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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2018 (Fiscal 2018 10-K).
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 2018 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 2019 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, 2019, we owned seven stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for approximately 71% and 70% of our total revenue for the three and nine months ended March 31, 2019, respectively, and 72% and 70% of our total revenue for the three and nine months ended March 31, 2018, respectively. 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, 2019, we owned royalty interests on 37 producing properties, 15 development stage properties and 131 exploration stage properties, of which we consider 53 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 29% and 30%, respectively, of our total revenue for the three and nine months ended March 31, 2019 and 28% and 30%, respectively, for the three and nine months ended March 31, 2018.
We do not conduct mining operations on the properties in which we hold stream and royalty interests, and except for our interest in the Peak Gold JV, we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.
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, 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, 2019 and 2018, 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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Nine Months Ended
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March 31, 2019
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March 31, 2018
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March 31, 2019
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March 31, 2018
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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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1,304
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77%
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$
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1,329
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76%
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$
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1,248
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77%
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$
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1,294
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77%
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Silver ($/ounce)
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$
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15.57
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9%
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$
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16.77
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6%
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$
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15.04
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9%
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$
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16.78
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8%
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Copper ($/pound)
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$
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2.82
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9%
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$
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3.16
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15%
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$
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2.80
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9%
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$
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3.04
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11%
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Other
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N/A
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5%
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N/A
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3%
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N/A
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5%
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N/A
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4%
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Recent Business Developments
Acquisition of Silver Stream on Khoemacau Copper Project
On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement for silver produced from the Khoemacau Copper Project (“Khoemacau” or the “Project”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments. Pursuant to the purchase and sale agreement, RGLD Gold will make advance payments totaling $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced (the “Option Stream”). The stream rate will drop by 50% (to 40% of silver produced) upon the delivery to RGLD Gold of 32 million silver ounces under the Silver Stream, or to 50% of the silver produced upon delivery of 40 million silver ounces in the event Cupric exercises the entire Option Stream. RGLD Gold will pay 20% of the spot price of silver for each ounce delivered; however, depending on the achievement by Cupric of mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), RGLD Gold will pay higher ongoing cash payments for silver ounces delivered in excess of specific annual thresholds.
RGLD Gold’s first advance payment under the Silver Stream is expected to occur after $100 million of net new debt and equity funding has been spent on the Project by Cupric. The $212 million in advance payments under the Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule: $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020 and the balance in calendar 2021. RGLD Gold will fund the transaction through cash on hand or cash advances from Royal Gold. Royal Gold will fund any advances made to RGLD Gold largely out of cash flow from operations and its current undrawn $1 billion revolving credit facility, as required.
Separate from the Silver Stream and Option Stream, and subject to various conditions, RGLD Gold will make available up to $25 million to Cupric toward the end of development of Khoemacau in the form of a subordinated debt facility. Any amounts drawn under the facility would carry interest at LIBOR + 11% and have a term of seven years. RGLD Gold will have the right to force repayment of the facility upon certain events.
Background on Khoemacau
Khoemacau is a copper-silver project located in the Kalahari copper belt, in a sparsely populated region of northwestern Botswana in the Kalahari Desert. Khoemacau is made up of over 4,040 square kilometers of mineral concessions from Cupric’s acquisition of Hana Mining Ltd. in 2013, as well as additional mineral concessions and a plant and associated infrastructure (the “Boseto Mill”) acquired by Cupric out of the receivership of Discovery Metals Inc. in 2015. Cupric consolidated the land position and infrastructure and has focused on exploration and development of the Zone 5 orebody.
Cupric plans to develop the Zone 5 orebody as three separate underground mines, each planned to produce 1.2 million tonnes of ore per year over the first five years. Each of the mines is expected to have its own independent ramp access and operate over a strike length of approximately 1,000 meters, extracting ore using conventional sub-level open stoping. Cupric’s plan provides for the ore to be trucked approximately 35 kilometers to the Boseto Mill, which is to be refurbished and enhanced to process approximately 10,000 tonnes of ore per day. Processing will be conventional sulfide flotation via three stage crushing, ball milling and flotation, which will produce a high-quality copper concentrate grading approximately 40% for shipment to international smelters. Cupric expects that power will be sourced from an expansion to the existing power grid currently under construction by Botswana Power Corporation, and that existing diesel generation capacity remaining from previous operations will be used as backup power. Water is expected to be supplied from three borefields along with mine dewatering.
Voisey’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 Royalty Corporation.
On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine.
The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant (“LHPP”), which will be effective for all Voisey’s Bay mine production after April 1, 2018. 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 concentrates 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 in the concentrates applicable to the royalty would correspondingly increase or decrease.
The LHPP is designed to produce 50,000 tonnes of finished nickel annually. In the next few years, Voisey’s Bay concentrate will provide 100% of the feed to LHPP but, over time, other sources of concentrate will be added to LHPP.
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.
During the three and nine months ended March 31, 2019, the Company recognized approximately $2.5 million and $10.0 million (each period includes the 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty. 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 not received timely from the operator, the Company may estimate Voisey’s Bay royalty revenue based on available or historical information. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our revenue recognition.
Peak Gold JV
On September 24, 2018, the Company 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. The Company has engaged an external advisor to assist in identifying options with respect to our interests in the Peak Gold Project.
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 Company purchased 682,556 shares of CORE common stock at $26 per share in June 2018. As of March 31, 2019, 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 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 2018 10-K for further discussion of our principal producing 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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Newmont Goldcorp Corporation (“Newmont 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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Wassa and Prestea
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Western Region of Ghana
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Golden Star Resources Ltd. (“Golden Star”)
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Gold stream - 10.5% of gold produced (until 220,000 ounces delivered; 5.5% thereafter)
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Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2019
We generally receive annual production estimates from many of the operators of our producing mines during the first quarter of each calendar year. In some instances, an operator may revise their original calendar year guidance throughout the year. The following table shows current production estimates for our principal producing properties for calendar 2019 as well as the actual production reported to us by the various operators through March 31, 2019. 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 2019
Principal Producing Properties
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Calendar 2019 Operator’s Production
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Calendar 2019 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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62,000
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13,200
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Mount Milligan
(4)
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155,000 - 175,000
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33,300
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Copper
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65 - 75 million
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11.4 million
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Pueblo Viejo
(5)
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550,000 - 600,000
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N/A
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148,000
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N/A
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Wassa and Prestea
(6)
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220,000 - 240,000
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N/A
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Royalty:
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Cortez GSR1
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102,000
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28,500
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Cortez GSR2
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98,000
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4,100
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Cortez GSR3
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199,000
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32,600
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Cortez NVR1
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168,200
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30,700
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Peñasquito
(7)
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370,000 - 400,000
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N/A
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N/A
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N/A
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Lead
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240 - 290 million
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N/A
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Zinc
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390 - 450 million
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N/A
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(1)
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Production estimates received from our operators are for calendar 2019. 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 2018 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, 2019 through March 31, 2019, unless otherwise noted in footnotes to this table.
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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.
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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.
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(6)
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The estimated production figures shown for Wassa and Prestea are payable gold in doré. The operator did not provide actual production figures for the three months ended March 31, 2019 as of the date of this report.
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(7)
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The estimated gold production figures shown for
Peñasquito
are payable gold in concentrate and doré. The estimated lead and zinc production figures shown are payable lead and zinc in concentrate. The operator did not provide estimated annual silver production. The operator did not provide actual gold, silver, lead and zinc production figures for the three months ended March 31, 2019 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 9,900 ounces of gold for the three months ended March 31, 2019, compared to approximately 10,000 ounces of gold for the three months ended March 31, 2018.
Consistent with the mine plan, Teck expects copper grades to decline towards reserve grade in calendar 2019 and future years. Teck continues to study and implement projects that would help increase production, including the installation of a sizer to manage harder ores at depth and increase mill throughput. Teck anticipated that the sizer project will be operational in the first half of calendar 2019. Teck expects the current life of mine for Carmen de Andacollo to continue until 2035. 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 23,100 ounces of gold for the three months ended March 31, 2019, compared to approximately 27,400 ounces of gold for the three months ended March 31, 2018. Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds of copper during the three months ended March 31, 2019, compared to approximately 3.4 million pounds of copper during the three months ended March 31, 2018. Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.
On February 27, 2019, Centerra announced that it received an amendment to the Mount Milligan environmental assessment certificate that permits access to additional sources of surface water and groundwater. According to Centerra, Mount Milligan will be permitted to use water at set rates from Philip Lake 1, Rainbow Creek and Meadows Creek until November 30, 2021, as well as water from groundwater sources within a six-kilometer radius of the mine for the life of mine. Mount Milligan reported that it has upgraded its water pumping infrastructure and commenced accessing water from the newly permitted sources at the beginning of April 2019. Mill throughput was limited to 32,000 tonnes per operating day in the March 2019 quarter and has increased slowly as water levels increased in the tailing’s facility. Centerra expects mill throughput to be at full capacity of 55,000 tonnes per day starting mid-May 2019 as additional water is captured during the pending spring melt, and to remain at that level throughout the remainder of calendar 2019.
With respect to the long-term water supply plan, Centerra continues to work with relevant stakeholders to identify and evaluate water sources for the remainder of the mine life. Centerra expects formal applications and government review to commence later this calendar year. Centerra also expects that the long-term source, or sources, should be available after November 2021, for the entire mine life. Centerra continues to expect Mount Milligan gold and copper production to be in-range of their earlier reported guidance.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 12,400 ounces of gold for the three months ended March 31, 2019, compared to approximately 13,200 ounces of gold for the three months ended March 31, 2018. Silver stream deliveries were approximately 553,000 ounces of silver for the three months ended March 31, 2019, compared to approximately 616,300 ounces of silver for the three months ended March 31, 2018.
In calendar 2019, Barrick expects production at Pueblo Viejo to be in line with calendar 2018 production levels, driven by increased throughput and recoveries, offset by declining ore grades. Barrick indicated that scoping studies and pilot project work are supportive of a plant expansion at the Pueblo Viejo mine that could increase throughput by roughly 50% to 12 million tonnes per year, allowing the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022. To achieve this, Barrick is evaluating a flotation concentrator followed by ultra-fine grinding and tank oxidation of the concentrate. Barrick reported that testing to date indicates that tank oxidation is preferable to the pad pre-oxidation process previously considered. Barrick expects to complete prefeasibility studies for the plant expansion and additional tailings capacity by the end of calendar 2019. According to Barrick, the project has potential to convert roughly seven million ounces of mineralized material to proven and probable reserves.
Barrick and its power generation partner, AES Corporation, made significant progress in 2018 toward securing all necessary permits and commencing construction of a new 50-kilometer gas pipeline to the Quisqueya I power generation facility at Pueblo Viejo. Barrick reports that completion and first delivery of natural gas is expected to occur in the December 2019 quarter and that conversion of the power plant to natural gas from heavy fuel oil is anticipated to reduce both greenhouse gas emissions and power costs at Pueblo Viejo.
Rainy River
Gold stream deliveries from Rainy River were approximately 4,400 ounces of gold for the three months ended March 31, 2019, compared to approximately 2,900 ounces of gold for the three months ended March 31, 2018. Silver stream deliveries were approximately 35,700 ounces of silver for the three months ended March 31, 2019, compared to approximately 41,800 ounces of silver for the three months ended March 31, 2018.
New Gold, Inc. (“New Gold”) reported Rainy River produced 61,557 ounces of gold and 60,383 ounces of silver during the March 2019 quarter. Production at Rainy River included planned lower grades as mining operations continued the
transition to phase 2 of the mine plan. Mill throughput for the March 2019 quarter averaged 19,725 tonnes per calendar day, below the annual target of 22,000-24,000 tonnes per day. The lower average mill throughput was negatively impacted by the significant buildup of ice in the crushed ore stockpile above the apron feeders. New Gold reported average mill throughput returned to target levels at the end of the March 2019 quarter. Also during the March 2019 quarter, New Gold reported that they launched a comprehensive optimization study that includes the review of alternative open pit and underground mining scenarios with the overall objective of reducing capital and improving the return on investment over the life of mine. New Gold expects to complete an updated life of mine plan in the December 2019 quarter.
New Gold expects to begin a strategic exploration drilling program in the June 2019 quarter that will test near-mine targets in the Intrepid North area.
On May 1, 2019, New Gold announced that a buildup of excess water in the tailings facility from snowmelt caused a temporary suspension of milling operations at Rainy River on April 24, 2019. Mining and crushing operations are continuing and ore is being stockpiled during the suspension. New Gold is managing the excess water and expects full mill operations to resume within five days of the announcement of the suspension depending on precipitation levels over the same period.
Wassa and Prestea
Gold stream deliveries from Wassa and Prestea were approximately 5,800 ounces of gold for the three months ended March 31, 2019, compared to approximately 6,800 ounces of gold for the three months ended March 31, 2018.
On March 28, 2019, Golden Star announced Wassa underground mineral reserves increased 47% to 949,000 ounces of gold, which was attributable to strong results from the calendar 2018 underground definition drilling program combined with a stope design optimization. Prestea mineral reserves decreased by 36% to 317,000 ounces of gold, resulting from calendar 2018 mining depletion and changes to the resource model following definition drilling and underground development.
In calendar 2019, Golden Star expects the average targeted mining rate for Wassa underground to be 3,500 tonnes per day, moving towards a target of 4,000 tonnes per day in calendar 2020. At the end of calendar 2018, improvements were being recorded in Prestea underground's lead production indicators. Golden Star expects improvements in raise development, long-hole drilling and blasting productivities to continue in calendar 2019.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez during the quarter increased approximately 73% over the prior year quarter, as a result of production ramping up at the Crossroads deposit, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests. Initial ore production at Crossroads was realized during calendar 2018. In calendar 2019, Barrick expects Crossroads expansion stripping to transition to production phase stripping.
Peñasquito
Gold and zinc production attributable to our royalty interest at Peñasquito decreased approximately 59% and 17%, respectively, and lead production attributable to our royalty interest increased approximately 33%, when compared to the prior year quarter, while silver production was in line with the prior year quarter.
On November 29, 2018, Newmont Goldcorp announced that the first gold from the Peñasquito Pyrite Leach Project (“PLP”) was achieved, and on January 14, 2019, announced that PLP achieved commercial production in December 2018, both under budget and ahead of schedule. Newmont Goldcorp stated that during the March 2019 quarter the PLP is running well with overall higher recoveries.
On April 29, 2019, Newmont Goldcorp reported a temporary suspension of operations at Peñasquito due to a blockade by a trucking contractor and certain community leaders. Newmont Goldcorp reported that it is pursuing legal avenues and working with government authorities to resolve the situation but did not indicate what effect this suspension is expected to have on calendar 2019 production.
For calendar 2019, Newmont Goldcorp expects grades and recoveries to climb at Peñasquito as the mine benefits from completion of the multi-year waste stripping campaign in the main Peñasco pit and a full year of operation at the PLP. In June 2019, Newmont Goldcorp plans to launch their full potential continuous improvement program at Peñasquito, where they expect the greatest overall value to be in processing improvements, which will concentrate on productivity, reliability and cost efficiency.
Results of Operations
Quarter Ended March 31, 2019, Compared to Quarter Ended March 31, 2018
For the quarter ended March 31, 2019, we recorded net income attributable to Royal Gold stockholders of $28.8 million, or $0.44 per basic and diluted share, as compared to net loss attributable to Royal Gold stockholders of $153.7 million, or ($2.35) per basic and diluted share, for the quarter ended March 31, 2018. The increase in our earnings per share, when compared to the prior year period, was attributable to prior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further in our Fiscal 2018 10-K. 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, 2019, we recognized total revenue of $109.8 million, which is comprised of stream revenue of $77.8 million and royalty revenue of $32.0 million at an average gold price of $1,304 per ounce, an average silver price of $15.57 per ounce and an average copper price of $2.82 per pound. This is compared to total revenue of $116.0 million for the three months ended March 31, 2018, which was comprised of stream revenue of $83.0 million and royalty revenue of $33.0 million, at an average gold price of $1,329 per ounce, an average silver price of $16.77 per ounce and an average copper price of $3.16 per pound for the quarter ended March 31, 2018. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended March 31, 2019 compared to the quarter ended March 31, 2018 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended March 31, 2019 and 2018
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
|
|
|
|
|
Reported
|
|
|
|
Reported
|
Stream/Royalty
|
|
Metal(s)
|
|
Revenue
|
|
Production
(1)
|
|
Revenue
|
|
Production
(1)
|
Stream
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan
|
|
|
|
$
|
26,938
|
|
|
|
|
$
|
47,807
|
|
|
|
|
|
Gold
|
|
|
|
|
15,200
|
oz.
|
|
|
|
|
25,800
|
oz.
|
|
|
Copper
|
|
|
|
|
2.6
|
Mlbs.
|
|
|
|
|
4.3
|
Mlbs.
|
Pueblo Viejo
|
|
|
|
$
|
20,787
|
|
|
|
|
$
|
15,734
|
|
|
|
|
|
Gold
|
|
|
|
|
10,400
|
oz.
|
|
|
|
|
8,500
|
oz.
|
|
|
Silver
|
|
|
|
|
469,000
|
oz.
|
|
|
|
|
260,800
|
oz.
|
Andacollo
|
|
Gold
|
|
$
|
15,638
|
|
12,000
|
oz.
|
|
$
|
7,186
|
|
5,400
|
oz.
|
Wassa and Prestea
|
|
Gold
|
|
$
|
7,328
|
|
5,600
|
oz.
|
|
$
|
8,350
|
|
6,300
|
oz.
|
Other
(3)
|
|
|
|
$
|
7,074
|
|
|
|
|
$
|
3,902
|
|
|
|
|
|
Gold
|
|
|
|
|
5,000
|
oz.
|
|
|
|
|
2,800
|
oz.
|
|
|
Silver
|
|
|
|
|
40,800
|
oz.
|
|
|
|
|
11,100
|
oz.
|
Total stream revenue
|
|
|
|
$
|
77,765
|
|
|
|
|
$
|
82,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito
|
|
|
|
$
|
4,465
|
|
|
|
|
$
|
6,452
|
|
|
|
|
|
Gold
|
|
|
|
|
37,300
|
oz.
|
|
|
|
|
91,200
|
oz.
|
|
|
Silver
|
|
|
|
|
4.9
|
Moz.
|
|
|
|
|
5.0
|
Moz.
|
|
|
Lead
|
|
|
|
|
34.5
|
Mlbs.
|
|
|
|
|
26.0
|
Mlbs.
|
|
|
Zinc
|
|
|
|
|
72.8
|
Mlbs.
|
|
|
|
|
88.0
|
Mlbs.
|
Cortez
|
|
Gold
|
|
$
|
4,127
|
|
32,700
|
oz.
|
|
$
|
1,901
|
|
18,900
|
oz.
|
Other
(3)
|
|
Various
|
|
$
|
23,421
|
|
N/A
|
|
|
$
|
24,651
|
|
N/A
|
|
Total royalty revenue
|
|
|
|
$
|
32,013
|
|
|
|
|
$
|
33,004
|
|
|
|
Total Revenue
|
|
|
|
$
|
109,778
|
|
|
|
|
$
|
115,983
|
|
|
|
|
(1)
|
|
Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended March 31, 2019 and 2018, 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)
|
|
The “Other” category for streams is only our Rainy River gold and silver stream. Individually, no royalty included within the “Other” category for royalties contributed greater than 5% of our total revenue for either period.
|
The decrease in our total revenue for the three months ended March 31, 2019, compared with the three months ended March 31, 2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices. The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Mount Milligan. This decrease was partially offset by higher gold and silver sales at Pueblo Viejo and higher gold sales at Andacollo due to timing of deliveries. Please refer to “Property Developments” earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests.
Gold and silver ounces and copper pounds purchased and sold during the three months ended March 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of March 31, 2019, and June 30, 2018, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
March 31, 2019
|
|
June 30, 2018
|
Gold Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Mount Milligan
|
|
23,100
|
|
15,200
|
|
27,400
|
|
25,800
|
|
7,900
|
|
300
|
Pueblo Viejo
|
|
12,400
|
|
10,400
|
|
13,200
|
|
8,500
|
|
12,400
|
|
9,200
|
Andacollo
|
|
9,900
|
|
12,000
|
|
10,000
|
|
5,400
|
|
2,400
|
|
7,400
|
Wassa and Prestea
|
|
5,800
|
|
5,600
|
|
6,800
|
|
6,300
|
|
900
|
|
3,900
|
Rainy River
|
|
4,400
|
|
5,000
|
|
2,900
|
|
2,800
|
|
1,000
|
|
800
|
Total
|
|
55,600
|
|
48,200
|
|
60,300
|
|
48,800
|
|
24,600
|
|
21,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
March 31, 2019
|
|
June 30, 2018
|
Silver Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Pueblo Viejo
|
|
553,000
|
|
469,000
|
|
616,300
|
|
260,800
|
|
553,000
|
|
540,200
|
Rainy River
|
|
35,700
|
|
40,800
|
|
41,800
|
|
11,100
|
|
36,600
|
|
32,300
|
Total
|
|
588,700
|
|
509,800
|
|
658,100
|
|
271,900
|
|
589,600
|
|
572,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
As of
|
|
As of
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
March 31, 2019
|
|
June 30, 2018
|
Copper Stream
|
|
Purchases (Mlbs.)
|
|
Sales (Mlbs.)
|
|
Purchases (Mlbs.)
|
|
Sales (Mlbs.)
|
|
Inventory (Mlbs.)
|
|
Inventory (Mlbs.)
|
Mount Milligan
|
|
2.5
|
|
2.6
|
|
3.4
|
|
4.3
|
|
0.8
|
|
—
|
Cost of sales decreased to $19.1 million for the three months ended March 31, 2019 from $21.3 million for the three months ended March 31, 2018. The decrease was primarily due to decreased gold and copper 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 spot price near the date of metal delivery.
General and administrative expenses decreased to $6.8 million for the three months ended March 31, 2019 from $8.1 million for the three months ended March 31, 2018. The decrease during the current quarter was primarily due to a decrease in legal costs attributable to the Voisey’s Bay royalty calculation dispute and settlement as discussed further above under “Recent Business Developments.”
On July 1, 2018, the Company adopted new Accounting Standards Update (“ASU”) guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period. As a result of the new ASU guidance, the Company recognized a gain on changes in fair value of equity securities of approximately $1.8 million for the three months ended March 31, 2019. Refer to Note 1 of our notes to consolidated financial statements for further detail. The new guidance could increase our earnings volatility.
During the three months ended March 31, 2019, we recognized an income tax expense totaling $9.4 million compared with an income tax benefit of $45.9 million during the three months ended March 31, 2018. This resulted in an effective tax rate of 24.7% in the current period, compared with 22.9% in the quarter ended March 31, 2018. The increase in the
effective tax rate for the three months ended March 31, 2019 was primarily related to lower discrete benefits recorded in the current quarter as compared to the quarter ended March 31, 2018. The prior year’s quarter included a discrete tax benefit related to the impairment charges.
Nine Months Ended March 31, 2019, Compared to Nine Months Ended March 31, 2018
For the nine months ended March 31, 2019, we recorded net income attributable to Royal Gold stockholders of $67.4 million, or $1.03 per basic and diluted share, as compared to a net loss attributable to Royal Gold stockholders of $139.8 million, or ($2.14) per basic and diluted share, for the nine months ended March 31, 2018. The increase in our earnings per share, when compared to the prior period, was attributable to prior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further in our Fiscal 2018 10-K. The effect of the impairment charges during the quarter ended March 31, 2018 was $2.74 per basic share, after taxes.
For the nine months ended March 31, 2019, we recognized total revenue of $307.4 million, which is comprised of stream revenue of $215.5 million and royalty revenue of $91.9 million at an average gold price of $1,248 per ounce, an average silver price of $15.04 per ounce and an average copper price of $2.80 per pound. This is compared to total revenue of $342.8 million for the nine months ended March 31, 2018, which was 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. Revenue and the corresponding production attributable to our stream and royalty interests for the nine months ended March 31, 2019 compared to the nine months ended March 31, 2018 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Nine Months Ended March 31, 2019 and 2018
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
Reported
|
Stream/Royalty
|
|
Metal(s)
|
|
Revenue
|
|
Production
(1)
|
|
Revenue
|
|
Production
(1)
|
Stream
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan
|
|
|
|
$
|
63,954
|
|
|
|
|
$
|
101,390
|
|
|
|
|
|
Gold
|
|
|
|
|
38,500
|
oz.
|
|
|
|
|
57,100
|
oz.
|
|
|
Copper
|
|
|
|
|
5.8
|
Mlbs.
|
|
|
|
|
8.7
|
Mlbs.
|
Pueblo Viejo
|
|
|
|
$
|
58,504
|
|
|
|
|
$
|
67,492
|
|
|
|
|
|
Gold
|
|
|
|
|
28,500
|
oz.
|
|
|
|
|
35,900
|
oz.
|
|
|
Silver
|
|
|
|
|
1.5
|
Moz.
|
|
|
|
|
1.3
|
Moz.
|
Andacollo
|
|
Gold
|
|
$
|
51,016
|
|
40,900
|
oz.
|
|
$
|
41,124
|
|
32,100
|
oz.
|
Wassa and Prestea
|
|
Gold
|
|
$
|
24,939
|
|
20,000
|
oz.
|
|
$
|
26,049
|
|
20,200
|
oz.
|
Other
(3)
|
|
|
|
$
|
17,067
|
|
|
|
|
$
|
4,973
|
|
|
|
|
|
Gold
|
|
|
|
|
12,300
|
oz.
|
|
|
|
|
3,600
|
oz.
|
|
|
Silver
|
|
|
|
|
108,300
|
oz.
|
|
|
|
|
11,100
|
oz.
|
Total stream revenue
|
|
|
|
$
|
215,480
|
|
|
|
|
$
|
241,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito
|
|
|
|
$
|
12,763
|
|
|
|
|
$
|
20,439
|
|
|
|
|
|
Gold
|
|
|
|
|
141,000
|
oz.
|
|
|
|
|
296,200
|
oz.
|
|
|
Silver
|
|
|
|
|
14.1
|
Moz.
|
|
|
|
|
15.9
|
Moz.
|
|
|
Lead
|
|
|
|
|
100.4
|
Mlbs.
|
|
|
|
|
95.5
|
Mlbs.
|
|
|
Zinc
|
|
|
|
|
220.1
|
Mlbs.
|
|
|
|
|
274.8
|
Mlbs.
|
Cortez
|
|
Gold
|
|
$
|
7,066
|
|
59,700
|
oz.
|
|
$
|
7,823
|
|
73,800
|
oz.
|
Other
(3)
|
|
Various
|
|
$
|
72,053
|
|
N/A
|
|
|
$
|
73,517
|
|
N/A
|
|
Total royalty revenue
|
|
|
|
$
|
91,882
|
|
|
|
|
$
|
101,779
|
|
|
|
Total revenue
|
|
$
|
307,362
|
|
|
|
|
$
|
342,807
|
|
|
|
|
(1)
|
|
Reported production relates to the amount of metal sales subject to our stream and royalty interests for the nine months ended March 31, 2019 and 2018, 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)
|
|
The “Other” category for streams is only our Rainy River gold and silver stream. Individually, no royalty included within the “Other” category for royalties contributed greater than 5% of our total revenue for either period.
|
The decrease in our total revenue for the nine months ended March 31, 2019 compared with the nine months ended March 31, 2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices. The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Mount Milligan and a decrease in gold sales at Pueblo Viejo. These decreases were partially offset by higher metal sales at Andacollo and Rainy River. The decrease in metal sales at Mount Milligan was anticipated based on previously announced news from Centerra and as reported earlier by the Company.
Gold and silver ounces and copper pounds purchased and sold during the nine months ended March 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of March 31, 2019, and June 30, 2018, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
As of
|
|
As of
|
|
|
March 31, 2019
|
|
March 31, 2018
|
|
March 31, 2019
|
|
June 30, 2018
|
Gold Stream
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Purchases (oz.)
|
|
Sales (oz.)
|
|
Inventory (oz.)
|
|
Inventory (oz.)
|
Mount Milligan
|
|
46,100
|
|
38,500
|
|
63,800
|
|
57,100
|
|
7,900
|
|
300
|
Andacollo
|
|
35,900
|
|
41,000
|
|
36,500
|
|
32,100
|
|
2,400
|
|
7,400
|
Pueblo Viejo
|
|
31,700
|
|
28,500
|
|
36,300
|
|
35,900
|
|
12,400
|
|
9,200
|
Wassa and Prestea
|
|
17,000
|
|
20,000
|
|
20,200
|
|
20,200
|
|
900
|
|
3,900
|
Rainy River
|
|
12,500
|
|
12,300
|
|
3,900
|
|
3,600
|
|
1,000
|
|
800
|
Total
|
|
143,200
|
|
140,300
|
|
160,700
|
|
148,900
|
|
24,600
|
|
21,600
|
|
|
|
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Nine Months Ended
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Nine Months Ended
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|
As of
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|
As of
|
|
|
March 31, 2019
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|
March 31, 2018
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|
March 31, 2019
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June 30, 2018
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Silver Stream
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Purchases (oz.)
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Sales (oz.)
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|
Purchases (oz.)
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|
Sales (oz.)
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Inventory (oz.)
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Inventory (oz.)
|
Pueblo Viejo
|
|
1,531,400
|
|
1,518,700
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|
1,346,500
|
|
1,267,000
|
|
553,000
|
|
540,200
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Rainy River
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|
112,600
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|
108,300
|
|
53,700
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|
11,100
|
|
36,600
|
|
32,300
|
Total
|
|
1,644,000
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|
1,627,000
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|
1,400,200
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|
1,278,100
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|
589,600
|
|
572,500
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|
|
|
|
|
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|
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|
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Nine Months Ended
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Nine Months Ended
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|
As of
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As of
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March 31, 2019
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|
March 31, 2018
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|
March 31, 2019
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June 30, 2018
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Copper Stream
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Purchases (Mlbs.)
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Sales (Mlbs.)
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Purchases (Mlbs.)
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Sales (Mlbs.)
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Inventory (Mlbs.)
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Inventory (Mlbs.)
|
Mount Milligan
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|
6.6
|
|
5.8
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|
8.7
|
|
8.7
|
|
0.8
|
|
—
|
Cost of sales decreased to $53.8 million for the nine months ended March 31, 2019 from $61.6 million for the nine months ended March 31, 2018. The decrease was primarily due to decreased gold and copper sales from Mount Milligan and Pueblo Viejo, partially offset by an increase in gold sales at Rainy River and Andacollo. 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 spot price near the date of metal delivery.
Production taxes increased to $3.2 million for the nine months ended March 31, 2019, from $1.6 million for the nine months ended March 31, 2018. The increase is primarily due to an increase in mining proceeds tax associated with our Voisey’s Bay royalty, which resulted from increased revenue from the Voisey’s Bay royalty during the current period.
On July 1, 2018, the Company adopted new ASU guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period. As a result of the new ASU guidance, the Company recognized a loss on changes in fair value of equity securities of approximately $3.3 million for the nine months ended March 31, 2019. Refer to Note 1 of our notes to consolidated financial statements for further detail. The new guidance could increase our earnings volatility.
Interest and other income decreased to $1.1 million for the nine months ended March 31, 2019, from $3.4 million for the nine months ended March 31, 2018. As discussed further in our Fiscal 2018 10-K, in June 2018, Golden Star repaid its $20 million term loan facility with Royal Gold, thus reducing interest income during the current period.
Interest and other expense decreased to $22.3 million for the nine months ended March 31, 2019, from $25.9 million for the nine months ended March 31, 2018. The decrease was primarily attributable to lower interest expense as a result of a decrease in amounts outstanding under our revolving credit facility. The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018.
During the nine months ended March 31, 2019, we recognized income tax expense $11.4 million compared with income tax expense of $10.0 million during the nine months ended March 31, 2018. This resulted in an effective tax rate of 15.1% in the current period, compared with (7.5%) during the nine months ended March 31, 2018. The effective tax rate for the nine months ended March 31, 2019 was primarily impacted by discrete true-ups recorded in the December 2018 quarter related to the Company’s completion of its analysis of the Tax Cuts and Jobs Act (the “Act”). The effective tax rate for the nine months ended March 31, 2018 was impacted by discrete period expense recorded during the December 2017 quarter related to the impacts of the Act, partially offset by discrete benefits related to impairment charges. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.
Liquidity and Capital Resources
Overview
At March 31, 2019, we had current assets of $265.4 million compared to current liabilities of $49.3 million resulting in working capital of $216.1 million and a current ratio of 5 to 1. This compares to current assets of $125.8 million and current liabilities of $51.4 million at June 30, 2018, resulting in working capital of $74.4 million and a current ratio of approximately 2 to 1. The increase in our current ratio was primarily attributable to an increase in our cash and equivalents, which is discussed further below under “Summary of Cash Flows.”
During the nine months ended March 31, 2019, liquidity needs were met from $180.9 million in operating cash flows and our available cash resources. As of March 31, 2019, the Company had no amounts outstanding and $1 billion available under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2 billion of total liquidity at March 31, 2019. The Company was in compliance with each financial covenant under the revolving credit facility as of March 31, 2019. Refer to Note 4 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 2018 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 $180.9 million for the nine months ended March 31, 2019, compared to $251.8 million for the nine months ended March 31, 2018. The decrease is primarily due to higher income taxes paid of $41.2 million over the prior period and a decrease in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $27.5 million. The increase in cash taxes paid during the current period is primarily attributable to an increase in required estimated tax payments made to various taxing authorities and an increase in prior fiscal year earnings at certain foreign subsidiaries, which corresponding tax payments were made within the current period.
Investing Activities
Net cash used in investing activities totaled $4.8 million for the nine months ended March 31, 2019, compared $2.3 million for the nine months ended March 31, 2018. The increase in cash used in investing activities is primarily due to additional CORE common stock purchased during the current period.
Financing Activities
Net cash used in financing activities totaled $48.9 million for the nine months ended March 31, 2019, compared to $226.0 million for the nine months ended March 31, 2018. The decrease in cash used in financing activities is primarily due to a decrease in repayments on 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 2018 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 the impact of recently adopted or issued accounting standards; the expected schedule for making advance payments pursuant to the Khoemacau Copper Project stream agreement and the funding of such payments; application of the royalty on production from Voisey’s Bay to a percentage of gross metal value in concentrates; expectations to settle the principal amount of 2019 Notes in cash (primarily from the available revolving credit facility) and any excess conversion value in shares plus cash in lieu of fractional shares; expectations concerning the proportion of total revenue to come from stream and royalty interests; the results of the PEA for the Peak Gold Project and the results of efforts to identify options with respect to the Company’s interests in the Peak Gold Project; the results of pre-feasibility study work for the Pueblo Viejo plant expansion; projected production estimates and estimates pertaining to timing, commencement and volume 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; fluctuations in the prices for gold, silver, copper, nickel and other metals; stream and royalty revenue estimates compared to actual revenue; 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, general and administrative expenses and dividends, 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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·
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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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·
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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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·
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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 projects and other development and construction projects;
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·
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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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·
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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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·
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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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·
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decisions and activities of the operators of properties where we hold stream and royalty interests;
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·
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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, hurricanes or earthquakes and access to sufficient raw materials, water and power;
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·
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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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·
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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;
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·
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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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·
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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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·
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contests to our stream and royalty interests and title and other defects in the properties where we hold stream and royalty interests;
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·
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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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·
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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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·
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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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·
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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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·
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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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·
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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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·
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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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·
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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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·
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changes in management and key employees; and
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·
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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 2018 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.