,800 |
| — |
| N/A |
| N/A |
| 209,800 |
|
Our royalty revenue decreased during the sixnine months ended DecemberMarch 31, 2015,2016, compared with the sixnine months ended DecemberMarch 31, 2014,2015, due to decreases in the average gold, silver, copper and nickelmetal prices, and due to a production decrease at Cortez and the recent sale of the Andacollo royalty. These decreases were partially offset by increasedroyalty, and a production decrease at Peñasquito.Cortez. Please refer to “Property Developments” earlier within this MD&A for further discussion on any recent developments regarding properties covered by certain of our royalty interests.
Cost of sales were approximately $34.0$52.0 million for the sixnine months ended DecemberMarch 31, 2015,2016, compared to $12.9$23.5 million for the sixnine months ended DecemberMarch 31, 2014.2015. The increase is primarily attributable to an increase in production at Mount Milligan and new stream production at Andacollo, Pueblo Viejo and Wassa/Prestea. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold and silver for a cash payment. ForThe cash payment for Mount Milligan the cash payment 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 or silver spot price near the date of metal delivery.
General and administrative expenses increased to $23.4 million for the nine months ended March 31, 2016, from $18.2 million for the nine months ended March 31, 2015. The increase during the current period was primarily due to an increase in non-cash stock based compensation of approximately $4.1 million as a result of management’s change in estimate for the number of performance shares that are expected to vest.
Exploration costs increased to $6.1 million for the nine months ended March 31, 2016, from $0.2 million for the nine months ended March 31, 2015. Exploration costs are specific to our Peak Gold joint venture for exploration and advancement of the Tetlin gold project, as discussed further in Note 3 to our notes to consolidated financial statements included in our Fiscal 2015 10-K.
Depreciation, depletion and amortization increased to $67.6$105.7 million for the sixnine months ended DecemberMarch 31, 2015,2016, from $42.5$67.3 million for the sixnine months ended DecemberMarch 31, 2014.2015. The increase was primarily attributable to the ramp-up in production at Mount Milligan ($9.810.7 million) and new production from the recently acquired streams at Pueblo Viejo ($5.613.3 million), Wassa/Prestea ($6.0 million) and Wassa/PresteaAndacollo ($4.65.7 million).
Impairment of royalty and stream interests and royalty receivables were approximately $98.6 million for the nine months ended March 31, 2016, compared to $31.3 million for the nine months ended March 31, 2015. The impairment of royalty and stream interests during the current period ($96.1 million) was the result of our regular impairment analysis conducted during the three months ended March 31, 2016, and was primarily due to the presence of impairment indicators on our stream interest at the Phoenix Gold
Project and two non-principal producing royalty interests, Inata and Wolverine. Also during the current period, the Company recognized an allowance of approximately $2.9 million on the entire outstanding receivable associated with the Inata interest. The impairment charges in the prior period were primarily due to an impairment of our royalty interest at Wolverine ($26.0 million) and a write-off of the Wolverine royalty receivable ($3.0 million). The Company will continue to pursue collection efforts of all past due Inata payments. Refer to Note 3 of our notes to consolidated financial statements for further discussion on the impairments and bad debt expense.
Interest and other expense increased to $16.1$24.0 million for the sixnine months ended DecemberMarch 31, 2015,2016, from $13.1$19.5 million for the quarternine months ended DecemberMarch 31, 2014.2015. The increase was primarily due to an increase in interest expense associated with the outstanding balance on our revolving credit facility. The Company had $350.0$300.0 million outstanding under the revolving credit facility as of DecemberMarch 31, 2015.2016. The Company did not have any amounts outstanding under the revolving credit facility during the sixnine months ended DecemberMarch 31, 2014.2015.
During the sixnine months ended DecemberMarch 31, 2015,2016, we recognized income tax expense totaling $63.9$55.7 million compared with $2.1$3.2 million during the sixnine months ended DecemberMarch 31, 2014.2015. This resulted in an effective tax rate of 194.3%(124.0%) in the current period, compared with 14.5%7.8% during the sixnine months ended DecemberMarch 31, 2014.2015. The increase in the effective tax rate for the sixnine months ended DecemberMarch 31, 20152016 is primarily related to the discrete tax impacts attributable to the Company’s Andacollo transactions and the liquidation of our Chilean subsidiary during the quarter ended September 30, 2015.2015, and discrete impacts due to impairment charges during the quarter ended March 31, 2016. Excluding all year-to-date discrete items, our effective tax rate for the sixnine months ended DecemberMarch 31, 20152016 would have been 15.6%15.3%. For further discussion of the factors that influence our effective tax rate, refer to Note 12 to the notes to consolidated financial statements in the Company’s Fiscal 2015 10-K.
Liquidity and Capital Resources
Overview
At DecemberMarch 31, 2015,2016, we had current assets of $162.9175.2 million compared to current liabilities of $20.5$24.2 million for a current ratio of 87 to 1. This compares to current assets of $790.8 million and current liabilities of $25.0 million at June 30, 2015, resulting in a current ratio of approximately 32 to 1. The decrease in our current ratio was primarily attributable to a decrease in our cash and equivalents as a result of the recent royalty and stream acquisitions, during the current period, as discussed earlier under “Recent Business Developments.” Please refer to “Summary of Cash Flows” below for further discussion on changes to our cash and equivalents during the period.
During the quarter ended DecemberMarch 31, 2015,2016, liquidity needs were met from $75.575.6 million in net revenue and our available cash resources, and borrowings under our revolving credit facility.resources. As of DecemberMarch 31, 2015,2016, the Company had $300$350 million available and $350$300 million outstanding under its revolving credit facility. During the three months ended March 31, 2016, the Company repaid $50.0 million of the outstanding borrowings under the revolving credit facility. The Company was in compliance with each financial covenant as of DecemberMarch 31, 2015.2016. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our debt.
Working capital totaled approximately $142.3 million at December 31, 2015. When combined with the $300 million of availability under our revolving credit facility, total liquidity at December 31, 2015, was $442.3 million. Cash flow from operations was $54.6 million for the six months ended December 31, 2015, which considers the effects of approximately $47.7 million of total cash taxes related to the termination of the Andacollo royalty during the quarter ended September 30, 2015. Operating cash flow is expected to increase during the remainder of fiscal year 2016 (assuming similar gold prices) as three of the new transactions discussed above under “Recent Business Developments” are expected to deliver incremental operating cash flow during fiscal year 2016.
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 royalty and stream interests, including the remaining conditional commitments incurred in connection with the Ilovica, Golden Star and Rainy River stream acquisitions and the Peak Gold joint venture. 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 royalty and stream interest or other acquisitions, we may seek additional debt or equity financing as necessary.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2015 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
On March 16, 2016, the Company entered into Amendment No. 2 (the “Amendment”) to the Sixth Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014 (as amended by Amendment No. 1 thereto as of April 29, 2015, the “Revolving Credit Agreement”), by and among the Company, certain subsidiaries of the Company as guarantors, certain lenders from time to time party thereto, and HSBC Bank USA, National Association, as administrative agent for the lenders. The Amendment revises the Revolving Credit Agreement to extend the scheduled maturity date from January 29, 2019 to March 16, 2021.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $54.6120.6 million for the sixnine months ended DecemberMarch 31, 2015,2016, compared to $82.3$148.2 million for the sixnine months ended DecemberMarch 31, 2014.2015. The decrease was primarily due to an increase in income taxes paid of approximately $45.9$58.9 million, an increase in exploration costs of approximately $6.0 million and an increase in interest paid of approximately $4.9 million. This decrease wasThese decreases in net cash provided by operating activities were partially offset by an increase in proceeds received from our royalty and streaming interests, net of production taxes and cost of sales.sales, of $41.9 million.
Investing Activities
Net cash used in investing activities totaled $1.0 billion$994.6 million for the sixnine months ended DecemberMarch 31, 2015,2016, compared to cash used in investing activities of $39.3$50.4 million for the sixnine months ended DecemberMarch 31, 2014.2015. The increase in cash used in investing activities is primarily due to an increase in acquisitions of royalty and stream interests in mineral properties (primarily the Pueblo Viejo and Andacollo stream acquisition)acquisitions) compared to the prior year period. Refer to “Recent Business Developments” above for further discussion on our recently acquired streams.
Financing Activities
Net cash provided by financing activities totaled $320.4254.0 million for the sixnine months ended DecemberMarch 31, 2015,2016, compared to cash used in financing activities of $27.4$42.1 million for the sixnine months ended DecemberMarch 31, 2014.2015. The increase in cash provided by financing activities is primarily due to the Company’s $350$300 million borrowing (net of repayment) under its revolving credit facility to fund stream acquisitions during the current period. Refer to “Recent Business Developments” above for further discussion on our recently acquired streams.
Recently Adopted Accounting Standards
There were no new accounting standards adopted during the three and sixnine months ended DecemberMarch 31, 2015.2016. Refer to Note 1 of our notes to consolidated financial statements for further discussion on recently issued accounting standards.
Critical Accounting Policies
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 royalty and stream interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty and stream interest property 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, nickel 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 royalty or stream 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.
Our estimates of gold, silver, copper, nickel and other metal prices, operators’ estimates of proven and probable reserves or mineralized material related to our royalty or streaming properties, and operators’ estimates of operating and capital costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty and stream interests in mineral properties. Although we have made our best assessment of these factors based on current market conditions, it is possible that changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these royalty and stream interests. Refer to Note 3 of our notes to consolidated financial statements for further discussion onand the results of our quarterly impairment assessment.assessments for the three and nine months ended March 31, 2016.
Forward-Looking Statements
Cautionary “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ
materially from projections or estimates contained herein. Such forward-looking statements include, without limitation, statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of properties where we hold royalty and stream interests; effective tax rate estimates; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures, and our expectation that substantially all our revenues will be derived from royalty and stream interests. Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements, which speak only as of the date the statement is made. Do not unduly rely on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
· a continued low price environment for gold and other metals prices on which our royalty and stream interests are paid or a continued low price environment for the primary metals mined at properties where we hold royalty and stream interests;
· the production at or performance of properties where we hold royalty and stream interests;
· the ability of operators to bring projects, particularly development stage properties, into production on schedule or operate in accordance with feasibility studies;
· challenges to mining, processing and related permits and licenses, or to applications for permits and licenses, by or on behalf of indigenous populations, non-governmental organizations or other third parties;
· liquidity or other problems our operators may encounter, including shortfalls in the financing required to complete construction and a bring a mine into production;
· decisions and activities of the operators of properties where we hold royalty and stream interests;
· hazards and risks at the properties where we hold royalty and stream interests that are normally associated with developing and mining properties, including unanticipated grade, continuity and geological, metallurgical, processing or other problems, mine operating and ore processing facility problems, pit wall or tailings dam failures, industrial accidents, environmental hazards and natural catastrophes such as floods or earthquakes and access to raw materials, water and power;
· changes in operators’ mining, processing and treatment techniques, which may change the production of minerals subject to our royalty and stream interests;
· changes in the methodology employed by our operators to calculate our royalty and stream interests in accordance with the agreements that govern them;
· changes in project parameters as plans of the operators of properties where we hold royalty and stream interests are refined;
· decreases in estimates of reserves and mineralization by the operators of properties where we hold royalty and stream interests;
· contests to our royalty and stream interests and title and other defects to the properties where we hold royalty and stream interests;
· adverse effects on market demand for commodities, the availability of financing, and other effects from adverse economic and market conditions;
· future financial needs of the Company and the operators;
· federal, state and foreign legislation governing us or the operators of properties where we hold royalty and stream interests;
· the availability of royalty and stream interests for acquisition or other acquisition opportunities and the availability of debt or equity financing necessary to complete such acquisitions;
· our ability to make accurate assumptions regarding the valuation, timing and amount of revenue to be derived from our royalty and stream interests when evaluating acquisitions;
· risks associated with conducting business in foreign countries, including application of foreign laws to contract and other disputes, validity of security interests, environmental, governmental consents for granting interests in exploration and exploration licenses, real estate, contract and permitting laws, currency fluctuations, expropriation of property, repatriation of earnings, taxation, price controls, inflation, import and export regulations, community unrest and labor disputes, endemic health issues, corruption, enforcement and uncertain political and economic environments;
· changes in laws governing us, the properties where we hold royalty and stream interests or the operators of such properties;
· risks associated with issuances of additional common stock or incurrence of indebtedness in connection with acquisitions or otherwise including risks associated with the issuance and conversion of convertible notes;
· acquisition and maintenance of permits and authorizations, completion of construction and commencement and continuation of production at the properties where we hold royalty and stream interests;
· changes in management and key employees; and
· failure to complete future acquisitions;
as well as other factors described elsewhere in this report and our other reports filed with the SEC. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements made herein, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper, nickel and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies. Please see “Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our royalty and stream interests and may reduce our revenues. Certain contracts governing our royalty and stream interests have features that may amplify the negative effects of a drop in metals prices,” under Part I, Item 1A of our Fiscal 2015 10-K, for more information that can affect gold, silver, copper, nickel and other metal prices as well as historical gold, silver, copper and nickel prices.
During the threenine month period ended DecemberMarch 31, 2015,2016, we reported revenue of $98.1$265.7 million, with an average gold price for the period of $1,106$1,138 per ounce, an average silver price of $14.77$14.84 per ounce, an
average copper price of $2.22$2.24 per pound and an average nickel price of $4.28$4.32 per pound. Approximately 90%87% of our total reported revenues for the threenine months ended DecemberMarch 31, 20152016 were attributable to gold sales from our gold producing royalty and stream interests, as shown within the MD&A. For the threenine months ended DecemberMarch 31, 2015,2016, if the price of gold had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $15.5 million and $15.4 million, respectively.$24.4 million.
Approximately 3%4% of our total reported revenues for the threenine months ended DecemberMarch 31, 20152016 were attributable to copper sales from our copper producing royalty interests. For the threenine months ended DecemberMarch 31, 2015,2016, if the price of copper had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $0.91.6 million.
Approximately 2%3% of our total reported revenues for the threenine months ended DecemberMarch 31, 20152016 were attributable to nickel sales from our nickel producing royalty interests. For the threenine months ended DecemberMarch 31, 2015,2016, if the price of nickel had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $0.81.0 million.
Approximately 2% of our total reported revenues for the threenine months ended DecemberMarch 31, 20152016 were attributable to silver sales from our silver producing royalty interests. For the threenine months ended DecemberMarch 31, 2015,2016, if the price of silver had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $0.50.7 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of DecemberMarch 31, 2015,2016, the Company’s management, with the participation of the President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Treasurer (the principal financial and accounting officer) of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s President and Chief Executive Officer and its Chief Financial Officer and Treasurer have concluded that, as of DecemberMarch 31, 2015,2016, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and that such information is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and its Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure.
Disclosure controls and procedures involve human diligence and compliance and are subject to lapses in judgment and breakdowns resulting from human failures. As a result, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Controls
There has been no change in the Company’s internal control over financial reporting during the three months ended DecemberMarch 31, 2015,2016, that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Voisey’s Bay
Refer to Note 12 of our notes to consolidated financial statements for a discussion of the litigation associated with our Voisey’s Bay royalty.
Information regarding risk factors appears in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” and various risks faced by us are also discussed elsewhere in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. In addition, risk factors are included in Part I, Item 1A of our Fiscal 2015 10-K. Other than as set forth below, there have been no material changes from those risk factors set forth10-K and in our Fiscal 2015 10-K.
ManyPart II, Item 1A of our royalty and stream interests are important to us and any adverse development related to these properties could adversely affect our revenues and future prospects.
Our investments in the Mount Milligan, Andacollo, Voisey’s Bay and Peñasquito properties, among others, were significant to us in fiscal year 2015, as our interests in these properties generated approximately $179.1 million in revenue in fiscal year 2015, which was nearly 65% of our revenueQuarterly Report on Form 10-Q for the period. We expect these properties, our new gold and silver stream at Pueblo Viejo, and others to be important to us in fiscal yearquarter ended December 31, 2015, filed on February 4, 2016, and beyond. Any adverse development affecting the operation of or production from any of these properties would have a material adverse effect on our business, results of operations, cash flows, financial condition and future prospects. Any adverse decision madeas amended by the operators, such as changes to mine plans, production schedules, metallurgical processes or royalty calculation methodologies, may materially and adversely impact the timing and amount of revenue that we receive. In addition, any decision by an operator to impair assets of a projectForm 10-Q/A Amendment No. 1 filed on which we have a royalty or stream interest, such as Rubicon’s November 2015 announcement of the impairment of its Phoenix Gold Project and Barrick’s January 2016 announcement of anticipated impairments at Pascua-Lama and Pueblo Viejo, could lead us to re-evaluate the carrying value of our royalty and stream interests.
Thompson Creek announced in November 2015 that it engaged Moelis & Company and BMO Capital Markets to assist its board in evaluating strategic and financial alternatives, including debt financing and restructuring, new capital transactions and asset sales. Thompson Creek’s market capitalization has declined by over 90% from mid-2014. If Thompson Creek were to experience liquidity issues that impacted the operation of the Mount Milligan mine, or were to seek bankruptcy protection, we may not realize the future benefits from our stream interest on the Mount Milligan mine and our results could be materially and adversely affected.
Problems concerning the existence, validity, enforceability, terms or geographic extent of our royalty and stream interests could adversely affect our business and revenues, and our interests may similarly be materially and adversely impacted by change of control, bankruptcy or the insolvency of operators.
Defects in or disputes relating to the royalty and stream interests we hold or acquire may prevent us from realizing the anticipated benefits from our royalty and stream interests, and could have a material adverse effect on our business, results of operations, cash flows and financial condition. It is also possible thatFebruary 5, 2016.
material changes could occur that may adversely affect management’s estimate of the carrying value of our royalty and stream interests and could result in impairment charges. While we seek to confirm the existence, validity, enforceability, terms and geographic extent of the royalty and stream interests we acquire, there can be no assurance that disputes or other problems concerning these and other matters will not arise. Confirming these matters, as well as the title to mining property on which we hold or seek to acquire a royalty or stream interest, is a complex matter, and is subject to the application of the laws of each jurisdiction to the particular circumstances of each parcel of mining property and to the documents reflecting the royalty or stream interest. Similarly, royalty and stream interests in many jurisdictions are contractual in nature, rather than interests in land, and therefore may be subject to change of control, bankruptcy or the insolvency of operators, and our royalty or stream interests could be materially impaired or set aside through judicial or administrative proceedings. We often do not have the protection of security interests over property that we could liquidate to recover all or part of our investment in a royalty or stream interest. Even if we retain our royalty and stream interests in a mining project after any change of control, bankruptcy or insolvency of the operator, the project may end up under the control of a new operator, who may or may not operate the project in a similar manner to the current operator, which may negatively impact us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
Not applicable.
The exhibits to this Quarterly Report on Form 10-Q are listed in the Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ROYAL GOLD, INC. | |
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Date: | By: | /s/ Tony Jensen |
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| Tony Jensen |
President and Chief Executive Officer | ||
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| (Principal Executive Officer) |
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Date: | By: | /s/ Stefan Wenger |
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| Stefan Wenger |
Chief Financial Officer and Treasurer | ||
(Principal Financial and Accounting Officer) |
ROYAL GOLD, INC.
EXHIBIT INDEX
Exhibit |
| Description |
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10.1 |
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10.2* | Form of Amendment to Equity Award Agreements under Royal Gold’s 2004 Omnibus Long-Term Incentive Plan | |
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31.1* |
| Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
| Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1‡ |
| Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2‡ |
| Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS* |
| XBRL Instance Document. |
101.SCH* |
| XBRL Taxonomy Extension Schema Document. |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed herewith. | |
‡ | Furnished herewith. |