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, 2017 filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2017.
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 2017 10-K.
Statement Regarding Third Party Information
Certain information provided in this report, including the Operator’s Production Estimates by Stream and Royalty Interest for Calendar 2017 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 December 31, 2017, we owned stream interests on five producing properties and one development stage property. Stream interests accounted for approximately 69% and 70%, respectively, of our total revenue for the three and six months ended December 31, 2017 and 69% and 71%, respectively, of our total revenue for the three and six months ended December 31, 2016. 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 December 31, 2017, we owned royalty interests on 34 producing properties, 22 development stage properties and 133 exploration stage properties, of which we consider 51 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 31% and 30%, respectively, of our total revenue for the three and six months ended December 31, 2017 and 31% and 29%, respectively, of our total revenue for the three and six months ended December 31, 2016.
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”), 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 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, analysis of technical, financial and other confidential information, 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 six months ended December 31, 2017 and 2016, gold, silver and copper price averages and percentage of revenue by metal were as follows:
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Three Months Ended
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Six Months Ended
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December 31, 2017
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December 31, 2016
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December 31, 2017
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December 31, 2016
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Metal
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Average
Price
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Percentage of Revenue
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Average
Price
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Percentage
of Revenue
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Average
Price
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Percentage of Revenue
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Average
Price
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Percentage
of Revenue
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Gold ($/ounce)
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$
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1,275
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79%
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$
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1,222
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84%
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$
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1,277
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78%
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$
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1,280
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86%
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Silver ($/ounce)
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$
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16.73
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9%
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$
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17.19
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11%
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$
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16.78
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9%
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$
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18.42
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9%
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Copper ($/pound)
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$
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3.09
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9%
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$
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2.39
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3%
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$
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2.98
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9%
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$
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2.28
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3%
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Other
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N/A
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3%
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N/A
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2%
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N/A
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4%
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N/A
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2%
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Recent Business Developments
U.S. Tax Legislation
On December 22, 2017, 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. The effects of the Act are 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 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. statutory federal corporate income tax rate will be 21% for the fiscal year commencing on July 1, 2018 and all future years. We estimate that our effective tax rate in the second half of fiscal 2018 will be between 17% and 23%.
As a result of the Act, the Company recorded a net charge (expense) of $26.4 million during the three months ended December 31, 2017. This amount, which is included in
Income tax expense
on our consolidated statements of operations and comprehensive (loss) income, consists of three components: (i) a $11.5 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 $2.3 million benefit resulting from the re-measurement of the Company’s net deferred tax assets and liabilities, and (iii) a $17.2 million charge related to re-measurement of the U.S. income tax impacts resulting from foreign uncertain tax positions. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the income tax accounting considerations for the Act.
Principal Stream and Royalty Interests
The Company considers both historical and future potential revenues in determining which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from both producing and development
properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause the Company to conclude that one or more of such stream and royalty interests are no longer principal to our business. Currently, our principal producing and development stream and royalty interests are listed alphabetically in the following tables.
Please refer to our Fiscal 2017 10-K for further discussion of our principal producing and development stream and royalty interests.
Principal Producing Properties
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Stream or royalty interests
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Mine
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Location
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Operator
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(Gold unless otherwise stated)
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Andacollo
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Region IV, Chile
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Compañía Minera Teck Carmen de Andacollo (“Teck”)
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Gold stream - 100% of gold produced (until 900,000 ounces delivered; 50% thereafter)
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Cortez
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Nevada, USA
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Barrick Gold Corporation ("Barrick")
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GSR1: 0.40% to 5.0% sliding-scale GSR
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GSR2: 0.40% to 5.0% sliding-scale GSR
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GSR3: 0.71% GSR
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NVR1: 4.91% NVR; 4.52% NVR (Crossroads)
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Mount Milligan
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British Columbia, Canada
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Centerra Gold Inc. ("Centerra")
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Gold stream - 35.00% of payable gold
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Copper stream - 18.75% of payable copper
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Peñasquito
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Zacatecas, Mexico
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Goldcorp Inc. (“Goldcorp”)
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2.0% NSR (gold, silver, lead, zinc)
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Pueblo Viejo
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Sanchez Ramirez, Dominican Republic
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Barrick (60%)
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Gold stream - 7.5% of gold produced (until 990,000 ounces delivered; 3.75% thereafter)
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Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter)
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Rainy River
(1)
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Ontario, Canada
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New Gold, Inc. (“New Gold”)
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Gold stream - 6.5% of gold produced (until 230,000 ounces delivered; 3.25% thereafter)
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Silver stream - 60% of silver produced (until 3.1 million ounces delivered; 30% thereafter)
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Wassa and Prestea
(2)
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Western Region of Ghana
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Golden Star Resources Ltd. (“Golden Star”)
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Gold stream - 9.25% of gold produced
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(1)
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New Gold announced commercial production at Rainy River in October 2017. The Company reclassified the Rainy River stream interest to production stage from development stage during the three months ended December 31, 2017.
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(2)
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Gold stream percentage increased to 10.5% effective January 1, 2018.
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Principal Development Stage Properties
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Stream or royalty interests
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Mine
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Location
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Operator
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(Gold unless otherwise stated)
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Pascua-Lama
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Region III, Chile
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Barrick
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0.78% to 5.45% sliding-scale NSR
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1.09% fixed rate royalty (copper)
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Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2017
We received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2017. The following table shows such production estimates for our principal producing properties for calendar 2017 as well as the actual production reported to us by the various operators through December 31, 2017. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or
calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information. Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing and development stage properties.
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2017
Principal Producing Properties
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Calendar 2017 Operator’s Production Estimate
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Calendar 2017 Operator’s Production
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Estimate
(1)
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Actual
(2)
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Gold
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Silver
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Base Metals
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Gold
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Silver
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Base Metals
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Stream/Royalty
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(oz.)
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(oz.)
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(lbs.)
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(oz.)
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(oz.)
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(lbs.)
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Stream:
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Andacollo
(3)
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61,600
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54,500
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Mount Milligan
(4)
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235,000 - 255,000
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55 - 65 million
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164,000
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41.3 million
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Pueblo Viejo
(5)
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635,000 - 650,000
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Not provided
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468,000
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Not provided
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Wassa and Prestea
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255,000 - 280,000
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267,600
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Royalty:
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Cortez GSR1
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102,200
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81,800
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Cortez GSR2
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1,600
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1,000
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Cortez GSR3
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103,800
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82,800
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Cortez NVR1
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63,900
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43,800
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Peñasquito
(6)
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410,000
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Not provided
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393,000
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16.0 million
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Lead
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125 million
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96.8 million
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Zinc
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325 million
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263.2 million
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(1)
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Production estimates received from our operators are for calendar 2017. 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 2017 10-K for information regarding factors that could affect actual results.
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(2)
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Actual production figures shown are from our operators and cover the period January 1, 2017 through December 31, 2017, unless otherwise noted.
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(3)
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The estimated and actual production figures shown for Andacollo are contained gold in concentrate.
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(4)
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The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate. Actual production shown is for the nine months ended September 30, 2017. Full calendar year 2017 information was not available from the operator as of the date of this report.
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(5)
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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. Actual production shown is for the nine months ended September 30, 2017. Full calendar year 2017 information was not available from the operator as of the date of this report.
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(6)
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The estimated and actual gold production figures shown for
Peñasquito
are payable gold in concentrate. The operator did not provide estimated silver production. Actual production shown is for the nine months ended September 30, 2017. Full calendar year 2017 information was not available from the operator as of the date of this report.
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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 13,500 ounces of gold for the three months ended December 31, 2017, compared to approximately 9,200 ounces of gold for the three months ended December 31, 2016. The production variability between quarters is typical for Andacollo resulting from concentrate shipment timing.
Teck indicated that they expect grades to continue to gradually decline, which they expect to be offset largely by planned throughput improvements in the mill. The current life of mine for Carmen de Andacollo is expected to continue until 2034. Additional permitting or amendments to existing permits will be required to execute the life of mine plan.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 17,600 ounces of gold for the three months ended December 31, 2017, compared to approximately 23,500 ounces of gold for the three months ended December 31, 2016. The decrease during the current quarter is primarily attributable to the reduced stream rate of 35% versus 52.5% in the prior year quarter.
Copper stream deliveries from Mount Milligan were approximately 1,245 tonnes during the three months ended December 31, 2017. Copper stream deliveries began during the June 2017 quarter.
On December 27, 2017, Centerra reported that mill processing operations at Mount Milligan were temporarily suspended due to lack of sufficient water resources, as a result of Mount Milligan experiencing a drier than normal spring and summer in calendar 2017, with lower than average spring snow melt. On February 5, 2018, Centerra reported that it recommenced mill processing operations at partial capacity. During the temporary shutdown, Centerra completed a number of steps to increase the flow of water into the tailings storage facility (“TSF”) from which the Mount Milligan mill draws all of its water requirements to supply milling operations. Such steps included adding pumps to existing water wells, increasing pump sizes to increase the flow rate, and drilling additional wells. Current make-up water sources for the TSF are from normal surface run-off, groundwater wells internal to the TSF, and from base underdrain towers that access process water underlying the TSF.
Centerra expects to resume milling operations at full capacity in April 2018, when additional fresh water becomes available from surface run-off after the spring melt. As a further, longer-term mitigation measure, Centerra received an amendment to Mount Milligan’s Environmental Assessment to allow pumping of water from a nearby lake (Phillip Lake) and has received additional related permits.
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
Gold stream deliveries from Pueblo Viejo were approximately 12,600 ounces of gold for the three months ended December 31, 2017, compared to approximately 15,600 ounces of gold for the three months ended December 31, 2016. Barrick reported Pueblo Viejo experienced lower ore grades processed during the 2017 calendar year, partially offset by higher recovery rates during the prior calendar year.
Silver stream deliveries were approximately 260,200 ounces of silver for the three months ended December 31, 2017, compared to approximately 322,500 ounces of silver for the three months ended December 31, 2016. The decrease in deliveries during the three months ended December 31, 2017 was due to the timing of payments from Barrick’s third-party refiners.
Rainy River
On October 19, 2017, New Gold announced that the Rainy River mine achieved commercial production, approximately two weeks ahead of schedule. Mining and milling activities at Rainy River continued to progress well during the December
2017 quarter. The milling rate for the month of December averaged 21,000 tonnes per day, which is the nameplate capacity for the facility.
RGLD Gold AG (“RGLD Gold”) began receiving gold and silver deliveries during the quarter ended December 31, 2017. Stream deliveries from Rainy River were approximately 1,000 ounces of gold and approximately 11,900 ounces of silver for the three months ended December 31, 2017.
New Gold’s focus for calendar 2018 will be on optimizing throughput at the mill, as well as advancing initiatives to potentially increase production. In calendar 2018, New Gold expects to produce between 310,000 and 350,000 ounces of gold at Rainy River.
New Gold estimates that approximately 21,500 ounces of gold and 185,000 ounces of silver will be delivered to RGLD Gold in calendar 2018.
Wassa and Prestea
Gold stream deliveries from Wassa and Prestea were approximately 6,000 ounces of gold for the three months ended December 31, 2017, compared to approximately 4,300 ounces of gold for the three months ended December 31, 2016.
Golden Star expects Wassa to become an underground-only operation by the end of January 2018, although 341,000 tonnes of lower grade, stockpiled ore will continue to be fed to the processing plant during the first nine months of calendar 2018.
Golden Star stated that mining rates at Wassa underground continued to be strong in the December 2017 quarter at approximately 1,900 tonnes per day, which represents a 36% outperformance compared to the planned mining rate for calendar 2017 of 1,400 tonnes per day and head grade delivered to the processing plant increased by 55% in the fourth quarter of calendar 2017 when compared to the third quarter of calendar 2017. The targeted mining rate for Wassa Underground in calendar 2018 is 2,700-3,000 tonnes per day.
The Prestea open pits were expected to complete gold production at the end of calendar 2017 but Golden Star now anticipates that mining will continue until late in the March 2018 quarter and stockpiled ore will continue to be processed until the end of the first half of calendar 2018.
Golden Star reported that the Prestea underground has been delivering a consistent quantity of material to the processing plant throughout December 2017 and early January 2018. From mid-January 2018, the grade is expected to increase significantly as the final draw down of the first stope begins. Golden Star forecasts that ore production will continue to ramp-up.
Under our stream agreement, the gold stream percentage at Wassa and Prestea increased to 10.5%, from 9.25%, effective January 1, 2018. Golden Star expects consolidated calendar 2018 gold production to range between 230,000 and 255,000 ounces.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez increased approximately 72% over the prior year quarter. Waste stripping at Crossroads, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests, restarted in October 2016 and is currently ongoing. Barrick expects production from Crossroads 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.
Barrick also reported that closure of existing surface facilities in Chile is consistent with its plan to advance a prefeasibility study for underground mining operations at Pascua-Lama, which would address a number of community concerns by
reducing the overall environmental impact of the project. Barrick reported that it is currently undertaking a number of optimization studies in order to complete the prefeasibility study.
On February 6, 2018, in light of the SMA order to close surface facilities in Chile, and current plans to evaluate an underground mine, Barrick announced it is reclassifying Pascua-Lama’s proven and probable gold reserves of approximately 14 million ounces, which are based on an open pit mine plan, as mineralized material.
Barrick reported that it will include further details in its year-end results release on February 14, 2018 and an update on the Pascua-Lama project at its February 22, 2018 Investor Day.
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’s carrying value for its royalty interests at Pascua-Lama is approximately $416.8 million as of December 31, 2017.
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. As part of our fiscal 2018 third quarter procedures, we will be evaluating Barrick’s reserves reclassification to assess the recoverability of our carrying value at Pascua-Lama. The Company will also consider further updates from Barrick, including those expected on February 14 and February 22, 2018, as part of our recoverability analysis. Upon completion of our process, the Company may determine an impairment is necessary.
Peñasquito
Gold production attributable to our royalty interest at Peñasquito decreased approximately 62%, when compared to the prior year quarter, as a higher proportion of lower grade ore and stockpiled material fed the mill during the current quarter. Zinc production increased approximately 34% during the current quarter, while silver and lead production were in line with the prior year quarter.
Goldcorp expects calendar 2018 gold production at Peñasquito to be 310,000 ounces, which is lower compared to calendar 2017 (410,000 ounces), due to the continued processing of low-grade stockpiles. Goldcorp anticipates the feed will then revert to higher grade ore in calendar 2019 when the Phase 6D stripping program exposes higher-grade ore in the Peñasco pit.
On January 17, 2018, Goldcorp stated that the Pyrite Leach Project (“PLP”) was 62% complete and is expected to achieve commercial production in the December 2018 quarter, ahead of schedule. Goldcorp expects 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.
Results of Operations
Quarter Ended December 31, 2017, Compared to Quarter Ended December 31, 2016
For the quarter ended December 31, 2017, we recorded net loss attributable to Royal Gold stockholders of $14.8 million, or ($0.23) per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $28.1 million, or $0.43 per basic and diluted share, for the quarter ended December 31, 2016. The decrease in our earnings per share was primarily 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 decrease in our earnings per share for the quarter as result of the increased income tax expense was partially offset by an increase in our revenue, which is discussed below. 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. Refer to “Recent Business Developments” above and Note 7 of our notes to consolidated financial statements for further discussion on the Act.
For the quarter ended December 31, 2017, we recognized total revenue of $114.4 million, which is comprised of stream revenue of $79.3 million and royalty revenue of $35.1 million at an average gold price of $1,275 per ounce, an average silver price of $16.73 per ounce and an average copper price of $3.09 per pound. This is compared to total revenue of $107.0 million for the three months ended December 31, 2016, which was comprised of stream revenue of $74.0 million and royalty revenue of $33.0 million, at an average gold price of $1,222 per ounce, an average silver price of $17.19 per ounce and an average copper price of $2.39 per pound for the quarter ended December 31, 2016. Revenue and the
corresponding production attributable to our stream and royalty interests for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended December 31, 2017 and 2016
(In thousands, except reported production ozs. and lbs.)
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Three Months Ended
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Three Months Ended
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December 31, 2017
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December 31, 2016
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Reported
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Reported
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Stream/Royalty
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Metal(s)
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|
Revenue
|
|
Production
(1)
|
|
Revenue
|
|
Production
(1)
|
Stream
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pueblo Viejo
|
|
|
|
$
|
26,355
|
|
|
|
|
$
|
26,437
|
|
|
|
|
|
Gold
|
|
|
|
|
14,500
|
oz.
|
|
|
|
|
13,700
|
oz.
|
|
|
Silver
|
|
|
|
|
469,600
|
oz.
|
|
|
|
|
543,300
|
oz.
|
Mount Milligan
|
|
Gold
|
|
$
|
21,632
|
|
12,600
|
oz.
|
|
$
|
31,664
|
|
25,700
|
oz.
|
|
|
Copper
|
|
|
|
|
1.8
|
Mlbs.
|
|
|
|
|
N/A
|
|
Andacollo
|
|
Gold
|
|
$
|
21,601
|
|
17,000
|
oz.
|
|
$
|
10,985
|
|
9,200
|
oz.
|
Wassa and Prestea
|
|
Gold
|
|
$
|
8,629
|
|
6,800
|
oz.
|
|
$
|
4,921
|
|
4,000
|
oz.
|
Rainy River
|
|
Gold
|
|
$
|
1,070
|
|
800
|
oz.
|
|
$
|
N/A
|
|
N/A
|
|
Total stream revenue
|
|
|
|
$
|
79,287
|
|
|
|
|
$
|
74,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito
|
|
|
|
$
|
6,190
|
|
|
|
|
$
|
7,134
|
|
|
|
|
|
Gold
|
|
|
|
|
71,100
|
oz.
|
|
|
|
|
185,400
|
oz.
|
|
|
Silver
|
|
|
|
|
5.1
|
Moz.
|
|
|
|
|
5.0
|
Moz.
|
|
|
Lead
|
|
|
|
|
33.4
|
Mlbs.
|
|
|
|
|
33.6
|
Mlbs.
|
|
|
Zinc
|
|
|
|
|
94.4
|
Mlbs.
|
|
|
|
|
70.5
|
Mlbs.
|
Cortez
|
|
Gold
|
|
$
|
2,934
|
|
25,000
|
oz.
|
|
$
|
1,834
|
|
14,500
|
oz.
|
Other
(3)
|
|
Various
|
|
$
|
25,937
|
|
N/A
|
|
|
$
|
23,986
|
|
N/A
|
|
Total royalty revenue
|
|
|
|
$
|
35,061
|
|
|
|
|
$
|
32,954
|
|
|
|
Total Revenue
|
|
|
|
$
|
114,348
|
|
|
|
|
$
|
106,961
|
|
|
|
|
(1)
|
|
Reported production relates to the amount of metal sales, subject to our stream and royalty interests, for the three months ended December 31, 2017 and 2016, and may differ from the operators’ public reporting.
|
|
(2)
|
|
Refer to “Property Developments” above for further discussion on our principal stream and royalty interests.
|
|
(3)
|
|
Individually, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.
|
The increase in our total revenue for the three months ended December 31, 2017, compared with the three months ended December 31, 2016, resulted primarily from an increase in our stream revenue and an increase in the average gold, silver and copper prices. The increase in our stream revenue was primarily attributable to increased gold production at Andacollo and Wassa and Prestea, and new gold production from our Rainy River stream, partially offset by a production (gold) decrease at Mount Milligan. Silver deliveries from Rainy River began during our December 2017 quarter with silver sales anticipated to begin 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 three months ended December 31, 2017 and 2016, and gold and silver ounces and tonnes of copper in inventory as of December 31, 2017, and June 30, 2017, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Gold Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Mount Milligan
|
|
17,700
|
|
12,700
|
|
23,500
|
|
25,700
|
|
5,200
|
|
100
|
Andacollo
|
|
13,500
|
|
17,000
|
|
9,200
|
|
9,200
|
|
—
|
|
100
|
Pueblo Viejo
|
|
12,600
|
|
14,500
|
|
15,600
|
|
13,700
|
|
8,500
|
|
12,900
|
Wassa and Prestea
|
|
6,000
|
|
6,800
|
|
4,300
|
|
4,000
|
|
500
|
|
1,000
|
Rainy River
|
|
1,000
|
|
800
|
|
—
|
|
—
|
|
200
|
|
—
|
Total
|
|
50,800
|
|
51,800
|
|
52,600
|
|
52,600
|
|
14,400
|
|
14,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Silver Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Pueblo Viejo
|
|
260,200
|
|
469,600
|
|
322,500
|
|
543,300
|
|
260,800
|
|
536,800
|
Rainy River
|
|
11,900
|
|
—
|
|
—
|
|
—
|
|
11,900
|
|
—
|
Total
|
|
272,100
|
|
469,600
|
|
322,500
|
|
543,300
|
|
272,700
|
|
536,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Copper Stream
|
|
Purchases (tonnes)
|
|
Sales (tonnes)
|
|
Purchases (tonnes)
|
|
Sales (tonnes)
|
|
Inventory (tonnes)
|
|
Inventory (tonnes)
|
Mount Milligan
|
|
1,245
|
|
819
|
|
N/A
|
|
N/A
|
|
426
|
|
—
|
Our royalty revenue increased during the quarter ended December 31, 2017, compared with the quarter ended December 31, 2016, primarily due to an increase 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.
Cost of sales decreased to $19.9 million for the three months ended December 31, 2017 from $22.5 million for the three months ended December 31, 2016. The decrease was primarily due to decreased gold sales from Mount Milligan. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.
General and administrative expenses increased to $9.6 million for the three months ended December 31, 2017 from $7.5 million for the three months ended December 31, 2016. The increase during the current quarter was primarily due to an increase in legal and litigation costs of approximately $1.7 million.
Depreciation, depletion and amortization increased to $42.0 million for the three months ended December 31, 2017 from $39.5 million for the three months ended December 31, 2016. The increase was primarily attributable to increased gold sales at Andacollo and Wassa and Prestea, which resulted in additional depletion of approximately $6.6 million. This increase was partially offset by a decrease in gold sales at Mount Milligan, which resulted in a decrease in depletion of approximately $3.2 million.
Interest and other income decreased to $0.6 million for the three months ended December 31, 2017, from $7.5 million for the three months ended December 31, 2016. 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 three months ended December 31, 2017, we recognized income tax expense totaling $48.4 million compared with an income tax expense of $5.0 million during the three months ended December 31, 2016. This resulted in an effective tax rate of 148.5% in the current period, compared with 15.7% in the quarter ended December 31, 2016. The increase in the effective tax rate for the three months ended December 31, 2017 is primarily attributable to the effects of
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.
Six Months Ended December 31, 2017, Compared to Six Months Ended December 31, 2016
For the six months ended December 31, 2017, we recorded net income attributable to Royal Gold stockholders of $13.9 million, or $0.21 per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $57.9 million, or $0.89 per basic share and $0.88 per diluted share, for the six months ended December 31, 2016. The decrease in our earnings per share was primarily 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. Refer to “Recent Business Developments” above and Note 7 of our notes to consolidated financial statements for further discussion on the Act.
For the six months ended December 31, 2017, we recognized total revenue of $226.8 million, which is comprised of stream revenue of $158.0 million and royalty revenue of $68.8 million, at an average gold price of $1,277 per ounce, an average silver price of $16.78 per ounce and an average copper price of $2.98 per pound. This is compared to total revenue of $224.9 million for the six months ended December 31, 2016, which is comprised of stream revenue of $159.5 million and royalty revenue of $65.4 million, at an average gold price of $1,280 per ounce, an average silver price of $18.42 per ounce and an average copper price of $2.28 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2016 compared to the six months ended December 31, 2016 is as follows:
Revenue and Reported Production Subject to Our Royalty and Stream Interests
Six Months Ended December 31, 2017 and 2016
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
Reported
|
Stream/Royalty
|
|
Metal(s)
|
|
Revenue
|
|
Production
(1)
|
|
Revenue
|
|
Production
(1)
|
Stream
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan
|
|
|
|
$
|
53,584
|
|
|
|
|
$
|
70,050
|
|
|
|
|
|
Gold
|
|
|
|
|
31,300
|
oz.
|
|
|
|
|
54,600
|
oz.
|
|
|
Copper
|
|
|
|
|
4.4
|
Mlbs.
|
|
|
|
|
N/A
|
|
Pueblo Viejo
|
|
|
|
$
|
51,758
|
|
|
|
|
$
|
47,387
|
|
|
|
|
|
Gold
|
|
|
|
|
27,400
|
oz.
|
|
|
|
|
24,600
|
oz.
|
|
|
Silver
|
|
|
|
|
1.0
|
Moz.
|
|
|
|
|
866,600
|
oz.
|
Andacollo
|
|
Gold
|
|
$
|
33,938
|
|
26,700
|
oz.
|
|
$
|
31,154
|
|
24,400
|
oz.
|
Wassa and Prestea
|
|
Gold
|
|
$
|
17,699
|
|
13,900
|
oz.
|
|
$
|
10,920
|
|
8,600
|
oz.
|
Rainy River
|
|
Gold
|
|
$
|
1,070
|
|
800
|
oz.
|
|
|
N/A
|
|
N/A
|
|
Total stream revenue
|
|
|
|
$
|
158,049
|
|
|
|
|
$
|
159,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito
|
|
|
|
$
|
13,986
|
|
|
|
|
$
|
12,955
|
|
|
|
|
|
Gold
|
|
|
|
|
205,100
|
oz.
|
|
|
|
|
285,500
|
oz.
|
|
|
Silver
|
|
|
|
|
11.0
|
Moz.
|
|
|
|
|
10.3
|
Moz.
|
|
|
Lead
|
|
|
|
|
69.6
|
Mlbs.
|
|
|
|
|
66.6
|
Mlbs.
|
|
|
Zinc
|
|
|
|
|
186.8
|
Mlbs.
|
|
|
|
|
143.5
|
Mlbs.
|
Cortez
|
|
Gold
|
|
$
|
5,922
|
|
54,900
|
oz.
|
|
$
|
3,874
|
|
36,300
|
oz.
|
Other
(3)
|
|
Various
|
|
$
|
48,867
|
|
N/A
|
|
|
$
|
48,569
|
|
N/A
|
|
Total royalty revenue
|
|
|
|
$
|
68,775
|
|
|
|
|
$
|
65,398
|
|
|
|
Total revenue
|
|
$
|
226,824
|
|
|
|
|
$
|
224,909
|
|
|
|
(1)
Reported production relates to the amount of metal sales, subject to our royalty and stream interests, for the six months ended December 31, 2017 and 2016, 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 six months ended December 31, 2017, compared with the six months ended December 31, 2016, resulted primarily from an increase in our royalty revenue. The increase in our royalty revenue was primarily attributable to increased gold production from our Cortez royalty interests. The slight decrease in our stream revenue was primarily attributable to a decrease in production (gold) at Mount Milligan. This decrease was offset by production increases at Pueblo Viejo, Andacollo and Wassa and Prestea and new gold production from our Rainy River stream interest. Silver deliveries from our Rainy River interest began during the December 2017 quarter with silver sales anticipated to begin 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 six months ended December 31, 2017 and 2016, gold and silver ounces and tonnes of copper in inventory as of December 31, 2017, and June 30, 2017, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Gold Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Mount Milligan
|
|
36,400
|
|
31,300
|
|
53,400
|
|
54,600
|
|
5,200
|
|
100
|
Andacollo
|
|
26,500
|
|
26,700
|
|
24,500
|
|
24,400
|
|
—
|
|
100
|
Pueblo Viejo
|
|
23,100
|
|
27,400
|
|
29,200
|
|
24,600
|
|
8,500
|
|
12,900
|
Wassa and Prestea
|
|
13,400
|
|
13,900
|
|
8,900
|
|
8,600
|
|
500
|
|
1,000
|
Rainy River
|
|
1,000
|
|
800
|
|
—
|
|
-
|
|
200
|
|
—
|
Total
|
|
100,400
|
|
100,100
|
|
116,000
|
|
112,200
|
|
14,400
|
|
14,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Silver Stream
|
|
Purchases (Moz.)
|
|
Sales (Moz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Pueblo Viejo
|
|
730,200
|
|
1,006,200
|
|
865,800
|
|
866,600
|
|
260,800
|
|
536,800
|
Rainy River
|
|
11,900
|
|
-
|
|
—
|
|
—
|
|
11,900
|
|
—
|
Total
|
|
742,100
|
|
1,006,200
|
|
865,800
|
|
866,600
|
|
272,700
|
|
536,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2017
|
|
June 30, 2017
|
Copper Stream
|
|
Purchases (tonnes)
|
|
Sales (tonnes)
|
|
Purchases (tonnes)
|
|
Sales (tonnes)
|
|
Inventory (tonnes)
|
|
Inventory (tonnes)
|
Mount Milligan
|
|
2,414
|
|
1,988
|
|
N/A
|
|
N/A
|
|
426
|
|
—
|
Cost of sales decreased to $40.3 million for the six months ended December 31, 2017, compared to $45.2 million for the six months ended December 31, 2016. The decrease was primarily due to decreased gold sales from Mount Milligan. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.
General and administrative expenses decreased to $16.5 million for the six months ended December 31, 2017, from $18.0 million for the six months ended December 31, 2016. The decrease during the current period was primarily due to a decrease in non-cash stock based compensation.
Depreciation, depletion and amortization increased to $81.7 million for the six months ended December 31, 2017, from $79.6 million for the six months ended December 31, 2016. The increase was primarily attributable to increased gold sales at Andacollo, Pueblo Viejo and Wassa and Prestea, which resulted in additional depletion of approximately $11.4 million. This increase was partially offset by a decrease in gold sales at Mount Milligan, which resulted in a decrease in depletion of approximately $4.8 million.
Interest and other income decreased to $1.6 million for the six months ended December 31, 2017, from $9.0 million for the six months ended December 31, 2016. 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 six months ended December 31, 2017, we recognized income tax expense totaling $55.9 million compared with $12.2 million during the six months ended December 31, 2016. This resulted in an effective tax rate of 83.9% in the current period, compared with 18.5% during the six months ended December 31, 2016. The increase in the effective tax rate for the six months ended December 31, 2017 is primarily attributable to the effects of 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.
Liquidity and Capital Resources
Overview
At December 31, 2017, we had current assets of $165.5 million compared to current liabilities of $41.6 million resulting in working capital of $123.9 million and a current ratio of 4 to 1. This compares to current assets of $143.6 million and current liabilities of $34.3 million at June 30, 2017, resulting in working capital of $109.3 million and a current ratio of approximately 4 to 1.
During the quarter ended December 31, 2017, liquidity needs were met from $94.5 million in net revenue and our available cash resources. During the three months ended December 31, 2017, the Company repaid $50.0 million of the outstanding borrowings under the revolving credit facility. As of December 31, 2017, the Company had $850 million available and $150 million outstanding under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $970 million of total available liquidity as of December 31, 2017. The Company was in compliance with each financial covenant under the revolving credit facility as of December 31, 2017. 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 2017 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 $147.2 million for the six months ended December 31, 2017, compared to $124.9 million for the six months ended December 31, 2016. The increase was primarily due to a decrease in income taxes paid at certain foreign subsidiaries of approximately $14.0 million and an increase in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $11.2 million.
Investing Activities
Net cash used in investing activities totaled $0.1 million for the six months ended December 31, 2017, compared to cash used in investing activities of $191.0 million for the six months ended December 31, 2016. 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 $134.9 million for the six months ended December 31, 2017, compared to cash provided by financing activities of $33.5 million for the six months ended December 31, 2016. The decrease in cash provided by financing activities is primarily due to the Company’s $70 million borrowing under its revolving credit facility to fund a royalty acquisition during the prior year period. During the six months ended December 31, 2017, the Company repaid $100 million of the outstanding borrowings under the revolving credit facility.
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 2017 10-K for discussion on our critical accounting policies.
Forward-Looking Statements
Cautionary “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include, without limitation, statements regarding 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; 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:
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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;
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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;
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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 project and other development and construction projects;
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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;
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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;
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liquidity or other problems our operators may encounter, including shortfalls in the financing required to complete construction and bring a mine into production;
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decisions and activities of the operators of properties where we hold stream and royalty interests;
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hazards and risks at the properties where we hold stream and royalty interests that are normally associated with developing and mining properties, including unanticipated grade, continuity and geological, metallurgical, processing or other problems, mine operating and ore processing facility problems, pit wall or tailings dam failures, industrial accidents, environmental hazards and natural catastrophes such as drought, floods or earthquakes and access to sufficient raw materials, water and power;
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changes in operators’ mining, processing and treatment techniques, which may change the production of minerals subject to our stream and royalty interests;
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changes in the methodology employed by our operators to calculate our stream and royalty interests in accordance with the agreements that govern them;
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changes in project parameters as plans of the operators of properties where we hold stream and royalty interests are refined;
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accuracy of and decreases in estimates of reserves and mineralization by the operators of properties where we hold stream and royalty interests;
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contests to our stream and royalty interests and title and other defects to the properties where we hold stream and royalty interests;
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adverse effects on market demand for commodities, the availability of financing, and other effects from adverse economic and market conditions;
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future financial needs of the Company and the operators of properties where we hold stream or royalty interests;
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federal, state and foreign legislation governing us or the operators of properties where we hold stream and royalty interests;
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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;
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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;
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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;
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changes in laws governing us, the properties where we hold stream and royalty interests or the operators of such properties;
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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;
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changes in management and key employees; and
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failure to complete future acquisitions;
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as well as other factors described elsewhere in this report and our other reports filed with the SEC, including our Fiscal 2017 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, nickel and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies. Please see “
Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our stream and royalty interests and may reduce our revenues. Certain contracts governing our 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 2017 10-K, for more information that can affect gold, silver, copper, nickel and other metal prices as well as historical gold, silver, copper and nickel prices.
During the six months ended December 31, 2017, we reported revenue of $226.8 million, with an average gold price for the period of $1,277 per ounce, an average silver price of $16.78 per ounce and an average copper price of $2.98 per pound. Approximately 78% of our total reported revenues for the six months ended December 31, 2017 were attributable to gold sales from our gold producing stream and royalty interests, as shown within the MD&A. For the six months ended December 31, 2017, 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 $18.2 million.
Approximately 9% of our total reported revenues for the six months ended December 31, 2017 were attributable to silver sales from our silver producing stream and royalty interests. For the six months ended December 31, 2017, 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 $2.1 million.
Approximately 9% of our total reported revenues for the six months ended December 31, 2017 were attributable to copper sales from our copper producing stream and royalty interests. For the six months ended December 31, 2017, 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 $2.2 million.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2017, the Company’s management, with the participation of the President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Treasurer (the principal financial and accounting officer) of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s President and Chief Executive Officer and its Chief Financial Officer and Treasurer have concluded that, as of December 31, 2017, 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, 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 December 31, 2017 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Voisey’s Bay
Refer to Note 10 of our notes to consolidated financial statements for a discussion of the litigation associated with our Voisey’s Bay royalty.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” and various risks faced by us are also discussed elsewhere in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. In addition, risk factors are included in Part I, Item 1A of our Fiscal 2017 10-K.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5.
OTHER INFORMATION
Not applicable.
ITEM 6.
EXHIBITS
Exhibit
Number
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Description
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10.1*
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Form of First Amendment to Employment Agreement made and entered into as of the 15th day of December, 2017, by and between Royal Gold, Inc. and each of the following: Karli Anderson, William Heissenbuttel, Mark Isto, Tony Jensen, Bruce Kirchhoff and Stefan Wenger.
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31.1*
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Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1‡
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2‡
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Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS*
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XBRL Instance Document.
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101.SCH*
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XBRL Taxonomy Extension Schema Document.
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document.
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*
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Filed herewith.
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‡
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Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ROYAL GOLD, INC.
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Date: February 8, 2018
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By:
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s/ Tony Jensen
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Tony Jensen
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: February 8, 2018
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By:
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/s/ Stefan Wenger
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Stefan Wenger
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Chief Financial Officer and Treasurer
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(Principal Financial and Accounting Officer)
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