UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31,September 30, 2018
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 84-0835164 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation) |
| Identification No.) |
|
|
|
1660 Wynkoop Street, Suite 1000 |
|
|
Denver, Colorado |
| 80202 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (303) 573-1660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 65,453,91765,509,128 shares of the Company’s common stock, par value $0.01 per share, outstanding as of April 26,October 25, 2018.
|
|
|
| PAGE |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| 3 | |
|
| Consolidated Statements of Operations and Comprehensive |
| 4 |
|
|
| 5 | |
|
|
| 6 | |
|
|
|
|
|
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 17 | |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| |||
|
|
|
|
|
|
2
ROYAL GOLD, INC.
(Unaudited, in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2018 |
| June 30, 2017 |
| September 30, 2018 |
| June 30, 2018 | ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
| $ | 109,376 |
| $ | 85,847 |
| $ | 117,078 |
| $ | 88,750 |
Royalty receivables |
|
| 27,795 |
|
| 26,886 |
|
| 25,106 |
|
| 26,356 |
Income tax receivable |
|
| 1,149 |
|
| 22,169 |
|
| 6,381 |
|
| 40 |
Stream inventory |
|
| 12,699 |
|
| 7,883 |
|
| 10,011 |
|
| 9,311 |
Prepaid expenses and other |
|
| 826 |
|
| 822 |
|
| 854 |
|
| 1,350 |
Total current assets |
|
| 151,845 |
|
| 143,607 |
|
| 159,430 |
|
| 125,807 |
Stream and royalty interests, net (Note 2) |
|
| 2,532,603 |
|
| 2,892,256 |
|
| 2,458,615 |
|
| 2,501,117 |
Other assets |
|
| 68,999 |
|
| 58,202 |
|
| 54,821 |
|
| 55,092 |
Total assets |
| $ | 2,753,447 |
| $ | 3,094,065 |
| $ | 2,672,866 |
| $ | 2,682,016 |
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable |
| $ | 3,008 |
| $ | 3,908 | ||||||
Accounts payable |
| $ | 5,055 |
| $ | 9,090 | ||||||
Dividends payable |
|
| 16,361 |
|
| 15,682 |
|
| 16,376 |
|
| 16,375 |
Income tax payable |
|
| 12,431 |
|
| 5,651 |
|
| 8,012 |
|
| 18,253 |
Withholding taxes payable |
|
| 3,652 |
|
| 3,425 |
|
| 2,551 |
|
| 3,254 |
Other current liabilities |
|
| 8,045 |
|
| 5,617 |
|
| 5,377 |
|
| 4,411 |
Total current liabilities |
|
| 43,497 |
|
| 34,283 |
|
| 37,371 |
|
| 51,383 |
Debt (Note 3) |
|
| 422,273 |
|
| 586,170 |
|
| 354,939 |
|
| 351,027 |
Deferred tax liabilities |
|
| 103,221 |
|
| 121,330 |
|
| 91,356 |
|
| 91,147 |
Uncertain tax positions |
|
| 36,616 |
|
| 25,627 |
|
| 36,659 |
|
| 33,394 |
Other long-term liabilities |
|
| 17,435 |
|
| 6,391 |
|
| 13,275 |
|
| 13,796 |
Total liabilities |
|
| 623,042 |
|
| 773,801 |
|
| 533,600 |
|
| 540,747 |
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued |
|
| — |
|
| — |
|
| — |
|
| — |
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,309,018 and 65,179,527 shares outstanding, respectively |
|
| 653 |
|
| 652 | ||||||
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,394,898 and 65,360,041 shares outstanding, respectively |
|
| 654 |
|
| 654 | ||||||
Additional paid-in capital |
|
| 2,188,251 |
|
| 2,185,796 |
|
| 2,195,034 |
|
| 2,192,612 |
Accumulated other comprehensive income |
|
| 21 |
|
| 879 | ||||||
Accumulated (losses) earnings |
|
| (100,173) |
|
| 88,050 | ||||||
Accumulated other comprehensive loss |
|
| - |
|
| (1,201) | ||||||
Accumulated losses |
|
| (92,467) |
|
| (89,898) | ||||||
Total Royal Gold stockholders’ equity |
|
| 2,088,752 |
|
| 2,275,377 |
|
| 2,103,221 |
|
| 2,102,167 |
Non-controlling interests |
|
| 41,653 |
|
| 44,887 |
|
| 36,045 |
|
| 39,102 |
Total equity |
|
| 2,130,405 |
|
| 2,320,264 |
|
| 2,139,266 |
|
| 2,141,269 |
Total liabilities and equity |
| $ | 2,753,447 |
| $ | 3,094,065 |
| $ | 2,672,866 |
| $ | 2,682,016 |
The accompanying notes are an integral part of these consolidated financial statements.
3
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited, in thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For The Three Months Ended |
| For The Nine Months Ended |
| For The Three Months Ended | ||||||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| September 30, |
| September 30, | ||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||
Revenue |
| $ | 115,983 |
| $ | 106,972 |
| $ | 342,807 |
| $ | 331,880 |
| $ | 99,992 |
| $ | 112,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 21,345 |
|
| 22,419 |
|
| 61,627 |
|
| 67,582 |
|
| 16,527 |
|
| 20,419 |
General and administrative |
|
| 8,100 |
|
| 5,402 |
|
| 24,555 |
|
| 23,447 |
|
| 9,927 |
|
| 6,899 |
Production taxes |
|
| 423 |
|
| 389 |
|
| 1,568 |
|
| 1,331 |
|
| 1,292 |
|
| 543 |
Exploration costs |
|
| 536 |
|
| 2,647 |
|
| 5,098 |
|
| 8,411 |
|
| 4,362 |
|
| 3,203 |
Depreciation, depletion and amortization |
|
| 39,679 |
|
| 40,164 |
|
| 121,380 |
|
| 119,785 |
|
| 42,551 |
|
| 39,692 |
Impairment of royalty interests |
|
| 239,364 |
|
| — |
|
| 239,364 |
|
| — | ||||||
Total costs and expenses |
|
| 309,447 |
|
| 71,021 |
|
| 453,592 |
|
| 220,556 |
|
| 74,659 |
|
| 70,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
| (193,464) |
|
| 35,951 |
|
| (110,785) |
|
| 111,324 | ||||||
Operating income |
|
| 25,333 |
|
| 41,720 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value changes in equity securities |
|
| (1,468) |
|
| — | ||||||||||||
Interest and other income |
|
| 1,781 |
|
| 1,326 |
|
| 3,416 |
|
| 10,056 |
|
| 103 |
|
| 989 |
Interest and other expense |
|
| (8,294) |
|
| (9,254) |
|
| (25,946) |
|
| (27,068) |
|
| (7,877) |
|
| (8,617) |
(Loss) income before income taxes |
|
| (199,977) |
|
| 28,023 |
|
| (133,315) |
|
| 94,312 | ||||||
Income before income taxes |
|
| 16,091 |
|
| 34,092 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
| 45,859 |
|
| (6,492) |
|
| (10,044) |
|
| (18,724) | ||||||
Net (loss) income |
|
| (154,118) |
|
| 21,531 |
|
| (143,359) |
|
| 75,588 | ||||||
Income tax expense |
|
| (4,115) |
|
| (7,544) | ||||||||||||
Net income |
|
| 11,976 |
|
| 26,548 | ||||||||||||
Net loss attributable to non-controlling interests |
|
| 468 |
|
| 2,130 |
|
| 3,573 |
|
| 5,921 |
|
| 3,032 |
|
| 2,083 |
Net (loss) income attributable to Royal Gold common stockholders |
| $ | (153,650) |
| $ | 23,661 |
| $ | (139,786) |
| $ | 81,509 | ||||||
Net income attributable to Royal Gold common stockholders |
| $ | 15,008 |
| $ | 28,631 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (154,118) |
| $ | 21,531 |
| $ | (143,359) |
| $ | 75,588 | ||||||
Adjustments to comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 11,976 |
| $ | 26,548 | ||||||||||||
Adjustments to comprehensive income, net of tax |
|
|
|
|
|
| ||||||||||||
Unrealized change in market value of available-for-sale securities |
|
| (666) |
|
| 360 |
|
| (858) |
|
| 1,182 |
|
| — |
|
| 197 |
Comprehensive (loss) income |
|
| (154,784) |
|
| 21,891 |
|
| (144,217) |
|
| 76,770 | ||||||
Comprehensive income |
|
| 11,976 |
|
| 26,745 | ||||||||||||
Comprehensive loss attributable to non-controlling interests |
|
| 468 |
|
| 2,130 |
|
| 3,573 |
|
| 5,921 |
|
| 3,032 |
|
| 2,083 |
Comprehensive (loss) income attributable to Royal Gold stockholders |
| $ | (154,316) |
| $ | 24,021 |
| $ | (140,644) |
| $ | 82,691 | ||||||
Comprehensive income attributable to Royal Gold stockholders |
| $ | 15,008 |
| $ | 28,828 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share available to Royal Gold common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic (loss) earnings per share |
| $ | (2.35) |
| $ | 0.36 |
| $ | (2.14) |
| $ | 1.25 | ||||||
Net income per share available to Royal Gold common stockholders: |
|
|
|
|
|
| ||||||||||||
Basic earnings per share |
| $ | 0.23 |
| $ | 0.44 | ||||||||||||
Basic weighted average shares outstanding |
|
| 65,307,324 |
|
| 65,169,883 |
|
| 65,283,019 |
|
| 65,145,183 |
|
| 65,374,866 |
|
| 65,235,496 |
Diluted (loss) earnings per share |
| $ | (2.35) |
| $ | 0.36 |
| $ | (2.14) |
| $ | 1.25 | ||||||
Diluted earnings per share |
| $ | 0.23 |
| $ | 0.44 | ||||||||||||
Diluted weighted average shares outstanding |
|
| 65,307,324 |
|
| 65,274,926 |
|
| 65,283,019 |
|
| 65,267,201 |
|
| 65,497,159 |
|
| 65,404,680 |
Cash dividends declared per common share |
| $ | 0.25 |
| $ | 0.24 |
| $ | 0.74 |
| $ | 0.71 |
| $ | 0.25 |
| $ | 0.24 |
The accompanying notes are an integral part of these consolidated financial statements.
4
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For The Nine Months Ended |
| For The Three Months Ended | ||||||||
|
| March 31, |
| March 31, |
| September 30, |
| September 30, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (143,359) |
| $ | 75,588 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||
Net income |
| $ | 11,976 |
| $ | 26,548 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||
Depreciation, depletion and amortization |
|
| 121,380 |
|
| 119,785 |
|
| 42,551 |
|
| 39,692 |
Amortization of debt discount and issuance costs |
|
| 11,200 |
|
| 10,202 |
|
| 3,903 |
|
| 3,679 |
Non-cash employee stock compensation expense |
|
| 5,958 |
|
| 6,758 |
|
| 2,444 |
|
| 2,373 |
Impairment of royalty interests |
|
| 239,364 |
|
| — | ||||||
Fair value changes in equity securities |
|
| 1,468 |
|
| — | ||||||
Deferred tax benefit |
|
| (31,583) |
|
| (6,266) |
|
| (1,681) |
|
| (727) |
Other |
|
| (199) |
|
| (4,638) |
|
| — |
|
| (223) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Royalty receivables |
|
| (909) |
|
| (1,367) |
|
| 1,250 |
|
| (2,193) |
Stream inventory |
|
| (4,816) |
|
| 2,865 |
|
| (701) |
|
| 89 |
Income tax receivable |
|
| 21,020 |
|
| (6,117) |
|
| (6,341) |
|
| (3,854) |
Prepaid expenses and other assets |
|
| 3,224 |
|
| (743) |
|
| 1,061 |
|
| (1,654) |
Accounts payable |
|
| (939) |
|
| (1,641) |
|
| (4,060) |
|
| (985) |
Income tax payable |
|
| 6,779 |
|
| (422) |
|
| (10,241) |
|
| 6,035 |
Withholding taxes payable |
|
| 227 |
|
| (5,449) |
|
| (703) |
|
| 37 |
Uncertain tax positions |
|
| 10,989 |
|
| 7,341 |
|
| 3,266 |
|
| 2,493 |
Other liabilities |
|
| 13,473 |
|
| 5,036 |
|
| 445 |
|
| 299 |
Net cash provided by operating activities |
| $ | 251,809 |
| $ | 200,932 |
| $ | 44,637 |
| $ | 71,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of stream and royalty interests |
|
| (1,012) |
|
| (203,721) |
|
| (3) |
|
| (5) |
Other |
|
| (1,251) |
|
| 1,503 |
|
| (121) |
|
| 100 |
Net cash used in investing activities |
| $ | (2,263) |
| $ | (202,218) | ||||||
Net cash (used in) provided by investing activities |
| $ | (124) |
| $ | 95 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility |
|
| — |
|
| 70,000 | ||||||
Repayment of revolving credit facility |
|
| (175,000) |
|
| (45,000) |
|
| — |
|
| (50,000) |
Net payments from issuance of common stock |
|
| (3,502) |
|
| (2,618) |
|
| (1,972) |
|
| (3,529) |
Common stock dividends |
|
| (47,755) |
|
| (45,715) |
|
| (16,376) |
|
| (15,682) |
Purchase of additional royalty interest from non-controlling interest |
|
| — |
|
| (1,462) | ||||||
Other |
|
| 240 |
|
| (2,462) |
|
| 2,163 |
|
| 55 |
Net cash used in financing activities |
| $ | (226,017) |
| $ | (27,257) |
| $ | (16,185) |
| $ | (69,156) |
Net increase (decrease) in cash and equivalents |
|
| 23,529 |
|
| (28,543) | ||||||
Net increase in cash and equivalents |
|
| 28,328 |
|
| 2,548 | ||||||
Cash and equivalents at beginning of period |
|
| 85,847 |
|
| 116,633 |
|
| 88,750 |
|
| 85,847 |
Cash and equivalents at end of period |
| $ | 109,376 |
| $ | 88,090 |
| $ | 117,078 |
| $ | 88,395 |
The accompanying notes are an integral part of these consolidated financial statements.
5
1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUEDADOPTED AND RECENTLY ADOPTEDISSUED 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 metalsmetal streams, royalties and similar interests. We seek to acquire existing stream and royalty interests or to finance mining projects that are in production or in the development stage in exchange for stream or royalty interests. A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine at a price determined for the life of the transaction by the purchase agreement. Royalties areA royalty is a non-operating interestsinterest in a mining projectsproject that provideprovides the right to revenue or metals produced from the project after deducting contractually specified costs, if any.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and nine months ended March 31,September 30, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018.2019. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 20172018 filed with the Securities and Exchange Commission on August 10, 20179, 2018 (“Fiscal 20172018 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.Recently Adopted Accounting Standards
Asset ImpairmentRevenue Recognition
We evaluate long‑lived assets
On July 1, 2018, we adopted Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method of transition. Under this transition approach, we applied ASC 606 to all existing contracts for impairment whenever eventswhich all (or substantially all) of the revenue attributable to a contract had not been recognized under legacy revenue guidance. The guidance of ASC 606 will also be applied to any new contracts entered into on or after July 1, 2018.
ASC 606 supersedes nearly all of the existing revenue recognition guidance under U.S. GAAP and sets out a five-step revenue recognition framework to recognize revenue upon the transfer of control of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
For the three months ended September 30, 2018, there was no impact to our reported revenue, operating costs and expenses or net income attributable to Royal Gold common stockholders as a result of adopting ASC 606, as compared to legacy revenue guidance under U.S. GAAP. In addition, no cumulative catch-up adjustment to accumulated losses was required on July 1, 2018 as a result of adopting ASC 606. Please refer to Note 4 for additional discussion.
Recognition and Measurement of Financial Instruments
On July 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 – Financial Instrument, which is guidance on the recognition and measurement of financial instruments. The amended guidance requires, among other things, that equity securities previously classified as available-for-sale be measured at fair value with changes in circumstances indicate thatfair value recognized in net income rather than other comprehensive income (loss) as required under previous guidance. Upon adoption, the related carrying amounts Company recorded a cumulative-effect adjustment in Accumulated losses of an asset or group$1.2 million. The change in fair value of assets may not be recoverable.our equity securities was approximately $1.5 million for the three months ended September 30, 2018 and is included in Fair value change of marketable equity securities on our consolidated statements of operations and comprehensive income. The recoverability of the carrying value of streamthe Company’s equity securities as of September 30, 2018 and royalty interestsJune 30, 2018 was $17.8 million and $19.2 million, respectively, and is included in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each stream and royalty interest using estimatesOther assets on the Company’s consolidated balance sheets. As of proven and probable reserves and other relevant information received from the operators. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold, silver, copper and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future, thus potentially affecting the future recoverability of our stream or royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Estimates of gold, silver, copper, and other metal prices, operators’ estimates of proven and probable reserves or mineralized material related to our stream or royalty 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 stream and royalty interests in mineral properties. It is possible that changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these stream and royalty interests. Refer to Note 2 for discussion and the results of our impairment assessments for the three and nine months ended March 31, 2018.
6
September 30, 2018, the Company owns 682,556 common shares of Contango Ore, Inc. (“CORE”) and 3,379,913 common shares of Rubicon Minerals Corporation.
Recently Issued and Adopted Accounting Standards
Recently IssuedLeases
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) guidance for theASU 2016-02, Leases (Topic 842) which requires recognition of revenue from contracts with customers. This ASU supersededright-of-use assets and lease payment liabilities on the balance sheet by lessees for virtually all leases currently classified as operating leases. Under ASU 2016-02, companies are permitted to make a policy election to not recognize lease assets or liabilities when the term of the existing revenue recognitionlease is less than twelve months. The new guidance under U.S. GAAP. The core principle of the five step model is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Entities can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. The standard is effective for the Company’s fiscal year beginning July 1, 2018. Early2019, and early adoption is permitted.
We plan to implementare currently evaluating the new ASU revenue recognition guidance as of July 1, 2018, using the modified retrospective method with the cumulative effect,transition effort and impact, if any, of initial adoption to be recognized in Accumulated (losses) earnings at the date of initial application. We are in the final stages of our evaluation of the impact of the new standardthis guidance will have on our accounting policies, processes, and financial reporting. Based on the evaluation performed to-date, we expect to identify similar performance obligations as compared with deliverables and separate units of account previously identified. We will continue to assess the impact of adopting this ASU throughout the remainder of fiscal year 2018.
Recently Adopted
In March 2016, the FASB issued ASU guidance related to stock-based compensation. The new guidance simplifies the accounting for stock-based compensation transactions, including income tax consequences, statement of cash flows presentation, estimating forfeitures when calculating compensation expense, and classification of awards as either equity or liabilities.
The new standard requires all excess tax benefits and tax deficiencies to be recognized as income tax benefit (expense) in the income statement. The new guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than a financing activity and requires presentation of cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation as a financing activity. The new guidance also provides for an election to account for forfeitures of stock-based compensation.
The Company adopted the ASU guidance effective July 1, 2017. With respect to the forfeiture election, the Company will continue its current practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or relatedand footnote disclosures.
7
2. STREAM AND ROYALTY INTERESTS, NET
The following tables summarize the Company’s stream and royalty interests, net as of March 31,September 30, 2018 and June 30, 2017.2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Impairments |
| Net | |||||||||||||
As of September 30, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | |||||||||||||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
| $ | 790,635 |
| $ | (143,370) |
| $ | — |
| $ | 647,265 |
| $ | 790,635 |
| $ | (155,695) |
| $ | 634,940 |
Pueblo Viejo |
|
| 610,404 |
|
| (101,193) |
|
| — |
|
| 509,211 |
|
| 610,404 |
|
| (125,261) |
|
| 485,143 |
Andacollo |
|
| 388,182 |
|
| (53,916) |
|
| — |
|
| 334,266 |
|
| 388,182 |
|
| (70,747) |
|
| 317,435 |
Wassa and Prestea |
|
| 146,475 |
|
| (39,383) |
|
| — |
|
| 107,092 |
|
| 146,475 |
|
| (46,711) |
|
| 99,764 |
Rainy River |
|
| 175,727 |
|
| (2,354) |
|
| — |
|
| 173,373 |
|
| 175,727 |
|
| (6,939) |
|
| 168,788 |
Total production stage stream interests |
|
| 2,111,423 |
|
| (340,216) |
|
| — |
|
| 1,771,207 |
|
| 2,111,423 |
|
| (405,353) |
|
| 1,706,070 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
| 205,724 |
|
| (85,671) |
|
| — |
|
| 120,053 |
|
| 205,724 |
|
| (90,006) |
|
| 115,718 |
Peñasquito |
|
| 99,172 |
|
| (37,636) |
|
| — |
|
| 61,536 |
|
| 99,172 |
|
| (39,054) |
|
| 60,118 |
Holt |
|
| 34,612 |
|
| (20,868) |
|
| — |
|
| 13,744 |
|
| 34,612 |
|
| (21,569) |
|
| 13,043 |
Cortez |
|
| 20,878 |
|
| (11,230) |
|
| — |
|
| 9,648 |
|
| 20,878 |
|
| (11,275) |
|
| 9,603 |
Other |
|
| 483,795 |
|
| (357,918) |
|
| — |
|
| 125,877 |
|
| 483,795 |
|
| (371,074) |
|
| 112,721 |
Total production stage royalty interests |
|
| 844,181 |
|
| (513,323) |
|
| — |
|
| 330,858 |
|
| 844,181 |
|
| (532,978) |
|
| 311,203 |
Total production stage stream and royalty interests |
|
| 2,955,604 |
|
| (853,539) |
|
| — |
|
| 2,102,065 |
|
| 2,955,604 |
|
| (938,331) |
|
| 2,017,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| 12,038 |
|
| — |
|
| — |
|
| 12,038 |
|
| 12,038 |
|
| — |
|
| 12,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cortez |
|
| 59,803 |
|
| — |
|
| — |
|
| 59,803 |
|
| 59,803 |
|
| — |
|
| 59,803 |
Other |
|
| 63,810 |
|
| — |
|
| (284) |
|
| 63,526 |
|
| 74,329 |
|
| — |
|
| 74,329 |
Total development stage royalty interests |
|
| 123,613 |
|
| — |
|
| (284) |
|
| 123,329 |
|
| 134,132 |
|
| — |
|
| 134,132 |
Total development stage stream and royalty interests |
|
| 135,651 |
|
| — |
|
| (284) |
|
| 135,367 |
|
| 146,170 |
|
| — |
|
| 146,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
| 416,770 |
|
| — |
|
| (239,080) |
|
| 177,690 |
|
| 177,690 |
|
| — |
|
| 177,690 |
Other |
|
| 117,481 |
|
| — |
|
| - |
|
| 117,481 |
|
| 117,482 |
|
| — |
|
| 117,482 |
Total exploration stage royalty interests |
|
| 534,251 |
|
| — |
|
| (239,080) |
|
| 295,171 |
|
| 295,172 |
|
| — |
|
| 295,172 |
Total stream and royalty interests, net |
| $ | 3,625,506 |
| $ | (853,539) |
| $ | (239,364) |
| $ | 2,532,603 |
| $ | 3,396,946 |
| $ | (938,331) |
| $ | 2,458,615 |
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Impairments |
| Net | ||||||||||||||||
As of June 30, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Impairments |
| Net | ||||||||||||||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
| $ | 790,635 |
| $ | (114,327) |
| $ | — |
| $ | 676,308 |
| $ | 790,635 |
| $ | (152,833) |
| $ | — |
| $ | 637,802 |
Pueblo Viejo |
|
| 610,404 |
|
| (67,149) |
|
| — |
|
| 543,255 |
|
| 610,404 |
|
| (114,944) |
|
| — |
|
| 495,460 |
Andacollo |
|
| 388,182 |
|
| (39,404) |
|
| — |
|
| 348,778 |
|
| 388,182 |
|
| (59,851) |
|
| — |
|
| 328,331 |
Wassa and Prestea |
|
| 146,475 |
|
| (22,715) |
|
| — |
|
| 123,760 |
|
| 146,475 |
|
| (41,601) |
|
| — |
|
| 104,874 |
Rainy River |
|
| 175,727 |
|
| (4,028) |
|
| — |
|
| 171,699 | ||||||||||||
Total production stage stream interests |
|
| 1,935,696 |
|
| (243,595) |
|
| — |
|
| 1,692,101 |
|
| 2,111,423 |
|
| (373,257) |
|
| — |
|
| 1,738,166 |
Total production stage stream and royalty interests |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
| 205,724 |
|
| (85,671) |
|
| — |
|
| 120,053 |
|
| 205,724 |
|
| (86,933) |
|
| — |
|
| 118,791 |
Peñasquito |
|
| 99,172 |
|
| (34,713) |
|
| — |
|
| 64,459 |
|
| 99,172 |
|
| (38,426) |
|
| — |
|
| 60,746 |
Holt |
|
| 34,612 |
|
| (19,669) |
|
| — |
|
| 14,943 |
|
| 34,612 |
|
| (21,173) |
|
| — |
|
| 13,439 |
Cortez |
|
| 20,873 |
|
| (10,633) |
|
| — |
|
| 10,240 |
|
| 20,878 |
|
| (11,241) |
|
| — |
|
| 9,637 |
Other |
|
| 483,643 |
|
| (337,958) |
|
| — |
|
| 145,685 |
|
| 483,795 |
|
| (364,795) |
|
| — |
|
| 119,000 |
Total production stage royalty interests |
|
| 844,024 |
|
| (488,644) |
|
| — |
|
| 355,380 |
|
| 844,181 |
|
| (522,568) |
|
| — |
|
| 321,613 |
Total production stage stream and royalty interests |
|
| 2,779,720 |
|
| (732,239) |
|
| — |
|
| 2,047,481 |
|
| 2,955,604 |
|
| (895,825) |
|
| — |
|
| 2,059,779 |
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rainy River |
|
| 175,727 |
|
| — |
|
| — |
|
| 175,727 | ||||||||||||
Other |
|
| 12,031 |
|
| — |
|
| — |
|
| 12,031 |
|
| 12,038 |
|
| — |
|
| — |
|
| 12,038 |
Total development stage stream interests |
|
| 187,758 |
|
| — |
|
| — |
|
| 187,758 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cortez |
|
| 59,803 |
|
| — |
|
| — |
|
| 59,803 |
|
| 59,803 |
|
| — |
|
| — |
|
| 59,803 |
Other |
|
| 63,811 |
|
| — |
|
| — |
|
| 63,811 |
|
| 74,610 |
|
| — |
|
| (284) |
|
| 74,326 |
Total development stage royalty interests |
|
| 123,614 |
|
| — |
|
| — |
|
| 123,614 |
|
| 134,413 |
|
| — |
|
| (284) |
|
| 134,129 |
Total development stage stream and royalty interests |
|
| 311,372 |
|
| — |
|
| — |
|
| 311,372 |
|
| 146,451 |
|
| — |
|
| (284) |
|
| 146,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
| 416,770 |
|
| — |
|
| — |
|
| 416,770 |
|
| 416,770 |
|
| — |
|
| (239,080) |
|
| 177,690 |
Other |
|
| 116,633 |
|
|
|
|
|
|
|
| 116,633 |
|
| 117,481 |
|
| — |
|
| — |
|
| 117,481 |
Total exploration stage royalty interests |
|
| 533,403 |
|
| — |
|
| — |
|
| 533,403 |
|
| 534,251 |
|
| — |
|
| (239,080) |
|
| 295,171 |
Total stream and royalty interests, net |
| $ | 3,624,495 |
| $ | (732,239) |
| $ | — |
| $ | 2,892,256 |
| $ | 3,636,306 |
| $ | (895,825) |
| $ | (239,364) |
| $ | 2,501,117 |
Impairment of royalty interestsVoisey’s Bay
In accordanceThe royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Minerals Corporation (“Altius”).
On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle their long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine. Refer to Note 14 of our impairment accounting policy discussedFiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.
The Parties agreed to a new method for calculating the royalty in Noterespect of concentrates processed at Vale’s Long Harbour Processing Plant, which will be effective for all Voisey’s Bay mine production after April 1, impairments2018. Under the terms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the carryingconcentrates at the nickel, copper and cobalt prices prevailing at the time of settlement. As those metal prices rise or fall, the percentage of gross metal value of each stream or royalty interest are measured and recordedin the concentrates applicable to the extent that the carrying value in each streamroyalty would correspondingly increase or royalty 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 recorded impairment charges for the three and nine months ended March 31, 2018 and 2017, as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) | ||||||
Pascua-Lama |
| $ | 239,080 |
| $ | — |
| $ | 239,080 |
| $ | — |
Other |
|
| 284 |
|
| — |
|
| 284 |
|
| — |
Total impairment of royalty interests |
| $ | 239,364 |
| $ | — |
| $ | 239,364 |
| $ | — |
decrease.
9
Pascua-Lama
We own a 0.78% to 5.45% sliding‑scale net smelter return (“NSR”) royalty on the Pascua‑Lama project, which straddles the border between Argentina and Chile, and is owned by Barrick Gold Corporation (“Barrick”). The Company owns an additional royalty equivalent to 1.09% of proceeds from copper produced from the Chilean portion of the project, net of allowable deductions, sold on or after January 1, 2017. Our royalty interests are applicable to all gold and copper production from the portion of the Pascua-Lama project lying on the Chilean side of the border.
On January 18, 2018 Barrick reported that it is analyzing a revised sanction related to the Pascua-Lama project issued by Chile’s Superintendencia del Medio Ambiente (“SMA”) on January 17, 2018. The sanction is part of a re-evaluation process ordered by Chile’s Environmental Court in 2014 and relates to historical compliance matters at the Pascua-Lama project. According to Barrick, the SMA has not revoked Pascua-Lama’s environmental permit, but has ordered the closure of existing facilities on the Chilean side of the project, in addition to certain monitoring activities.
On February 6, 2018, in light of the SMA order to close surface facilities in Chile, and earlier plans to evaluate an underground mine, Barrick announced it reclassified Pascua-Lama’s proven and probable reserves, which are based on an open pit mine plan, as mineralized material. Barrick reported further details in its year-end results on February 14, 2018 and an update on the Pascua-Lama project at its February 22, 2018 Investor Day. A significant reduction in reserves or mineralized material are indicators of impairment.
On April 23, 2018, Barrick announced that work performed to-date on the prefeasibility study for a potential underground project has been suspended, and they will focus on adjusting the project closure plan for surface infrastructure on the Chilean side of the project. Barrick will continue to evaluate opportunities to de-risk the project while maintaining Pascua-Lama as an option for development in the future if economics improve and related risks can be mitigated.
As part of the impairment determination, the fair value for Pascua-Lama was estimated by calculating the net present value of the estimated future cash-flows, subject to our royalty interest, expected to be generated by the mining of the Pascua-Lama deposits. The Company applied a probability factor to its fair value calculation that Barrick will either proceed with an open-pit mine or an underground mine at Pascua. The estimates of future cash flows were derived from open-pit and underground mine models developed by the Company using various information reported by Barrick. The metal price assumptions used in the Company’s model were supported by consensus price estimates obtained by a number of industry analysts. The future cash flows were discounted using a discount rate which reflects specific market risk factors the Company associates with the Pascua-Lama royalty interest. Following the impairment charge duringDuring the three months ended March 31,September 30, 2018, the Pascua-LamaCompany recognized approximately $4.9 million in royalty interest has a remaining carrying value of $177.7 million as of March 31, 2018.revenue attributable to Voisey’s Bay metal production from the June 30 and September 30, 2018 quarters. Royalty payments for each quarter are due 45 days after quarter-end. Refer to Note 4 for further discussion on our revenue recognition.
3. DEBT
The Company’s non-current debt as of March 31,September 30, 2018 and June 30, 20172018 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2018 |
| As of June 30, 2017 |
| As of September 30, 2018 |
| As of June 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
|
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total | ||||||||||||||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
| (Amounts in thousands) | ||||||||||||||||||||||||||||||||||||
Convertible notes due 2019 |
| $ | 370,000 |
| $ | (15,963) |
| $ | (1,653) |
| $ | 352,384 |
| $ | 370,000 |
| $ | (25,251) |
| $ | (2,646) |
| $ | 342,103 |
| $ | 370,000 |
| $ | (9,512) |
| $ | (976) |
| $ | 359,512 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (1,316) |
| $ | 355,920 |
Revolving credit facility |
|
| 75,000 |
|
| — |
|
| (5,111) |
|
| 69,889 |
|
| 250,000 |
|
| — |
|
| (5,933) |
|
| 244,067 |
|
| — |
|
| — |
|
| (4,573) |
|
| (4,573) |
|
| — |
|
| — |
|
| (4,893) |
|
| (4,893) |
Total debt |
| $ | 445,000 |
| $ | (15,963) |
| $ | (6,764) |
| $ | 422,273 |
| $ | 620,000 |
| $ | (25,251) |
| $ | (8,579) |
| $ | 586,170 |
| $ | 370,000 |
| $ | (9,512) |
| $ | (5,549) |
| $ | 354,939 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (6,209) |
| $ | 351,027 |
Convertible Senior Notes Due 2019
In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”). The 2019 Notes bear interest at the rate of 2.875% per annum, and the Company
10
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. Generally, we classify debt that is maturing within one year as a current liability. However, the Company has the intent and ability to settle the principal amount of the 2019 Notes in cash primarily from its available revolving credit facility, a non-current liability, as of September 30 and June 30, 2018.
Interest expense recognized on the 2019 Notes for the three and nine months ended March 31,September 30, 2018, was $6.1$6.3 million and $18.3 million, respectively, compared to $5.9$6.0 million and $17.6 million, respectively, for the three and nine months ended March 31,September 30, 2017, and included the contractual coupon interest, the accretion of the debt discount and amortization of the debt issuance costs.
Revolving credit facility
The Company maintains a $1 billion revolving credit facility. As of March 31,September 30, 2018, the Company had $75 millionno amounts outstanding and $925 million$1 billion available under the revolving credit facility with an interest rate on borrowings of LIBOR plus 1.50% for an all-in rate of 3.52%. During the three and nine months ended March 31, 2018, the Company repaid $75 million and $175 million, respectively, 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. Interest expense recognized on the revolving credit facility for the three and nine months ended March 31,September 30, 2018 was $1.3$0.3 million (amortization of debt issuance costs only) and $4.9 million, respectively, and $2.9 million and $7.2$1.8 million, for the three and nine months ended March 31,September 30, 2017, andwhich included interest on the outstanding borrowings and the amortization of the debt issuance costs. Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.
As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 20172018 10-K, the Company has financial covenants associated with its revolving credit facility. As of March 31,September 30, 2018, the Company was in compliance with each financial covenant.
4. REVENUE
Revenue Recognition
Under current ASC 606 guidance, a performance obligation is compriseda promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, a performance obligation is satisfied. In accordance with this guidance, revenue attributable to our stream interests and royalty interests is generally recognized at
10
the point in time that control of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) | ||||||
Stream interests |
| $ | 82,979 |
| $ | 76,597 |
| $ | 241,028 |
| $ | 236,108 |
Royalty interests |
|
| 33,004 |
|
| 30,375 |
|
| 101,779 |
|
| 95,772 |
Total revenue |
| $ | 115,983 |
| $ | 106,972 |
| $ | 342,807 |
| $ | 331,880 |
related metal production transfers to our customers. The amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement. A more detailed summary of our revenue recognition policies for our stream and royalty interests is discussed below.
5. STOCK-BASED COMPENSATIONStream Interests
A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more of the metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Gold, silver and copper received under our metal streaming agreements are taken into inventory, and then sold primarily using average spot rate gold, silver and copper forward contracts. The Companysales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between ten days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time) commencing shortly after receipt and purchase of the metal. We settle our forward sales contracts via physical delivery of the metal to the purchaser (our customer) on the settlement date specified in the contract. Under our forward sales contracts, there is a single performance obligation to sell a contractually specified volume of metal to the purchaser, and we satisfy this obligation at the point in time of physical delivery. Accordingly, revenue from our metal sales is recognized stock-based compensation expense as follows:on the date of settlement, which is the date that control, custody and title to the metal transfer to the purchaser.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, | ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) | ||||||
Stock options |
| $ | 70 |
| $ | 94 |
| $ | 241 |
| $ | 297 |
Stock appreciation rights |
|
| 482 |
|
| 456 |
|
| 1,456 |
|
| 1,378 |
Restricted stock |
|
| 727 |
|
| 800 |
|
| 3,041 |
|
| 3,004 |
Performance stock |
|
| 284 |
|
| (1,036) |
|
| 1,220 |
|
| 2,079 |
Total stock-based compensation expense |
| $ | 1,563 |
| $ | 314 |
| $ | 5,958 |
| $ | 6,758 |
Royalty Interests
Stock-based compensation expense is included within General and administrative expenseRoyalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. We are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price (monthly or quarterly average spot price) for the period in which metal production occurred. As a royalty holder, we act as a passive entity in the consolidatedproduction and operations of the mining project, and the third-party operator of the mining project is responsible for all mining activities, including subsequent marketing and delivery of all metal production to their ultimate customer. In all of our material royalty interest arrangements, we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs, and thus, the operator is our customer. We have further determined that the transfer of each unit of metal production, comprising our royalty interest, to the operator represents a separate performance obligation under the contract, and each performance obligation is satisfied at the point in time of metal production by the operator. Accordingly, we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement, net of any contractually allowable offsite treatment, refining, transportation and, if applicable, mining costs.
Royalty Revenue Estimates
For a small number of our royalty interests, we may not receive, or be entitled to receive, payment information, including production information from the operator, for the period in which metal production occurred prior to issuance of our financial statements. As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator. If adequate information is not available from the operator or from other public sources before we issue our financial statements, the Company will recognize royalty revenue during the period in which the necessary payment information is received. Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known. Please also refer to our “Use of operationsEstimates” accounting policy discussed in our Fiscal 2018 10-K. For the period ended September 30, 2018, royalty revenue that was estimated or was attributable to metal production for a period prior to September 30, 2018, was not material.
Disaggregation of Revenue
We have identified two material revenue sources in our business: stream interests and comprehensive (loss) income.royalty interests. These identified revenue sources are consistent with our reportable segments as discussed in Note 8.
11
Revenue by metal type attributable to each of our revenue sources is disaggregated as follows:
|
|
|
|
|
| Three Months Ended | |
|
| September 30, 2018 | |
Stream revenue: |
|
|
|
Gold |
| $ | 59,114 |
Silver |
|
| 8,720 |
Copper |
|
| 2,203 |
Total stream revenue |
| $ | 70,037 |
Royalty revenue: |
|
|
|
Gold |
| $ | 18,554 |
Silver |
|
| 1,352 |
Copper |
|
| 3,615 |
Other |
|
| 6,434 |
Total royalty revenue |
| $ | 29,955 |
Total revenue |
| $ | 99,992 |
Revenue attributable to our principal stream and royalty interests is disaggregated as follows:
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | |
|
|
| Metal(s) |
| September 30, 2018 | |
Stream revenue: |
|
|
|
|
|
|
Andacollo |
|
| Gold |
| $ | 27,743 |
Pueblo Viejo |
|
| Gold & Silver |
|
| 19,486 |
Mount Milligan |
|
| Gold & Copper |
|
| 8,847 |
Wassa and Prestea |
|
| Gold |
|
| 8,061 |
Other |
|
| Gold & Silver |
|
| 5,900 |
Total stream revenue |
|
|
|
| $ | 70,037 |
Royalty revenue: |
|
|
|
|
|
|
Peñasquito |
|
| Gold, Silver, Lead & Zinc |
| $ | 3,637 |
Cortez |
|
| Gold |
|
| 603 |
Other |
|
| Various |
|
| 25,715 |
Total royalty revenue |
|
|
|
| $ | 29,955 |
Total revenue |
|
|
|
| $ | 99,992 |
Please refer to Note 8 for the geographical distribution of our revenue by reportable segment.
Contract Receivables
Under our forward sales contracts related to our metal streaming arrangements, payment is due from the purchaser on the day of settlement. Accordingly, our metal stream sales contracts do not give rise to a receivable under ASC 606.
Under our royalty arrangements, payment is typically due by the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirty to sixty days after the respective quarter-end. Revenue related to production that has occurred as of the reporting date but for which payment has not been received represents a receivable (rather than a contract asset) under ASC 606, as payment by the operator is unconditional upon the production of metal. As of September 30, 2018, and June 30, 2018, our royalty receivables were $25.1 million and $26.4 million, respectively.
��
Practical Expedients Utilized
Our forward sales contracts related to our metal streaming arrangements are short-term in nature with a term of one year or less. For these contracts, we have utilized the practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) for contracts with an original expected term of one year or less.
12
Our royalty arrangements generally cover metal production over the life of a mine and, thus, have a contract term that is greater than one year. Under these contracts, variability related to future production volumes and market pricing is allocated entirely to those future production volumes from the mining operation. Consequently, we have utilized an alternative practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) if the variable consideration in a contract is allocated entirely to a wholly unsatisfied performance obligation.
5. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| September 30, |
| September 30, | ||
|
| 2018 |
| 2017 | ||
|
|
| (Amounts in thousands) | |||
Stock options |
| $ | 120 |
| $ | 91 |
Stock appreciation rights |
|
| 766 |
|
| 488 |
Restricted stock |
|
| 1,280 |
|
| 1,426 |
Performance stock |
|
| 278 |
|
| 368 |
Total stock-based compensation expense |
| $ | 2,444 |
| $ | 2,373 |
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
During the three and nine months ended March 31,September 30, 2018, the Company granted the following stock-based compensation awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended | |||||||||
|
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| September 30, |
|
| September 30, |
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
|
| (Number of shares) |
|
| (Number of shares) |
|
| (Number of shares) | |||||||||
Stock options |
|
| — |
|
| — |
|
| 6,858 |
|
| 7,200 |
|
| 6,430 |
|
| 6,858 |
Stock appreciation rights |
|
| — |
|
| — |
|
| 71,262 |
|
| 63,340 |
|
| 69,360 |
|
| 71,262 |
Restricted stock |
|
| — |
|
| — |
|
| 50,380 |
|
| 44,890 |
|
| 42,260 |
|
| 50,380 |
Performance stock |
|
| — |
|
| — |
|
| 34,010 |
|
| 29,830 | ||||||
Performance stock (at maximum 200% attainment) |
|
| 57,420 |
|
| 68,020 | ||||||||||||
Total equity awards granted |
|
| — |
|
| — |
|
| 162,510 |
|
| 145,260 |
|
| 175,470 |
|
| 196,520 |
As of March 31,September 30, 2018, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrecognized |
| Weighted- |
| Unrecognized |
| Weighted- | ||||
|
|
|
|
|
|
|
| compensation |
| average vesting |
| compensation |
| average vesting | ||||
|
|
|
|
|
|
|
| expense |
| period (years) |
| expense |
| period (years) | ||||
Stock options |
|
|
|
|
|
|
| $ | 307 |
|
| 1.7 |
| $ | 227 |
|
| 2.2 |
Stock appreciation rights |
|
|
|
|
|
|
|
| 2,703 |
|
| 1.9 |
|
| 2,949 |
|
| 2.2 |
Restricted stock |
|
|
|
|
|
|
|
| 6,251 |
|
| 3.1 |
|
| 6,307 |
|
| 3.4 |
Performance stock |
|
|
|
|
|
|
|
| 1,927 |
|
| 2.0 |
|
| 1,736 |
|
| 2.1 |
13
6. EARNINGS PER SHARE (“EPS”)
Basic (loss) earnings per common share were computed using the weighted average number of shares of common stock outstanding during the period, considering the effect of participating securities. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company’s unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. The Company’s unexercised stock options, unexercised SSARs and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic (loss) earnings 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 (loss) earnings per common share.
The following tables summarize the effects of dilutive securities on diluted EPS for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended | ||||||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| September 30, |
| September 30, | ||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||
|
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) | |||||||||
Net (loss) income available to Royal Gold common stockholders |
| $ | (153,650) |
| $ | 23,661 |
| $ | (139,786) |
| $ | 81,509 | ||||||
Net income available to Royal Gold common stockholders |
| $ | 15,008 |
| $ | 28,631 | ||||||||||||
Weighted-average shares for basic EPS |
|
| 65,307,324 |
|
| 65,169,883 |
|
| 65,283,019 |
|
| 65,145,183 |
|
| 65,374,866 |
|
| 65,235,496 |
Effect of other dilutive securities |
|
| — |
|
| 105,043 |
|
| — |
|
| 122,018 |
|
| 122,293 |
|
| 169,184 |
Weighted-average shares for diluted EPS |
|
| 65,307,324 |
|
| 65,274,926 |
|
| 65,283,019 |
|
| 65,267,201 |
|
| 65,497,159 |
|
| 65,404,680 |
Basic (loss) earnings per share |
| $ | (2.35) |
| $ | 0.36 |
| $ | (2.14) |
| $ | 1.25 | ||||||
Diluted (loss) earnings per share |
| $ | (2.35) |
| $ | 0.36 |
| $ | (2.14) |
| $ | 1.25 | ||||||
Basic earnings per share |
| $ | 0.23 |
| $ | 0.44 | ||||||||||||
Diluted earnings per share |
| $ | 0.23 |
| $ | 0.44 |
12
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.cash from amounts available under our revolving credit facility. As a result, there will be no impact to diluted earnings (loss) per share unless the share price of the Company’s common stock exceeds the conversion price of $102.67.$102.43.
7. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended | ||||||||||||
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| September 30, |
| September 30, | ||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||
|
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) | ||||||||||||
Income tax benefit (expense) |
| $ | 45,859 |
| $ | (6,492) |
| $ | (10,044) |
| $ | (18,724) | ||||||
Income tax expense |
| $ | 4,115 |
| $ | 7,544 | ||||||||||||
Effective tax rate |
|
| 22.9% |
|
| 23.2% |
|
| (7.5%) |
|
| 19.9% |
|
| 25.6% |
|
| 22.1% |
The effective tax rate for the three months ended March 31, 2018 was primarily impacted by tax benefit related to the royalty impairments. The increase in the effective tax rate for the ninethree months ended March 31,September 30, 2018 iswas primarily related to fewer discrete tax benefits attributable to equity award vesting and exercises in the effects of recent U.S. tax legislation,current quarter as discussed below, and the effects of a non-cash functional currency election ($18 million expense) to file certain Canadian income tax returns in U.S. dollars, partially offset by the tax benefit relatedcompared to the royalty impairments. Prior to the functional currency election, certain deferred tax liabilities were measured on the difference between adjusted Canadian dollar acquisition cost and Canadian dollar tax basis. These deferred tax liabilities were then marked-to market every quarter for income tax expense (benefit) purposes, to account for changes in the Canadian dollar to U.S. dollar exchange rate. Post-election, the applicable deferred tax liabilities will be measured on the difference between U.S. GAAP value and U.S. dollar tax basis, and eliminating volatility in the effective tax rate caused by this mark-to-market adjustment.ending September 30, 2017.
On December 22, 2017,The Company will continue to analyze H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”), was enacted and is effective for tax years including January 1, 2018. Certain other aspects of the Act are not effective for fiscal June 30 companies until July 1, 2018.
The Act, among other things, reduced the U.S. corporate income tax rate to 21% starting January 1, 2018. As the Company is a fiscal year tax payer, we applied a blended U.S. federal income tax rate of approximately 28.1% for the fiscal year ending June 30, 2018. The blended percentage was calculated on a pro-rata percentage of the number of days before and after January 1, 2018. The Company’s U.S. federal corporate income tax rate will be 21% for the fiscal year commencing on July 1, 2018 and all future years.
ASC 740, Income Taxes, requires recognition of the effects of tax law changes in the period of enactment. As a result, the Company recorded a net charge (expense) of $26.4 million during the three months ended December 31, 2017 and the nine months ended March 31, 2018. This amount is included in Income tax benefit (expense) on our consolidated statements of operations and comprehensive (loss) income. The tax expense consists of three components: (i) a $12.2 million charge relating to the one-time mandatory tax on the net accumulated post-1986 untaxed earnings and profits of the Company’s foreign subsidiaries, which we will elect to pay over an eight-year period, (ii) a $2.7 million benefit resulting from the re-measurement of the Company’s net deferred tax assets and liabilities, and (iii) a $16.9 million charge related to re-measurement of the U.S. income tax impacts resulting from foreign uncertain tax positions.
The net $26.4 million charge represents what the Company believes is a reasonable estimate of the impact of the Act. As the net charge is based on currently available information and interpretations, which are continuing to evolve, all amounts should be considered provisional. The Company will continue to analyze additional information and guidance related to the Act asincluding supplemental legislation, regulatory guidance, or evolving technical interpretations as they become available. The final Act impacts may differ from the recorded amounts as of March 31,September 30, 2018 and the Company will continue to refine such amounts within the measurement period provided by Staff Accounting Bulletin No. 118. The Company expects to complete its analysis no later thanduring the second quarter of fiscal year 2019.
1314
8. SEGMENT INFORMATION
The Company manages its business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests. Royal Gold’s long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2018 |
| As of June 30, 2017 |
| As of September 30, 2018 |
| As of June 30, 2018 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
|
|
|
| Total stream | ||||
|
| Stream |
| Royalty |
|
|
|
| and royalty |
| Stream |
| Royalty |
|
|
|
| and royalty |
| Stream |
| Royalty |
| and royalty |
| Stream |
| Royalty |
|
|
|
| and royalty | ||||||||||||
|
| interest |
| interest |
| Impairments |
| interests, net |
| interest |
| interest |
| Impairments |
| interests, net |
| interest |
| interest |
| interests, net |
| interest |
| interest |
| Impairments |
| interests, net | |||||||||||||||
Canada |
| $ | 820,639 |
| $ | 217,236 |
| $ | (284) |
| $ | 1,037,591 |
| $ | 852,035 |
| $ | 221,618 |
| $ | — |
| $ | 1,073,653 |
| $ | 803,727 |
| $ | 209,725 |
| $ | 1,013,452 |
| $ | 809,500 |
| $ | 214,562 |
| $ | (284) |
| $ | 1,023,778 |
Dominican Republic |
|
| 509,211 |
|
| — |
|
| — |
|
| 509,211 |
|
| 543,256 |
|
| — |
|
| — |
|
| 543,256 |
|
| 485,143 |
|
| — |
|
| 485,143 |
|
| 495,460 |
|
| — |
|
| — |
|
| 495,460 |
Chile |
|
| 334,266 |
|
| 453,306 |
|
| (239,080) |
|
| 548,492 |
|
| 348,778 |
|
| 453,369 |
|
| — |
|
| 802,147 |
|
| 317,434 |
|
| 214,226 |
|
| 531,660 |
|
| 328,331 |
|
| 453,306 |
|
| (239,080) |
|
| 542,557 |
Africa |
|
| 107,092 |
|
| 515 |
|
| — |
|
| 107,607 |
|
| 123,760 |
|
| 572 |
|
| — |
|
| 124,332 |
|
| 99,764 |
|
| 495 |
|
| 100,259 |
|
| 104,874 |
|
| 502 |
|
| — |
|
| 105,376 |
Mexico |
|
| — |
|
| 95,234 |
|
| — |
|
| 95,234 |
|
| — |
|
| 105,889 |
|
| — |
|
| 105,889 |
|
| — |
|
| 90,243 |
|
| 90,243 |
|
| — |
|
| 93,277 |
|
| — |
|
| 93,277 |
United States |
|
| — |
|
| 167,253 |
|
| — |
|
| 167,253 |
|
| — |
|
| 168,378 |
|
| — |
|
| 168,378 |
|
| — |
|
| 164,987 |
|
| 164,987 |
|
| — |
|
| 165,543 |
|
| — |
|
| 165,543 |
Australia |
|
| — |
|
| 35,088 |
|
| — |
|
| 35,088 |
|
| — |
|
| 37,409 |
|
| — |
|
| 37,409 |
|
| — |
|
| 33,622 |
|
| 33,622 |
|
| — |
|
| 34,254 |
|
| — |
|
| 34,254 |
Other |
|
| 12,037 |
|
| 20,090 |
|
| — |
|
| 32,127 |
|
| 12,030 |
|
| 25,162 |
|
| — |
|
| 37,192 |
|
| 12,039 |
|
| 27,210 |
|
| 39,249 |
|
| 12,039 |
|
| 28,833 |
|
| — |
|
| 40,872 |
Total |
| $ | 1,783,245 |
| $ | 988,722 |
| $ | (239,364) |
| $ | 2,532,603 |
| $ | 1,879,859 |
| $ | 1,012,397 |
| $ | — |
| $ | 2,892,256 |
| $ | 1,718,107 |
| $ | 740,508 |
| $ | 2,458,615 |
| $ | 1,750,204 |
| $ | 990,277 |
| $ | (239,364) |
| $ | 2,501,117 |
The Company’s revenue, cost of sales and net revenue by reportable segment for the three and nine months ended March 31,September 30, 2018 and 2017, is geographically distributed as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2018 |
| Three Months Ended March 31, 2017 | ||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue | ||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| $ | 51,709 |
| $ | 14,225 |
| $ | 37,484 |
| $ | 35,112 |
| $ | 12,583 |
| $ | 22,529 |
Dominican Republic |
|
| 15,734 |
|
| 4,415 |
|
| 11,319 |
|
| 24,524 |
|
| 7,054 |
|
| 17,470 |
Chile |
|
| 7,186 |
|
| 1,039 |
|
| 6,147 |
|
| 10,398 |
|
| 1,499 |
|
| 8,899 |
Africa |
|
| 8,350 |
|
| 1,666 |
|
| 6,684 |
|
| 6,563 |
|
| 1,283 |
|
| 5,280 |
Total streams |
| $ | 82,979 |
| $ | 21,345 |
| $ | 61,634 |
| $ | 76,597 |
| $ | 22,419 |
| $ | 54,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
| $ | 11,021 |
| $ | — |
| $ | 11,021 |
| $ | 10,446 |
| $ | — |
| $ | 10,446 |
United States |
|
| 8,459 |
|
| — |
|
| 8,459 |
|
| 7,899 |
|
| — |
|
| 7,899 |
Canada |
|
| 6,089 |
|
| — |
|
| 6,089 |
|
| 5,535 |
|
| — |
|
| 5,535 |
Australia |
|
| 3,343 |
|
| — |
|
| 3,343 |
|
| 3,174 |
|
| — |
|
| 3,174 |
Africa |
|
| 543 |
|
| — |
|
| 543 |
|
| 672 |
|
| — |
|
| 672 |
Other |
|
| 3,549 |
|
| — |
|
| 3,549 |
|
| 2,649 |
|
| — |
|
| 2,649 |
Total royalties |
| $ | 33,004 |
| $ | — |
| $ | 33,004 |
| $ | 30,375 |
| $ | — |
| $ | 30,375 |
Total streams and royalties |
| $ | 115,983 |
| $ | 21,345 |
| $ | 94,638 |
| $ | 106,972 |
| $ | 22,419 |
| $ | 84,553 |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended March 31, 2018 |
| Nine Months Ended March 31, 2017 |
| Three Months Ended September 30, 2018 |
| Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue | ||||||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile |
| $ | 27,742 |
| $ | 4,278 |
| $ | 23,464 |
| $ | 12,337 |
| $ | 1,812 |
| $ | 10,525 | ||||||||||||||||||
Dominican Republic |
|
| 19,486 |
|
| 6,324 |
|
| 13,162 |
|
| 25,403 |
|
| 7,588 |
|
| 17,815 | ||||||||||||||||||
Canada |
| $ | 106,363 |
| $ | 30,072 |
| $ | 76,291 |
| $ | 105,161 |
| $ | 36,341 |
| $ | 68,820 |
|
| 14,747 |
|
| 4,265 |
|
| 10,482 |
|
| 31,952 |
|
| 9,223 |
|
| 22,729 |
Dominican Republic |
|
| 67,492 |
|
| 20,200 |
|
| 47,292 |
|
| 71,911 |
|
| 21,497 |
|
| 50,414 | ||||||||||||||||||
Chile |
|
| 41,124 |
|
| 6,148 |
|
| 34,976 |
|
| 41,552 |
|
| 6,243 |
|
| 35,309 | ||||||||||||||||||
Africa |
|
| 26,049 |
|
| 5,207 |
|
| 20,842 |
|
| 17,484 |
|
| 3,501 |
|
| 13,983 |
|
| 8,062 |
|
| 1,660 |
|
| 6,402 |
|
| 9,070 |
|
| 1,796 |
|
| 7,274 |
Total streams |
| $ | 241,028 |
| $ | 61,627 |
| $ | 179,401 |
| $ | 236,108 |
| $ | 67,582 |
| $ | 168,526 |
| $ | 70,037 |
| $ | 16,527 |
| $ | 53,510 |
| $ | 78,762 |
| $ | 20,419 |
| $ | 58,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| $ | 10,181 |
| $ | — |
| $ | 10,181 |
| $ | 6,092 |
| $ | — |
| $ | 6,092 | ||||||||||||||||||
Mexico |
| $ | 32,772 |
| $ | — |
| $ | 32,772 |
| $ | 31,573 |
| $ | — |
| $ | 31,573 |
|
| 7,996 |
|
| — |
|
| 7,996 |
|
| 10,897 |
|
| — |
|
| 10,897 |
United States |
|
| 31,186 |
|
| — |
|
| 31,186 |
|
| 27,012 |
|
| — |
|
| 27,012 |
|
| 6,056 |
|
| — |
|
| 6,056 |
|
| 10,429 |
|
| — |
|
| 10,429 |
Canada |
|
| 17,577 |
|
| — |
|
| 17,577 |
|
| 17,405 |
|
| — |
|
| 17,405 | ||||||||||||||||||
Australia |
|
| 9,891 |
|
| — |
|
| 9,891 |
|
| 9,867 |
|
| — |
|
| 9,867 |
|
| 3,060 |
|
| — |
|
| 3,060 |
|
| 3,320 |
|
| — |
|
| 3,320 |
Africa |
|
| 1,589 |
|
| — |
|
| 1,589 |
|
| 2,260 |
|
| — |
|
| 2,260 |
|
| 492 |
|
| — |
|
| 492 |
|
| 462 |
|
| — |
|
| 462 |
Chile |
|
| 399 |
|
| — |
|
| 399 |
|
| 1,333 |
|
| — |
|
| 1,333 |
|
| - |
|
| — |
|
| - |
|
| — |
|
| — |
|
| - |
Other |
|
| 8,365 |
|
| — |
|
| 8,365 |
|
| 6,322 |
|
| — |
|
| 6,322 |
|
| 2,170 |
|
| — |
|
| 2,170 |
|
| 2,514 |
|
| — |
|
| 2,514 |
Total royalties |
| $ | 101,779 |
| $ | — |
| $ | 101,779 |
| $ | 95,772 |
| $ | — |
| $ | 95,772 |
| $ | 29,955 |
| $ | — |
| $ | 29,955 |
| $ | 33,714 |
| $ | — |
| $ | 33,714 |
Total streams and royalties |
| $ | 342,807 |
| $ | 61,627 |
| $ | 281,180 |
| $ | 331,880 |
| $ | 67,582 |
| $ | 264,298 |
| $ | 99,992 |
| $ | 16,527 |
| $ | 83,465 |
| $ | 112,476 |
| $ | 20,419 |
| $ | 92,057 |
9. FAIR VALUE MEASUREMENTS
FASB Accounting Standards Codification (ASC)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;
15
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of March 31, 2018 |
| As of September 30, 2018 | ||||||||||||||||||||||||||
|
| 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) |
| $ | 3,274 |
| $ | 3,274 |
| $ | 3,274 |
| $ | — |
| $ | — |
| $ | 17,771 |
| $ | 17,771 |
| $ | 17,771 |
| $ | — |
| $ | — |
Total assets |
|
|
|
| $ | 3,274 |
| $ | 3,274 |
| $ | — |
| $ | — |
| $ | 17,771 |
| $ | 17,771 |
| $ | 17,771 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt(2) |
| $ | 431,037 |
| $ | 390,280 |
| $ | 390,280 |
| $ | — |
| $ | — |
| $ | 437,488 |
| $ | 373,393 |
| $ | 373,393 |
| $ | — |
| $ | — |
Total liabilities |
|
|
|
| $ | 390,280 |
| $ | 390,280 |
| $ | — |
| $ | — |
| $ | 437,488 |
| $ | 373,393 |
| $ | 373,393 |
| $ | — |
| $ | — |
(1) | Included in Other assets on the Company’s consolidated balance sheets. |
(2) | Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital on the Company’s consolidated balance sheets. |
15
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 warrants that were part of the term loan funded to a subsidiary of Golden Star Resources Ltd. (“Golden Star”) in July 2015 were exercised during the quarter ended September 30, 2017. The warrants had been classified within Level 2 of the fair value hierarchy as of June 30, 2017. The fair value of the Golden Star common shares received by the Company upon exercise of the warrants are classified within Level 1 of the fair value hierarchy as of September 30, 2017. The Company sold all of the common shares of Golden Star received upon exercise of the warrants in October 2017. 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 3) approximates fair value as of March 31, 2018.
As of March 31,September 30, 2018, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with stream and royalty interests, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if any of these assets are determined to be impaired. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs. Refer to Note 2 for discussion of inputs used to develop fair value for those royalty interests that were determined to be impaired during the three months ended March 31, 2018.
10.COMMITMENTS AND CONTINGENCIES
Ilovica Gold Stream Acquisition
As of March 31,September 30, 2018, the Company’s conditional funding schedule for $163.75 million related to its Ilovica gold stream acquisition made in October 2014 remains subject to certain conditions.
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, Voisey’s Bay Holding Corporation, is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by Altius Royalty Corporation, a company unrelated to Royal Gold.11. SUBSEQUENT EVENT
On October 6, 2017, LNRLP filed a Fresh as Amended Statement3, 2018, the Company purchased the second and final tranche of Claim, amendingCORE common stock (127,188 shares) for $26 per share. Upon this acquisition, the original October 16, 2009 StatementCompany owns 809,744 shares of Claim and amendments thereto made in December 2014, in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited, now known as Vale Canada Limited, 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, and since defendants began processing Voisey’s Bay concentrates at the new Long Harbour processing facility, and that the defendants have breached their contractual duties of good faith 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, and trial is expected to commence in September 2018.CORE common stock.
16
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, 20172018 filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2017.9, 2018.
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 20172018 10-K.
Statement Regarding Third Party Information
Royal Gold does not own, develop, or mine the properties on which it holds stream or royalty interests, except for our interest in the Peak Gold, LLC joint venture (“Peak Gold JV”) as described further in this report. Certain information provided in this report, including the Operator’s Production Estimates by Stream and Royalty Interest for Calendar 2018 and Property Developments, has been provided to us by the operators of properties where we own interests or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC. Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for, the accuracy, completeness or fairness of such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or to finance projects that are in production or in the development stage in exchange for stream or royalty interests.
We manage our business under two segments:
Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. As of March 31,September 30, 2018, we owned stream interests on five producing properties and one development stage property. Stream interests accounted for approximately 72% and 70%, respectively, of our total revenue for the three and nine months ended March 31,September 30, 2018 and 72% and 71%, respectively, of our total revenue for the three and nine months ended March 31, 2017. We expect stream interests to continue representing a significant proportion of our total revenue.
Acquisition and Management of Royalty Interests — Royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs, if any. As of March 31,September 30, 2018, we owned royalty interests on 3435 producing properties, 2117 development stage properties and 132133 exploration stage properties, of which we consider 5356 to be evaluation stage projects. We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. Royalties accounted for approximately 28% and 30%, respectively, of our total revenue for the three and nine months ended March 31,September 30, 2018 and 28% and 29%, respectively, of our total revenue for the three and nine months ended March 31, 2017.
We do not conduct mining operations on the properties in which we hold stream and royalty interests, and except for our interest in the Peak Gold LLC joint venture (“Peak Gold JV”),JV, we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.
In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams on operating mines, to create new stream and royalty interests through the financing of
17
mine development or exploration, or to acquire companies that hold stream and royalty interests. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial and other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.
Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver and copper, together with the amounts of production from our producing stage stream and royalty interests. The price of gold, silver, copper and other metals has fluctuated widely in recent years. The marketability and the price of metals are influenced by numerous factors beyond the control of the Company and significant declines in the price of gold, silver or copper could have a material and adverse effect on the Company’s results of operations and financial condition.
For the three and nine months ended March 31,September 30, 2018 and 2017, gold, silver and copper price averages and percentage of revenue by metal were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended | ||||||||||||||||||||||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| March 31, 2017 |
| September 30, 2018 |
| September 30, 2017 | ||||||||||||||||||
Metal |
| Average |
| Percentage of Revenue |
| Average |
| Percentage |
| Average |
| Percentage of Revenue |
| Average |
| Percentage |
| Average |
| Percentage of Revenue |
| Average |
| Percentage | ||||||
Gold ($/ounce) |
| $ | 1,329 |
| 76% |
| $ | 1,219 |
| 86% |
| $ | 1,294 |
| 77% |
| $ | 1,260 |
| 86% |
| $ | 1,213 |
| 78% |
| $ | 1,278 |
| 77% |
Silver ($/ounce) |
| $ | 16.77 |
| 6% |
| $ | 17.42 |
| 7% |
| $ | 16.78 |
| 8% |
| $ | 18.09 |
| 8% |
| $ | 15.02 |
| 10% |
| $ | 16.84 |
| 10% |
Copper ($/pound) |
| $ | 3.16 |
| 15% |
| $ | 2.65 |
| 3% |
| $ | 3.04 |
| 11% |
| $ | 2.40 |
| 3% |
| $ | 2.77 |
| 6% |
| $ | 2.88 |
| 10% |
Other |
|
| N/A |
| 3% |
|
| N/A |
| 4% |
|
| N/A |
| 4% |
|
| N/A |
| 3% |
|
| N/A |
| 6% |
|
| N/A |
| 3% |
Recent Business Developments
U.S. Tax LegislationVoisey’s Bay
The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Minerals Corporation (“Altius”).
On December 22, 2017, H.R.September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle their long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine. Refer to Note 14 of our Fiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.
The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant, which will be effective for all Voisey’s Bay mine production after April 1, originally known as2018. Under the Tax Cutsterms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the concentrates at the nickel, copper and Jobs Act (the “Act”), was enactedcobalt prices prevailing at the time of settlement. As those metal prices rise or fall, the percentage of gross metal value in the concentrates applicable to the royalty would correspondingly increase or decrease.
LHPP is designed to produce 50,000 tonnes of finished nickel annually. The plant is currently ramping up and is effective for tax years including January 1, 2018. The effects of the Act were recognized in the period of enactment, or the period ending December 31, 2017. Certain other aspects of the Act are not effective for fiscal June 30 companies until July 1, 2018.
The Act, among other things, reduced the U.S. corporate income tax rate to 21% starting January 1, 2018. As a United States domiciled company, we expect that the Act will have a positive long-term impact on Royal Gold’s future financial results through the reduction in the U.S. corporate tax rate from 35% to 21% and by allowing us to efficiently repatriate future earnings from our foreign subsidiaries. As the Company is a fiscal year tax payer, we applied a blended U.S. federal income taxproducing at an annualized rate of approximately 28.1% for35,600 tonnes based on actual production of 8,900 tonnes in the fiscal year ending June 30,second calendar quarter of 2018. The blended percentage was calculated on a pro-rata percentageIn the next few years, Voisey’s Bay concentrate will provide 100% of the numberfeed to LHPP but, over time, other sources of days before and after January 1, 2018. The Company’s U.S. statutory federal corporate income tax rateconcentrate will be 21% for the fiscal year commencing on July 1, 2018 and all future years. added to LHPP.
AsOn June 11, 2018, Vale announced it will recommence the $1.7 billion development of an underground mine and associated facilities, which is expected to extend the Voisey’s Bay mine life until 2034. Vale expects the underground mine to begin production in 2021 and to ramp up over four years, while the current open pit mining in the Ovoid deposit is expected to continue until 2022. Vale estimates Voisey's Bay mineral reserves at 32.4 million tonnes with a resultnickel grade of the Act, the Company recorded2.13%, a net charge (expense)copper grade of $26.4 million during0.96%, and a cobalt grade of 0.13% as of December 31, 2017.
18
During the three months ended December 31, 2017September 30, 2018, the Company recognized approximately $4.9 million (includes 10% non-controlling interest) in royalty revenue attributable to Voisey’s Bay metal production in total for the June 30 ($2.7 million) and nine months ended March 31, 2018. This amountSeptember 30, 2018 ($2.2 million) quarters. Royalty payments for each quarter are due 45 days after quarter-end. The Company anticipates recognizing revenue for the Voisey’s Bay royalty in the period in which metal production occurs, based on information provided by the operator. If information is included in Income tax benefit (expense) on our consolidated statements of operations and comprehensive (loss) income. The revised tax expense consists of three components: (i) a $12.2 million charge relating to the one-time mandatory tax on the net accumulated post-1986 untaxed earnings and profits of the Company’s foreign subsidiaries, which we will elect to pay over an eight-year period, (ii) a $2.7 million benefit resultingnot received timely from the re-measurement ofoperator, the Company’s net deferred tax assets and liabilities, and (iii) a $16.9 million charge related to re-measurement of the U.S. income tax impacts resulting from foreign uncertain tax positions.Company may estimate Voisey’s Bay royalty revenue based on available or historical information. Refer to Note 74 of our notes to consolidated financial statements for further discussion on our revenue recognition.
Peak Gold JV
On September 24, 2018, the income tax accounting considerationsCompany announced that the Peak Gold JV, of which our Royal Alaska, LLC subsidiary owns a 40% interest, completed a Preliminary Economic Assessment (“PEA”) on the Peak Gold Project located near Tok, Alaska. The PEA contemplates on a preliminary basis an open pit mining operation with positive economics at base case gold and silver prices.
Royal Gold also owns two net smelter return royalties on the Peak Gold Project.
Acquisition of Contango Ore, Inc. Common Stock
On October 3, 2018, the Company purchased the second and final tranche of Contango Ore, Inc. (“CORE”) common stock (127,188 shares) for $26 per share. As previously reported in our Fiscal 2018 10-K, the Act.Company purchased 682,556 shares of CORE common stock at $26 per share in June 2018. As of the date of this report, the Company owns 809,744 shares of CORE common stock.
Principal Stream and Royalty Interests
The Company considers both historical and future potential revenues in determining which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from both producing and development properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, metal price assumptions, mine life, legal status and other factors and assumptions, any of
18
which could change and could cause the Company to conclude that one or more of such stream and royalty interests are no longer principal to our business. Currently, our principal producing stream and royalty interests are listed alphabetically in the following table.
Please refer to our Fiscal 20172018 10-K for further discussion of our principal producing and development stream and royalty interests.
19
Principal Producing Properties
|
|
|
|
|
|
|
|
|
|
|
|
| Stream or royalty interests |
Mine |
| Location |
| Operator |
| (Gold unless otherwise stated) |
Andacollo |
| Region IV, Chile |
| Compañía Minera Teck Carmen de Andacollo (“Teck”) |
| Gold stream - 100% of gold produced (until 900,000 ounces delivered; 50% thereafter) |
Cortez |
| Nevada, USA |
| Barrick Gold Corporation ("Barrick") |
| GSR1: 0.40% to 5.0% sliding-scale GSR |
|
|
|
|
|
| GSR2: 0.40% to 5.0% sliding-scale GSR |
|
|
|
|
|
| GSR3: 0.71% GSR |
|
|
|
|
|
| NVR1: 4.91% NVR; 4.52% NVR (Crossroads) |
Mount Milligan |
| British Columbia, Canada |
| Centerra Gold Inc. ("Centerra") |
| Gold stream - 35.00% of payable gold |
|
|
|
|
|
| Copper stream - 18.75% of payable copper |
Peñasquito |
| Zacatecas, Mexico |
| Goldcorp Inc. (“Goldcorp”) |
| 2.0% NSR (gold, silver, lead, zinc) |
Pueblo Viejo |
| Sanchez Ramirez, Dominican Republic |
| Barrick (60%) |
| Gold stream - 7.5% of gold produced (until 990,000 ounces delivered; 3.75% thereafter) |
|
|
|
|
|
| Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter) |
|
|
|
| |||
| ||||||
Wassa and Prestea |
| Western Region of Ghana |
| Golden Star Resources Ltd. (“Golden Star”) |
| Gold stream - 10.5% of gold produced |
(1) |
|
| Gold stream percentage increased to 10.5% from 9.25% effective January 1, 2018. |
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2018
We received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2018. The following table shows such production estimates for our principal producing properties for calendar 2018 as well as the actual production reported to us by the various operators through March 31,September 30, 2018. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information. Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing and development stage properties.
19
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2018
Principal Producing Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Calendar 2018 Operator’s Production Estimate |
| Calendar 2018 Operator’s Production |
| Calendar 2018 Operator’s Production Estimate |
| Calendar 2018 Operator’s Production | ||||||||||||||||
|
| Estimate(1) |
| Actual(2) |
| Estimate(1) |
| Actual(2) | ||||||||||||||||
|
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
Stream/Royalty |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
Stream: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andacollo(3) |
| 66,700 |
|
|
|
|
| 14,000 |
|
|
|
|
| 66,700 |
|
|
|
|
| 43,300 |
|
|
|
|
Mount Milligan(4) |
| 195,000 - 215,000 |
|
|
| 47 - 52 million |
| 29,500 |
|
|
| 6.1 million |
| 175,000 - 195,000 |
|
|
|
|
| 134,700 |
|
|
|
|
Copper |
|
|
|
|
| 40 - 47 million |
|
|
|
|
| 35.3 million | ||||||||||||
Pueblo Viejo(5) |
| 585,000 - 615,000 |
| Not provided |
|
|
| 141,000 |
| Not provided |
|
|
| 575,000 - 590,000 |
| Not provided |
|
|
| 415,000 |
| Not provided |
|
|
Rainy River(6) |
| 310,000 - 350,000 |
| Not provided |
|
|
| 39,300 |
| 0.1 million |
|
| ||||||||||||
Wassa and Prestea |
| 230,000 - 255,000 |
|
|
|
|
| 57,600 |
|
|
|
|
| 225,000 - 235,000 |
|
|
|
|
| 175,900 |
|
|
|
|
Royalty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cortez GSR1 |
| 48,300 |
|
|
|
|
| 18,500 |
|
|
|
|
| 48,300 |
|
|
|
|
| 29,100 |
|
|
|
|
Cortez GSR2 |
| 2,200 |
|
|
|
|
| 400 |
|
|
|
|
| 2,200 |
|
|
|
|
| 700 |
|
|
|
|
Cortez GSR3 |
| 50,500 |
|
|
|
|
| 18,900 |
|
|
|
|
| 50,500 |
|
|
|
|
| 29,800 |
|
|
|
|
Cortez NVR1 |
| 31,600 |
|
|
|
|
| 11,900 |
|
|
|
|
| 31,600 |
|
|
|
|
| 18,100 |
|
|
|
|
Peñasquito(7) |
| 310,000 |
| Not provided |
|
|
| 98,000 |
| 5.2 million |
|
|
| 310,000 |
| Not provided |
|
|
| 220,000 |
| 14.1 million |
|
|
Lead |
|
|
|
|
| 160 million |
|
|
|
|
| 26.0 million |
|
|
|
|
| 160 million |
|
|
|
|
| 82.5 million |
Zinc |
|
|
|
|
| 300 million |
|
|
|
|
| 88.7 million |
|
|
|
|
| 300 million |
|
|
|
|
| 225.9 million |
20
(1) | Production estimates received from our operators are for calendar 2018. Please refer to our cautionary statement regarding third party information at the beginning of this MD&A. There can be no assurance that production estimates received from our operators will be achieved. Please also refer to our cautionary language regarding forward-looking statements following this MD&A, as well as the Risk Factors identified in Part I, Item 1A, of our Fiscal |
(2) | Actual production figures shown are from our operators and cover the period January 1, 2018 through |
(3) | The estimated and actual production figures shown for Andacollo are contained gold in concentrate. |
(4) | The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate. |
(5) | The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo. The operator did not provide estimated or actual silver production. |
(6) | The estimated and actual production figures shown for |
(7) | The estimated and actual gold production figures shown for Peñasquito are payable gold in concentrate and doré. The estimated and actual lead and zinc production figures shown are payable lead and zinc from concentrate. The operator did not provide estimated annual silver |
Property Developments
The following property development information is provided by the operators of the property, either to Royal Gold or in various documents made publicly available.
Stream Interests
Andacollo
Gold stream deliveries from Andacollo were approximately 10,00015,300 ounces of gold for the three months ended March 31,September 30, 2018, compared to approximately 10,90013,000 ounces of gold for the three months ended March 31,September 30, 2017.
Consistent with their mine plan at Andacollo, Teck indicatedexpects production to decline as lower copper grades are expected for the remainder of calendar 2018 and future years. Teck continues to study and pilot projects that they expect grades to continue to graduallywould help partially offset the decline which they expect to be offset largely by planned throughput improvements in the mill.grades. The current life of mine for Carmen de Andacollo is expected to continue until 2034.2035. Additional permitting or amendments to existing permits will be required to execute the life of mine plan.
20
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 27,40012,600 ounces of gold for the three months ended March 31,September 30, 2018, compared to approximately 22,70018,700 ounces of gold for the three months ended March 31,September 30, 2017. The increase is due to the timing of receipt of shipments.
Copper stream deliveries from Mount Milligan were approximately 1,540 tonnes1.60 million pounds during the three months ended March 31, 2018. Copper stream deliveries beganSeptember 30, 2018, compared to approximately 2.58 million pounds during the June 2017 quarter.
On December 27, 2017, Centerra reported that mill processing operations at Mount Milligan were temporarily suspended due to insufficient water. Mill operations restarted on February 5, 2018 with a single ball mill, and the second ball mill restarted on March 23, 2018. Centerra reported on May 1, 2018 that Mount Milligan was operating at an average throughput of approximately 40,000 tonnes per day, and that once the spring snow melt is underway, throughput is expected to increase to a targeted average of 55,000 tonnes per day for the second half of calendar 2018.
Centerra is pursuing more permanent permitting solutions to allow higher levels of pumping from current water sources and is developing additional ground water sources for Mount Milligan to proactively mitigate for potential future water shortages during winter months.
Due to the timing of shipments and deliveries of gold and copper, the impact of the temporary shutdown is likely to be reflected in Royal Gold’s mid-calendar 2018 results, as some of the deliveries of gold and copper that were expected in the June through August 2018 period will be deferred to a later date.
Pueblo Viejo
Stream deliveries from Pueblo Viejo were approximately 13,200 ounces of gold and 616,300 ounces of silver for the three months ended March 31,September 30, 2017.
As expected, the temporary shutdown of the mill processing facility that occurred earlier in calendar 2018, compareddue to approximately 10,400 ouncesa lack of sufficient water sources, resulted in the decrease in our gold and 373,600 ounces of silver for the three months ended March 31, 2017. Barrick’s productioncopper stream deliveries during the March 2018 quarter was in-line with the prior year quarter as lower than planned ore grades were offset by higher throughput due to improved autoclave efficiencies, the deferral of the autoclave shutdowns to the June 2018 quarter and higher recovery improvements in carbon management, cyanide addition and regeneration kiln control.
Barrick expects production during the June 2018 quarter to be impacted by scheduled autoclave maintenance shutdowns that commenced at the beginning of the June 2018 quarter. Barrick anticipates ore grades mined and processed to increase in the subsequent quarters, as mining progresses into higher grade zones. Barrick indicated that for calendar 2018 the Pueblo Viejo mine will be focused on improving operational efficiencies and continuing work on the scoping studies for a plant expansion and the addition of a pre-oxidation heap leach pad, followed by a prefeasibility study and onsite in-plant proof of concept testing, including a 100 tonne per hour flotation plant and a 200,000 tonne per annum bio-oxidation leach pad. Barrick stated this project has the potential to convert roughly seven million ounces of mineralized material to proven and probable reserves (100 percent basis).
Rainy River
Stream deliveries from Rainy River were approximately 2,900 ounces of gold and approximately 41,800 ounces of silver for the three months ended March 31, 2018. Gold and silver deliveries began during the December 2017current quarter.
Mining activity continued to progress on planProcessing operations were impacted during the Marchcurrent quarter by unplanned shutdowns for primary crusher maintenance in July 2018 quarter. Rainy River minedand maintenance to repair transformer damage from a total of 3.3 million tonnes of ore and currently has a high/medium grade stockpile of approximately 1.3 million tonnes that is availablelightning strike in September 2018. Although these two events reduced operating days, Centerra reaffirmed their annual guidance expectation. Plant performance for processing in the near-term, and a low-grade stockpile of approximately 2.1 million tonnes that is scheduled to be processed at the end of the mine life.
The process facility throughputcurrent quarter averaged approximately 17,50040,805 tonnes per calendar day, or approximately 55,000 tonnes per operating day, while throughput in August 2018 was 61,135 tonnes per operating day.
The temporary shutdown of the Mount Milligan processing facility that occurred earlier in calendar 2018 due to a lack of sufficient water sources resulted in a decrease in our gold and 81% gold recoverycopper stream deliveries from the project during the Marchfirst quarter. The process facility encountered operational and mechanical challenges during
On September 14, 2018, Centerra reported that Mount Milligan received approval to access certain short-term water sources until November 15, 2018. On October 31, 2018, Centerra provided the quarter that impacted availability. No single issue accountedfollowing update: Centerra has made applications for a significant portion of the unplanned downtime. However, plugged apron feeders, premature motor failure on the cyclone feed pump, and additional time required for the initial replacement of SAG mill linerscertain additional/extended water sources until 2021. Discussions are examples of the issues encountered. These issues were addressed through the quarter which also provided insight into minor design improvements that should improve the process facility performance going forward. Review andunderway with Canadian regulators,
21
implementationFirst Nations and other affected stakeholders regarding these applications and Centerra expects that access to these sources may be granted as early as the end of January 2019. However, these applications have not yet been granted and as the flow from the approved short-term water sources declines during the calendar fourth quarter and during the remainder of the design improvementswinter season, Centerra expects to reduce Mount Milligan throughput to properly manage its water balance until the water flow increases in the spring of 2019.
In addition, Centerra reported that the development of a long-term water supply plan and methodology to assess water sources is underway, ultimately reducing reoccurrence and increasing operational stability. Importantly,applications and government review of that methodology are expected to commence within the process facility demonstratedDecember 2018 quarter. Centerra’s expectation is that its operational potential withupdated long-term water source (or sources) will be available from and after 2021 for the entire mine life.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 8,900 ounces of gold for the three months ended September 30, 2018, compared to approximately 10,500 ounces of gold for the three months ended September 30, 2017. Silver stream deliveries were approximately 509,500 ounces of silver for the three months ended September 30, 2018, compared to approximately 470,000 ounces of silver for the three months ended September 30, 2017.
Barrick reported lower gold production during the current period resulted from the expected decline in ore grades and mining in areas of the Moore Pit that contained higher proportions of carbonaceous ore, which has lower recoveries. Barrick expects production to be positively impacted during the December 2018 quarter by higher throughput, rateshigher ore head grades and less carbonaceous ore feed resulting in improved recoveries. Barrick revised their production guidance range from 585,000 to 615,000 ounces of gold down to 575,000 to 590,000 ounces of gold.
Barrick stated the prefeasibility-level studies are advancing for a plant expansion at Pueblo Viejo, which could increase throughput by roughly 50% to 12 million tonnes per year, allowing the mine to maintain average annual gold production of approximately 22,500800,000 ounces after calendar 2022. The prefeasibility study is evaluating options including the addition of a pre-oxidation heap leach pad with a capacity of eight million tonnes on certain days. Recoveriesper year, a new mill and flotation concentrator with a capacity of four million tonnes per year, and additional tailings capacity. The project has the potential to convert roughly seven million ounces of measured and indicated resources to proven and probable reserves. The pilot pre-oxidation heap leach pad is now in operation, and construction of the quarter were lower than planned due topilot flotation circuit is well advanced, including the previously described process interruptions as well as performanceholding tank and increased wearthickener. Both pilots will test metallurgy and recoveries in support of various screens, which have since been addressed. During the first 23 days of April, New Gold reported an average gold recovery of 87% and thatprefeasibility study for the focus in the second quarter of calendar 2018 is on increasing and stabilizing the process facility availability as well as recoveries.
New Gold has recognized an opportunity to increase the process facility’s throughput rate. During the current quarter, New Gold engaged an external engineering firm and are currently finalizing a study that could increase Rainy River’s throughput to a steady 24,000 tonne per day rate.project.
Wassa and Prestea
Gold stream deliveries from Wassa and Prestea were approximately 6,8006,500 ounces of gold for the three months ended March 31,September 30, 2018, compared to approximately 5,7007,400 ounces of gold for the three months ended March 31,September 30, 2017. Under our stream agreement, the gold stream percentage at Wassa and Prestea increased to 10.5%, from 9.25%, effective January 1, 2018.
On September 20, 2018, Golden Star reportedannounced a 13% increasedecrease in goldtheir calendar year 2018 production at the Wassa complex during the March 2018 quarter compared the prior year quarter,guidance from between 230,000 and 255,000 ounces to between 225,000 and 235,000 ounces as a result of the strong production from Wassa underground.ramp up of Prestea underground being slower than previously expected.
Wassa underground grade increased to 4.54 grams per tonne of gold and mining rate exceeded expectations of 2,300 tonnes per day during the MarchOn October 2, 2018, quarter, achieving approximately 2,400 tonnes per day. Golden Star expectsannounced the ore production rate to continue to increase to an average rate between 2,700 to 3,000 tonnes per day in 2018.
At Prestea underground, Golden Star experienced problems with blasting in the first stope which continued during the quarter. Ascompletion of a result, the blasted ore from the first stope contained higher than anticipated levels of dilution. Golden Star made changes to drill design patterns, blasting practice, raise layouts and stope ventilation, in order to address the dilution issues.
Golden Star expects the performance of the second stope to be much stronger, as a result of the changes made. Blasting of the second stope is expected to be completed in mid-April 2018, followed$125.7 million strategic investment by initial draw down of the stope.La Mancha Holding. Golden Star reported that the mucking of the swell ore from the second stope beganinvestment will allow them, among other things, to expedite their exploration and it is performing in line with the grades forecasted in the block model.
On March 29, 2018, Golden Star filed an updated technical report pursuant to National Instrument 43-101 for the Bogoso/expansion programs at Wassa underground and Prestea operation. The technical report highlights average annual gold production of approximately 90,000 ounces over the 5-year life of mine based on existing mineral reserves and a production rate of 650 tonnes per day.underground mines.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez increaseddecreased approximately 67%77% over the prior year quarter, as a result of lower production subject to our royalty interests during the current quarter. Waste stripping at Crossroads, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests is currently ongoing.Production from Crossroads, which contains 3.2 million ounces of gold, is expected to begin in late calendar 2018.
Pascua-Lama
On January 18, 2018 Barrick reported that it is analyzing a revised sanction related to the Pascua-Lama project issued by Chile’s Superintendencia del Medio Ambiente (“SMA”) on January 17, 2018. The sanction is part of a re-evaluation process ordered by Chile’s Environmental Court in 2014 and relates to historical compliance matters at the Pascua-Lama project. According to Barrick, the SMA has not revoked Pascua-Lama’s environmental permit, but has ordered the closure of existing facilities on the Chilean side of the project, in addition to certain monitoring activities.
22
On February 6, 2018, in light of the SMA order to close surface facilities in Chile, Barrick announced it reclassified Pascua-Lama’s proven and probable gold reserves of approximately 14 million ounces, which were based on an open pit mine plan, as mineralized material.
On April 23, 2018, Barrick announced that work on the prefeasibility study for a potential underground project has been suspended, and they will focus on adjusting the project closure plan for surface infrastructure on the Chilean side of the project. Barrick will continue to evaluate opportunities to de-risk the project while maintaining Pascua-Lama as an option for development in the future if economics improve and related risks can be mitigated.
The Company owns a 0.78% to 5.45% sliding-scale net smelter return (“NSR”) gold royalty and a 1.09% NSR copper royalty on the Pascua-Lama project. Our royalty interests are applicable to all gold and copper production from the portion of the Pascua-Lama project lying on the Chilean side of the border. The Company routinely assesses whether impairment indicators are present for its long-lived assets. A significant reduction in reserves or mineralized material is an indicator of potential impairment. Refer to Note 2 of our notes to consolidated financial statements for further discussion on the impairment assessment and results for our Pascua-Lama royalty interest during the three months ended March 31, 2018. Pursuant to Barrick’s reclass of reserves to mineralized material at Pascua-Lama, the Company reclassified the remaining carrying value to exploration stage from development stage on our consolidated balance sheets as of March 31, 2018.
Peñasquito
Gold, silver, lead and leadzinc production attributable to our royalty interest at Peñasquito decreased approximately 34%62%, 29%, 17% and 17%31%, respectively, when compared to the prior year quarter. Silver and zinc
Goldcorp reported production were in line withwas lower than the prior year quarter. Goldcorp reported gold production was lower during the March 2018 quarterperiod as a result of the planned transition from the higher grade area of Phase 5 at the bottom ofore in the Peñasco pit to lower grade ore from stockpiles during calendar 2018. This transition facilitated the beginning of Phase 6, lower grade stockpiles, and 10 days of planned mill downtime for maintenance. Goldcorp expects production to resume in the higher grade ore in late calendar 2019 when the Phase 6 stripping program exposes higher grade orecampaign in the Peñasco pit and the pre-stripping campaign in the newly developed Chile Colorado pit.
For calendar Goldcorp further reported production during the September 2018 Peñasquitoquarter was adversely impacted by a reduction in mill throughput as much harder lower-grade stockpiles were processed during the commissioning of the Carbon Pre-floatation plant (“CPP”). The CPP commissioning proceeded as planned and the circuit is scheduled to mine 39.1 million tonnes ofsuccessfully treating high-carbon ore, with total material movementfocus now moving to optimization of 189 million tonnes. The open pit operations will progress at a nominal annual mining ratethe circuit in anticipation of 225 million tonnes per year untilimproving concentrate quality. Goldcorp achieved commercial production for the end of calendar 2023, after which mining volumes are expected to decline as the stripping ratios of ore to waste decrease.CPP on October 1, 2018.
On April 25,September 4, 2018, Goldcorp reportedannounced the Pyrite Leach Plantproject (“PLP”) is 86% completecompleted construction with commissioning further accelerated to the September 2018 quarter, two quarters ahead of schedule. Goldcorp expects first gold and is expected to commence commissioningcommercial production in the December 2018 quarter. The carbon pre-flotation circuit commenced wetFollowing the commissioning during April 2019. Theof the PLP is expected to increase overall gold and silver recovery by treatingcommencement of mining in the zinc flotation tailings before discharge to the tailings storage facility.Chile Colorado pit, Goldcorp expects higher grade ore and higher mill tonnes in the PLP to add production of approximately one million ounces of gold and 44 million ounces of silver over the current life of the mine. December 2018 quarter.
Results of Operations
Quarter Ended March 31,September 30, 2018, Compared to Quarter Ended March 31,September 30, 2017
For the quarter ended March 31,September 30, 2018, we recorded a net lossincome attributable to Royal Gold stockholders of $153.7$15.0 million, or ($2.35)$0.23 per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $23.7$28.6 million, or $0.36$0.44 per basic and diluted share, for the quarter ended March 31,September 30, 2017. The decrease in our earnings per share was primarily attributable to impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed furthera decrease in Note 2 of our notes to consolidated financial statements. This decrease was partially offset byrevenue, an increase in our revenue, which isgeneral and administrative expenses, and the impact of the adoption of new accounting guidance around equity securities, each discussed below. The effect of the impairment charges during the quarter ended March 31, 2018, was $2.74 per basic share, after taxes.
For the quarter ended March 31,September 30, 2018, we recognized total revenue of $116.0$100.0 million, which is comprised of stream revenue of $83.0$70.0 million and royalty revenue of $33.0$30.0 million at an average gold price of $1,329$1,213 per ounce, an average silver price of $16.77$15.02 per ounce and an average copper price of $3.16$2.77 per pound. This is compared to total revenue of $107.0$112.5 million for the three months ended March 31,September 30, 2017, which was comprised of stream revenue of $76.6$78.8 million and royalty revenue of $30.4$33.7 million, at an average gold price of $1,219$1,278 per ounce, an average silver price of $17.42$16.84 per ounce and an average copper price of $2.65$2.88 per pound for the quarter ended March 31,September 30, 2017. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended March 31,September 30, 2018 compared to the quarter ended March 31,September 30, 2017 are as follows:
23
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended March 31,September 30, 2018 and 2017
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||
|
|
|
| March 31, 2018 |
| March 31, 2017 |
|
|
| September 30, 2018 |
| September 30, 2017 | ||||||||||||||||
|
|
|
|
|
| Reported |
|
|
| Reported |
|
|
|
|
| Reported |
|
|
| Reported | ||||||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andacollo |
| Gold |
| $ | 27,743 |
| 22,700 | oz. |
| $ | 12,337 |
| 9,700 | oz. | ||||||||||||||
Pueblo Viejo |
|
|
| $ | 19,486 |
|
|
|
| $ | 25,403 |
|
|
| ||||||||||||||
|
| Gold |
|
|
|
| 9,200 | oz. |
|
|
|
| 12,900 | oz. | ||||||||||||||
|
| Silver |
|
|
|
| 540,200 | oz. |
|
|
|
| 536,600 | oz. | ||||||||||||||
Mount Milligan |
|
|
| $ | 47,807 |
|
|
|
| $ | 35,112 |
|
|
|
|
|
| $ | 8,847 |
|
|
|
| $ | 31,952 |
|
|
|
|
| Gold |
|
|
|
| 25,800 | oz. |
|
|
|
| 28,900 | oz. |
| Gold |
|
|
|
| 5,500 | oz. |
|
|
|
| 18,600 | oz. |
|
| Copper |
|
|
|
| 4.3 | Mlbs. |
|
|
|
| N/A |
|
| Copper |
|
|
|
| 837,100 | lbs. |
|
|
|
| 2.6 | Mlbs. |
Pueblo Viejo |
|
|
| $ | 15,734 |
|
|
|
| $ | 24,524 |
|
|
| ||||||||||||||
|
| Gold |
|
|
|
| 8,500 | oz. |
|
|
|
| 15,600 | oz. | ||||||||||||||
|
| Silver |
|
|
|
| 260,800 | oz. |
|
|
|
| 322,000 | oz. | ||||||||||||||
Wassa and Prestea |
| Gold |
| $ | 8,350 |
| 6,300 | oz. |
| $ | 6,563 |
| 5,400 | oz. |
| Gold |
| $ | 8,061 |
| 6,500 | oz. |
| $ | 9,070 |
| 7,100 | oz. |
Andacollo |
| Gold |
| $ | 7,186 |
| 5,400 | oz. |
| $ | 10,398 |
| 8,500 | oz. | ||||||||||||||
Rainy River |
|
|
| $ | 3,902 |
|
|
|
| $ | N/A |
|
|
| ||||||||||||||
|
| Gold |
|
|
|
| 2,800 | oz. |
|
|
|
| N/A |
| ||||||||||||||
|
| Silver |
|
|
|
| 11,100 | oz. |
|
|
|
| N/A |
| ||||||||||||||
Other(3) |
|
|
| $ | 5,900 |
|
|
|
| $ | N/A |
|
|
| ||||||||||||||
Total stream revenue |
|
|
| $ | 82,979 |
|
|
|
| $ | 76,597 |
|
|
|
|
|
| $ | 70,037 |
|
|
|
| $ | 78,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 6,452 |
|
|
|
| $ | 6,981 |
|
|
|
|
|
| $ | 3,637 |
|
|
|
| $ | 7,796 |
|
|
|
|
| Gold |
|
|
|
| 91,200 | oz. |
|
|
|
| 137,500 | oz. |
| Gold |
|
|
|
| 50,300 | oz. |
|
|
|
| 134,000 | oz. |
|
| Silver |
|
|
|
| 5.0 | Moz. |
|
|
|
| 4.8 | Moz. |
| Silver |
|
|
|
| 4.2 | Moz. |
|
|
|
| 5.9 | Moz. |
|
| Lead |
|
|
|
| 26.0 | Mlbs. |
|
|
|
| 31.3 | Mlbs. |
| Lead |
|
|
|
| 29.9 | Mlbs. |
|
|
|
| 36.2 | Mlbs. |
|
| Zinc |
|
|
|
| 88.0 | Mlbs. |
|
|
|
| 88.5 | Mlbs. |
| Zinc |
|
|
|
| 64.2 | Mlbs. |
|
|
|
| 92.4 | Mlbs. |
Cortez |
| Gold |
| $ | 1,901 |
| 18,900 | oz. |
| $ | 1,068 |
| 11,300 | oz. |
| Gold |
| $ | 603 |
| 7,000 | oz. |
| $ | 2,988 |
| 29,900 | oz. |
Other(3) |
| Various |
| $ | 24,651 |
| N/A |
|
| $ | 22,326 |
| N/A |
|
| Various |
| $ | 25,715 |
| N/A |
|
| $ | 22,930 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 33,004 |
|
|
|
| $ | 30,375 |
|
|
|
|
|
| $ | 29,955 |
|
|
|
| $ | 33,714 |
|
|
|
Total Revenue |
|
|
| $ | 115,983 |
|
|
|
| $ | 106,972 |
|
|
|
|
|
| $ | 99,992 |
|
|
|
| $ | 112,476 |
|
|
|
(1) | Reported production relates to the amount of metal sales, subject to our stream and royalty interests for the three months ended |
(2) | Refer to “Property Developments” above for further discussion on our principal stream and royalty interests. |
(3) | Individually, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period. The “Other” category for streams is only our Rainy River gold and silver stream. |
The increasedecrease in our total revenue for the three months ended March 31,September 30, 2018, compared with the three months ended March 31,September 30, 2017, resulted primarily from an increasea decrease in our stream revenue and an increasea decrease in the average gold, silver and copper prices. The increasedecrease in our stream revenue was primarily attributable to newa decrease in gold and silver production from our Rainy River stream, an increase in gold sales at Wassa and Prestea and increased copper sales at Mount Milligan and a decrease in gold sales at Pueblo Viejo. These decreases were partially offset by lowerhigher metal sales at Pueblo Viejo and Andacollo. Silver deliveries from Rainy River began during our December 2017 quarter with silverThe decrease in metal sales beginning in the March 2018 quarter. Copper deliveries fromat Mount Milligan began during our June 2017 quarter. was anticipated based on previously announced news from Centerra, as further discussed above under “Property Developments.”
24
Gold and silver ounces and tonnes of copper pounds purchased and sold during the three months ended March 31,September 30, 2018 and 2017, and gold and silver ounces and tonnes of copper pounds in inventory as of March 31,September 30, 2018, and June 30, 2017,2018, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of |
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 |
| September 30, 2018 |
| September 30, 2017 |
| September 30, 2018 |
| June 30, 2018 | ||||||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Andacollo |
| 15,300 |
| 22,700 |
| 13,000 |
| 9,600 |
| — |
| 7,400 | ||||||||||||
Mount Milligan |
| 27,400 |
| 25,800 |
| 22,700 |
| 28,900 |
| 6,800 |
| 100 |
| 12,600 |
| 5,500 |
| 18,700 |
| 18,600 |
| 7,400 |
| 300 |
Pueblo Viejo |
| 13,200 |
| 8,500 |
| 10,400 |
| 15,600 |
| 13,200 |
| 12,900 |
| 8,900 |
| 9,200 |
| 10,500 |
| 12,900 |
| 8,900 |
| 9,200 |
Andacollo |
| 10,000 |
| 5,400 |
| 10,900 |
| 8,500 |
| 4,600 |
| 100 | ||||||||||||
Wassa and Prestea |
| 6,800 |
| 6,300 |
| 5,700 |
| 5,400 |
| 900 |
| 1,000 |
| 6,500 |
| 6,500 |
| 7,400 |
| 7,100 |
| 3,900 |
| 3,900 |
Rainy River |
| 2,900 |
| 2,800 |
| — |
| — |
| 300 |
| — |
| 3,600 |
| 4,500 |
| NA |
| NA |
| — |
| 800 |
Total |
| 60,300 |
| 48,800 |
| 49,700 |
| 58,400 |
| 25,800 |
| 14,100 |
| 46,900 |
| 48,400 |
| 49,600 |
| 48,200 |
| 20,200 |
| 21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of |
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 |
| September 30, 2018 |
| September 30, 2017 |
| September 30, 2018 |
| June 30, 2018 | ||||||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo |
| 616,300 |
| 260,800 |
| 373,600 |
| 322,000 |
| 616,300 |
| 536,800 |
| 509,500 |
| 540,200 |
| 470,000 |
| 536,600 |
| 509,500 |
| 540,200 |
Rainy River |
| 41,800 |
| 11,100 |
| — |
| — |
| 42,600 |
| — |
| 35,200 |
| 31,500 |
| — |
| — |
| 36,000 |
| 32,300 |
Total |
| 658,100 |
| 271,900 |
| 373,600 |
| 322,000 |
| 658,900 |
| 536,800 |
| 544,700 |
| 571,700 |
| 470,000 |
| 536,600 |
| 545,500 |
| 572,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of |
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 |
| September 30, 2018 |
| September 30, 2017 |
| September 30, 2018 |
| June 30, 2018 | ||||||||
Copper Stream |
| Purchases (tonnes) |
| Sales (tonnes) |
| Purchases (tonnes) |
| Sales (tonnes) |
| Inventory (tonnes) |
| Inventory (tonnes) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan |
| 1,540 |
| 1,966 |
| N/A |
| N/A |
| — |
| — |
| 1.6 |
| 0.8 |
| 2.6 |
| 2.6 |
| 0.8 |
| — |
Our royalty revenue increaseddecreased during the quarter ended March 31,September 30, 2018, compared with the quarter ended March 31,September 30, 2017, primarily due to an increasedecreased production at Peñasquito and Cortez and a decrease in the average gold, silver and copper prices. Please refer to “Property Developments” earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests.
General and administrative expenses increased to $8.1$9.9 million for the three months ended March 31,September 30, 2018 from $5.4$6.9 million for the three months ended March 31,September 30, 2017. The increase during the current quarter was primarily due to an increase in legal costs attributable to the Voisey’s Bay royalty calculation dispute and litigation costs ($1.3 million) and an increase in non-cash stock based compensation ($1.2 million). settlement as discussed further above under “Recent Business Developments.”
Exploration costs decreasedincreased to $0.5$4.4 million for the three months ended March 31,September 30, 2018, from $2.6$3.2 million for the three months ended March 31,September 30, 2017. Exploration costs are specific to our Peak Gold JV for exploration and advancement of the Tetlin gold projectPeak Gold Project located near Tok, Alaska, as discussed further in Note 3 of our notes to consolidated financial statements included in our Fiscal 20172018 10-K. As of March 31,September 30, 2018, Royal Gold, through its wholly-owned subsidiary Royal Alaska, LLC owns a 39.6%40% membership interest in the Peak Gold JV.
Impairment of royaltyDepreciation, depletion and stream interests was $239.4amortization increased to $42.6 million for the three months ended March 31, 2018. The impairment of royalty interests was the result of our regular impairment analysis conducted duringSeptember 30, 2018 from $39.7 million for the three months ended March 31, 2018, andSeptember 30, 2017. The increase was primarily dueattributable to additional depletion from our Voisey’s Bay royalty interest. The Company recognized revenue from our Voisey’s Bay royalty during the presencecurrent quarter as a result of impairment indicatorsthe recent settlement terms as discussed further above under “Recent Business Developments.”
As a result of the adoption of new Accounting Standards Update (“ASU”) guidance, the Company recognized a loss on changes in fair value of equity securities of $1.5 million for the three months ended September 30, 2018. The Company adopted the new ASU guidance, which impacts how we recognize changes in fair value on our royalty interestequity securities at Pascua-Lama.each reporting period, on July 1, 2018. Refer to Note 21 of our notes to consolidated financial statements for further discussion ondetail. The new guidance could increase our impairment analysis and results. earnings volatility.
During the three months ended March 31,September 30, 2018, we recognized an income tax benefitexpense totaling $45.9$4.1 million compared with an income tax expense of $6.5$7.5 million during the three months ended March 31,September 30, 2017. This resulted in an effective tax rate of 22.9%25.6% in the current period, compared with 23.2%22.1% in the quarter ended March 31, 2017. The effective tax rate for the three months ended March 31, 2018 was affected by the tax benefit related to the royalty impairment offset by an increase to uncertain tax liabilities as the result of a reassessment in a Canadian subsidiary.
Nine Months Ended March 31, 2018, Compared to Nine Months Ended March 31, 2017
For the nine months ended March 31, 2018, we recorded a net loss attributable to Royal Gold stockholders of $139.8 million, or ($2.14) per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $81.5 million, or $1.25 per basic share and diluted share, for the nine months ended March 31, 2017. The decrease in our earnings per share was primarily attributable to impairment charges of approximately $239.4 million on our royalty interest at Pascua-Lama, as discussed further in Note 2 of our notes to consolidated financial statements. This decrease was partially offset by an increase in our revenue, which is discussed below. The effect of the impairment charges during the
25
quarter ended March 31, 2018, was $2.74 per basic share, after taxes. The decrease in our earnings per share was also attributable to an increase in our income tax expense due to the impacts of the Act and a non-cash functional currency election at certain of our Canadian subsidiaries. The effects of the Act and the non-cash functional currency election for income tax purposes was additional income tax expense of approximately $26.4 million and $15.9 million, respectively, or $0.40 and $0.24 per basic share, respectively, during the three months ended December 31, 2017. Refer to “Recent Business Developments” above and Note 7 of our notes to consolidated financial statements for further discussion on the Act.
For the nine months ended March 31, 2018, we recognized total revenue of $342.8 million, which is comprised of stream revenue of $241.0 million and royalty revenue of $101.8 million, at an average gold price of $1,294 per ounce, an average silver price of $16.78 per ounce and an average copper price of $3.04 per pound. This is compared to total revenue of $331.9 million for the nine months ended March 31, 2017, which is comprised of stream revenue of $236.1 million and royalty revenue of $95.8 million, at an average gold price of $1,260 per ounce, an average silver price of $18.09 per ounce and an average copper price of $2.40 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the nine months ended March 31, 2018 compared to the nine months ended March 31, 2017 is as follows:
Revenue and Reported Production Subject to Our Royalty and Stream Interests
Nine Months Ended March 31, 2018 and 2017
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Nine Months Ended | ||||||||
|
|
|
| March 31, 2018 |
| March 31, 2017 | ||||||||
|
|
|
|
|
|
| Reported |
|
|
|
| Reported | ||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
|
| $ | 101,390 |
|
|
|
| $ | 105,161 |
|
|
|
|
| Gold |
|
|
|
| 57,100 | oz. |
|
|
|
| 83,500 | oz. |
|
| Copper |
|
|
|
| 8.7 | Mlbs. |
|
|
|
| N/A |
|
Pueblo Viejo |
|
|
| $ | 67,492 |
|
|
|
| $ | 71,911 |
|
|
|
|
| Gold |
|
|
|
| 35,900 | oz. |
|
|
|
| 40,200 | oz. |
|
| Silver |
|
|
|
| 1.3 | Moz. |
|
|
|
| 1.2 | Moz. |
Andacollo |
| Gold |
| $ | 41,124 |
| 32,100 | oz. |
| $ | 41,552 |
| 32,900 | oz. |
Wassa and Prestea |
| Gold |
| $ | 26,049 |
| 20,200 | oz. |
| $ | 17,484 |
| 14,000 | oz. |
Rainy River |
|
|
| $ | 4,973 |
|
|
|
|
| N/A |
|
|
|
|
| Gold |
|
|
|
| 3,600 | oz. |
|
|
|
| N/A |
|
|
| Silver |
|
|
|
| 11,100 | oz. |
|
|
|
| N/A |
|
Total stream revenue |
|
|
| $ | 241,028 |
|
|
|
| $ | 236,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 20,439 |
|
|
|
| $ | 19,935 |
|
|
|
|
| Gold |
|
|
|
| 296,200 | oz. |
|
|
|
| 423,000 | oz. |
|
| Silver |
|
|
|
| 15.9 | Moz. |
|
|
|
| 15.1 | Moz. |
|
| Lead |
|
|
|
| 95.5 | Mlbs. |
|
|
|
| 97.8 | Mlbs. |
|
| Zinc |
|
|
|
| 274.8 | Mlbs. |
|
|
|
| 232.1 | Mlbs. |
Cortez |
| Gold |
| $ | 7,823 |
| 73,800 | oz. |
| $ | 4,942 |
| 47,600 | oz. |
Other(3) |
| Various |
| $ | 73,517 |
| N/A |
|
| $ | 70,895 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 101,779 |
|
|
|
| $ | 95,772 |
|
|
|
Total revenue |
| $ | 342,807 |
|
|
|
| $ | 331,880 |
|
|
|
(1)Reported production relates to the amount of metal sales, subject to our royalty and stream interests for the nine months ended March 31, 2018 and 2017, and may differ from the operators’ public reporting.
(2)Refer to “Property Developments” above for further discussion on our principal stream interests.
(3)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 nine months ended March 31, 2018, compared with the nine months ended March 31, 2017, resulted primarily from an increase in our stream revenue and an increase in the average gold and copper prices. The increase in our stream revenue was primarily attributable to new gold and silver production from our Rainy River stream, an increase in gold sales at Wassa and Prestea and increased copper sales at Mount Milligan, partially offset
26
by lower gold sales at Pueblo Viejo and Andacollo. Silver deliveries from Rainy River began during our December 2017 quarter with silver sales beginning in the March 2018 quarter. Copper deliveries from Mount Milligan began during our June 2017 quarter.
Gold and silver ounces and tonnes of copper purchased and sold during the nine months ended March 31, 2018 and 2017, gold and silver ounces and tonnes of copper in inventory as of March 31, 2018, and JuneSeptember 30, 2017, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan |
| 63,800 |
| 57,100 |
| 76,100 |
| 83,500 |
| 6,800 |
| 100 |
Andacollo |
| 36,500 |
| 32,100 |
| 35,400 |
| 32,900 |
| 4,600 |
| 100 |
Pueblo Viejo |
| 36,300 |
| 35,900 |
| 39,700 |
| 40,200 |
| 13,200 |
| 12,900 |
Wassa and Prestea |
| 20,200 |
| 20,200 |
| 14,500 |
| 14,000 |
| 900 |
| 1,000 |
Rainy River |
| 3,900 |
| 3,600 |
| — |
| — |
| 300 |
| — |
Total |
| 160,700 |
| 148,900 |
| 165,700 |
| 170,600 |
| 25,800 |
| 14,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo |
| 1,346,500 |
| 1,267,000 |
| 1,239,400 |
| 1,188,600 |
| 616,300 |
| 536,800 |
Rainy River |
| 53,700 |
| 11,100 |
| — |
| — |
| 42,600 |
| — |
Total |
| 1,400,200 |
| 1,278,100 |
| 1,239,400 |
| 1,188,600 |
| 658,900 |
| 536,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||
|
| March 31, 2018 |
| March 31, 2017 |
| March 31, 2018 |
| June 30, 2017 | ||||
Copper Stream |
| Purchases (tonnes) |
| Sales (tonnes) |
| Purchases (tonnes) |
| Sales (tonnes) |
| Inventory (tonnes) |
| Inventory (tonnes) |
Mount Milligan |
| 3,954 |
| 3,954 |
| N/A |
| N/A |
| — |
| — |
Our royalty revenue increased during the nine months ended March 31, 2018, compared with the nine months ended March 31, 2017, primarily due to an increase in the average gold and copper prices and increased gold production at Cortez. Please refer to “Property Developments” earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests.
Cost of sales decreased to $61.6 million for the nine months ended March 31, 2018, compared to $67.6 million for the nine months ended March 31, 2017. The decrease was primarily due to decreased gold sales from Mount Milligan and Pueblo Viejo. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.
Impairment of royalty and stream interests was $239.4 million for the nine months ended March 31, 2018. The impairment of royalty interests was the result of our regular impairment analysis conducted during the three months ended March 31, 2018, and was primarily due to the presence of impairment indicators on our royalty interest at Pascua-Lama. Refer to Note 2 of our notes to consolidated financial statements for further discussion on our impairment analysis and results.
Interest and other income decreased to $3.4 million for the nine months ended March 31, 2018, from $10.1 million for the nine months ended March 31, 2017. The decrease was primarily due to a gain recognized ($3.4 million) on consideration received as part of the termination of our Phoenix Gold Project streaming interest during the prior period. Refer to our Fiscal 2017 10-K for discussion on the Phoenix Gold Project restructuring. The decrease in interest and other income was also due to consideration received as part of a legal settlement and termination of a non-principal royalty of approximately $2.8 million during the prior period.
During the nine months ended March 31, 2018, we recognized income tax expense totaling $10.0 million compared with $18.7 million during the nine months ended March 31, 2017. This resulted in an effective tax rate of (7.5%) in the current period, compared with 19.9% during the nine months ended March 31, 2017. The increase in the effective tax rate for the ninethree months ended March 31,September 30, 2018 iswas primarily due to fewer discrete tax benefits attributable to equity award vesting and exercises in the effects ofcurrent quarter as compared to the Act and a non-cash functional currency election at certain of our Canadian subsidiaries. Refer to “Recent Business Developments” above and Note 7 of our notes to consolidated financial statements for further discussion on the Act.quarter ending September 30, 2017.
2725
Liquidity and Capital Resources
Overview
At March 31,September 30, 2018, we had current assets of $151.9$159.4 million compared to current liabilities of $43.5$37.4 million resulting in working capital of $108.4$122.0 million and a current ratio of 34 to 1. This compares to current assets of $143.6$125.8 million and current liabilities of $34.3$51.4 million at June 30, 2017,2018, resulting in working capital of $109.3$74.4 million and a current ratio of approximately 42 to 1.
During the quarter ended March 31,September 30, 2018, liquidity needs were met from $94.7$83.5 million in net revenue and our available cash resources. During the three months ended March 31, 2018, the Company repaid $75.0 million of the outstanding borrowings under the revolving credit facility. As of March 31,September 30, 2018, the Company had $925 millionno amounts outstanding and $1 billion available and $75 million outstanding under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1$1.1 billion of total available liquidity as of March 31,at September 30, 2018. The Company was in compliance with each financial covenant under the revolving credit facility as of March 31,September 30, 2018. Refer to Note 3 of our notes to consolidated financial statements for further discussion on our debt.
We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and capital expenditures for the foreseeable future. Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The Company currently, and generally at any time, has acquisition opportunities in various stages of active review. In the event of one or more substantial stream and royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 20172018 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of certain risks that may impact the Company’s liquidity and capital resources.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $251.8$44.6 million for the ninethree months ended March 31,September 30, 2018, compared to $200.9$71.6 million for the ninethree months ended March 31,September 30, 2017. The increase wasdecrease is primarily due to tax refund received fromhigher income taxes paid of $16.3 million over the prior quarter and a foreign taxing authority of approximately $21 million and an increasedecrease in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $13.1$6.9 million.
Investing Activities
Net cash used in investing activities totaled $2.3$0.1 million for the ninethree months ended March 31,September 30, 2018, compared to net cash used inprovided by investing activities of $202.2$0.1 million for the ninethree months ended March 31,September 30, 2017. The decrease in cash used in investing activities is primarily due to a decrease in acquisitions of stream and royalty interests in mineral properties compared to the prior year period.
Financing Activities
Net cash used in financing activities totaled $226.0$16.2 million for the ninethree months ended March 31,September 30, 2018, compared to cash used in financing activities of $27.3$69.2 million for the ninethree months ended March 31,September 30, 2017. The increasedecrease in cash used in financing activities is primarily due to increaseddecrease in repayments of amounts outstanding underon our revolving credit facility. The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018.
Recently Issued or Adopted Accounting Standards and Critical Accounting Policies
Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently issued or adopted accounting standards. Refer to our Fiscal 20172018 10-K for discussion on our critical accounting policies.
28
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
26
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 stream and royalty interests; statements related to ongoing developments and expected developments at properties where we hold stream and royalty interests; effective tax rate estimates, including the effect of recently enacted tax reform; application of the royalty on production from Voisey’s Bay to a percentage of gross metal value in concentrates; the results of the PEA for the Peak Gold Project; the adequacy of financial resources and funds to cover anticipated expenditures for debt service and general and administrative expenses as well as costs associated with exploration and business development and capital expenditures, expected delivery dates of gold, silver, copper and other metals, and our expectation that substantially all our revenues will be derived from stream and royalty interests. Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements, which speak only as of the date the statement is made. Do not unduly rely on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
· | a low price environment for gold and other metal prices on which our stream and royalty interests are paid or a low price environment for the primary metals mined at properties where we hold stream and royalty interests; |
· | the production at or performance of properties where we hold stream and royalty interests, and variation of actual performance from the production estimates and forecasts made by the operators of these properties; |
· | the ability of operators to bring projects into production on schedule or operate in accordance with feasibility studies, including development stage mining properties, mine and mill expansion projects and other development and construction projects; |
· | acquisition and maintenance of permits and authorizations, completion of construction and commencement and continuation of production at the properties where we hold stream and royalty interests; |
· | challenges to mining, processing and related permits and licenses, or to applications for permits and licenses, by or on behalf of indigenous populations, non-governmental organizations or other third parties; |
· | liquidity or other problems our operators may encounter, including shortfalls in the financing required to complete construction and bring a mine into production; |
· | decisions and activities of the operators of properties where we hold stream and royalty interests; |
· | hazards and risks at the properties where we hold stream and royalty interests that are normally associated with developing and mining properties, including unanticipated grade, continuity and geological, metallurgical, processing or other problems, mine operating and ore processing facility problems, pit wall or tailings dam failures, industrial accidents, environmental hazards and natural catastrophes such as drought, floods, hurricanes or earthquakes and access to sufficient raw materials, water and power; |
· | changes in operators’ mining, processing and treatment techniques, which may change the production of minerals subject to our stream and royalty interests; |
· | changes in the methodology employed by our operators to calculate our stream and royalty interests, or failure to make such calculations in accordance with the agreements that govern them; |
· | changes in project parameters as plans of the operators of properties where we hold stream and royalty interests are refined; |
· | accuracy of and decreases in estimates of reserves and mineralization by the operators of properties where we hold stream and royalty interests; |
29
· | contests to our stream and royalty interests and title and other defects in the properties where we hold stream and royalty interests; |
· | adverse effects on market demand for commodities, the availability of financing, and other effects from adverse economic and market conditions; |
· | future financial needs of the Company and the operators of properties where we hold stream or royalty interests; |
27
· | federal, state and foreign legislation governing us or the operators of properties where we hold stream and royalty interests; |
· | the availability of stream and royalty interests for acquisition or other acquisition opportunities and the availability of debt or equity financing necessary to complete such acquisitions; |
· | our ability to make accurate assumptions regarding the valuation, timing and amount of revenue to be derived from our stream and royalty interests when evaluating acquisitions; |
· | risks associated with conducting business in foreign countries, including application of foreign laws to contract and other disputes, validity of security interests, governmental consents for granting interests in exploration and exploitation licenses, application and enforcement of real estate, mineral tenure, contract, safety, environmental and permitting laws, currency fluctuations, expropriation of property, repatriation of earnings, taxation, price controls, inflation, import and export regulations, community unrest and labor disputes, endemic health issues, corruption, enforcement and uncertain political and economic environments; |
· | changes in laws governing us, the properties where we hold stream and royalty interests or the operators of such properties; |
· | risks associated with issuances of additional common stock or incurrence of indebtedness in connection with acquisitions or otherwise including risks associated with the issuance and conversion of convertible notes; |
· | changes in management and key employees; and |
· | failure to complete future acquisitions; |
as well as other factors described elsewhere in this report and our other reports filed with the SEC, including our Fiscal 20172018 10-K. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements made herein, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies. Please see “Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our stream and royalty interests and may reduce our revenues. Certain contracts governing our stream and royalty stream interests have features that may amplify the negative effects of a drop in metals prices,” under Part I, Item 1A of our Fiscal 20172018 10-K, for more information that can affect gold, silver, copper and other metal prices as well as historical gold, silver, copper and nickel prices.
During the ninethree months ended March 31,September 30, 2018, we reported revenue of $342.8$100.0 million, with an average gold price for the period of $1,294$1,213 per ounce, an average silver price of $16.78$15.02 per ounce and an average copper price of $3.04$2.77 per pound. Approximately 77%78% of our total reported revenues for the ninethree months ended March 31,September 30, 2018 were attributable to gold sales from our gold producing stream and royalty interests, as shown within the MD&A. For the ninethree months ended March 31,September 30, 2018, 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 $27.8$8.0 million.
30
Approximately 11%10% of our total reported revenues for the ninethree months ended March 31, 2018 were attributable to copper sales from our copper producing stream and royalty interests. For the nine months ended March 31, 2018, if the price of copper had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $3.9 million.
Approximately 6% of our total reported revenues for the nine months ended March 31,September 30, 2018 were attributable to silver sales from our silver producing stream and royalty interests. For the ninethree months ended March 31,September 30, 2018, 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 $2.8$1.0 million.
Approximately 6% of our total reported revenues for the three months ended September 30, 2018 were attributable to copper sales from our copper producing stream and royalty interests. For the three months ended September 30, 2018, if
28
the price of copper had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $0.6 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of March 31,September 30, 2018, the Company’s management, with the participation of the President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and TreasurerVice President Strategy (the principal financial and accounting officer) of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s President and Chief Executive Officer and its Chief Financial Officer and TreasurerVice President Strategy have concluded that, as of March 31,September 30, 2018, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and that such information is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer and Treasurer,Vice President Strategy, as appropriate to allow timely decisions regarding required disclosure.
Disclosure controls and procedures involve human diligence and compliance and are subject to lapses in judgment and breakdowns resulting from human failures. As a result, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Controls
There has been no change in the Company’s internal control over financial reporting during the three months ended March 31,September 30, 2018 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 102 of our notes to consolidated financial statements for a discussion of the litigationsettlement 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 20172018 10-K.
31
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
29
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
Not applicable.
Exhibit |
| Description |
|
| |
|
|
|
|
| |
10.3* | Form of Restricted Stock Agreement under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan. | |
10.4* | Form of Restricted Stock Unit Agreement under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan. | |
10.5* | ||
10.6* | ||
10.7* | Form of Performance Share Agreement under Royal Gold’s 2015 Omnibus Long-Term Incentive Plan. | |
|
|
|
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1‡ |
| |
|
|
|
32.2‡ |
| |
|
|
|
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. |
3230
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ROYAL GOLD, INC. | |
|
|
|
Date: |
|
|
| By: | /s/ Tony Jensen |
|
| Tony Jensen |
|
| President and Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: | By: | /s/ |
|
|
|
|
| Chief Financial Officer and |
|
| (Principal Financial and Accounting Officer) |
3331