|TEV||8,289||TEV/EBIT||60||TTM 2019-09-30, in MM, except price, ratios|
|Item 1. Business|
|Item 1A. Risk Factors|
|Item 1B. Unresolved Staff Comments|
|Item 2. Properties|
|Item 3. Legal Proceedings|
|Item 4. Mine Safety Disclosure|
|Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities|
|Item 6. Selected Financial Data|
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations|
|Item 7A. Quantitative and Qualitative Disclosure About Market Risk|
|Item 8. Financial Statements and Supplementary Data|
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure|
|Item 9A. Controls and Procedures|
|Item 9B. Other Information|
|Item 10. Directors, Executive Officers and Corporate Governance|
|Item 11. Executive Compensation|
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters|
|Item 13. Certain Relationships and Related Transactions and Director Independence|
|Item 14. Principal Accountant Fees and Services|
|Item 15. Exhibits and Financial Statement Schedules|
|Item 16. Form 10 - K Summary|
|Balance Sheet||Income Statement||Cash Flow|
Rev, G Profit, Net Income
Ops, Inv, Fin
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of the Exchange on which Registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the closing sale price of Royal Gold common stock on December 31, 2019, as reported on the Nasdaq Global Select Market was $
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders scheduled to be held on November 18, 2020, and to be filed within 120 days after June 30, 2020, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.
This report contains and incorporates by reference “forward-looking statements” within the meaning of U.S. federal securities laws. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments. Actual results may differ, possibly materially, from forward-looking statements due to various factors. For a discussion of some of these factors, see Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), of this report.
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”). Certain information provided in this Annual Report on Form 10-K about operating properties in which we hold interests, including information about reserves, historical production, production estimates, property descriptions, and property developments, was provided to us by the operators of those properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the Securities and Exchange Commission (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.
Unless the context otherwise requires, references to “Royal Gold,” the “Company,” “we,” “us,” and “our” refer to Royal Gold, Inc. and its consolidated subsidiaries
ITEM 1. BUSINESS
We acquire and manage precious 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. Please refer to Item 2, Properties, for a discussion of the development at our principal properties.
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 June 30, 2020, we owned seven stream interests, which are on six producing properties and two development stage properties. Our stream interests accounted for approximately 72% of our total revenue for each of the fiscal years ended June 30, 2020 and 2019. We expect stream interests to continue representing a significant portion of our total revenue.
Acquisition and Management of Royalty Interests—Royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. As of June 30, 2020, we owned royalty interests on 35 producing properties, 14 development stage properties and 130 exploration stage properties, of which we consider 49 to be evaluation stage projects. We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. Royalties accounted for approximately 28% of our total revenue for each of the fiscal years ended June 30, 2020 and 2019.
We do not conduct mining operations on the properties in which we hold stream and royalty interests. Except for our interest in the Peak Gold JV, we 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, legal 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.
As discussed in further detail throughout this report, some highlights of our business during fiscal year 2020 were as follows:
|●||Our revenue increased 18% to $498.8 million, compared to $423.1 million during fiscal 2019.|
|●||We made several key leadership changes due to retirements and used our management succession planning to fill those roles.|
|●||We increased our calendar year dividend to $1.12 per basic share, which is paid in quarterly installments throughout calendar year 2020. This represents a 6% increase compared with the dividend paid during calendar year 2019.|
Dollar or “$”: Refers to U.S. dollars. We refer to Canadian dollars as C$.
Gold equivalent ounces (GEOs): GEOs are calculated as Royal Gold’s revenue divided by the average gold price for the period.
Gross smelter return (GSR) royalty: A defined percentage of the gross revenue from a resource extraction operation, less, if applicable, certain contract-defined costs paid by or charged to the operator.
Metal stream: 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.
Mineralized material: That part of a mineral system that has potential economic significance, but is not included in the proven and probable reserve estimates until further drilling and metallurgical work is completed, and until other economic and technical feasibility factors based on such work have been resolved.
Net smelter return (NSR) royalty: A defined percentage of the gross revenue from a resource extraction operation less a proportionate share of incidental transportation, insurance, refining and smelting costs.
Net value royalty (NVR): A defined percentage of the gross revenue from a resource extraction operation less certain contract-defined costs.
Probable reserves: Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
Proven reserves: Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.
Payable metal: Ounces or pounds of metal in concentrate after deduction of a percentage of metal in concentrate by a third-party smelter pursuant to smelting contracts.
Reserve: That part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.
Royalty: The right to receive a percentage or other denomination of mineral production from a mining operation.
Ton: A unit of weight equal to 2,000 pounds or 907.2 kilograms.
Tonne: A unit of weight equal to 2,204.6 pounds or 1,000 kilograms.
Fiscal 2020 Business Developments
Please refer to Item 7, MD&A, for discussion on recent liquidity and capital resource developments.
Alturas royalty acquisition
On January 29, 2020, we entered into an agreement with various private individuals for the acquisition of an NSR royalty of up to 1.06% (gold) and up to 1.59% (copper) on mining concessions included as part of the Alturas project, which is located within the Coquimbo Region of Chile and held by Compañia Minera Salitrales Limitada, a subsidiary of Barrick Gold Corporation (“Barrick”). Total consideration for the royalty is up to $41 million, of which $11 million was paid on January 29, 2020. A future payment of up to $20 million is conditioned based on a project construction decision by Barrick and the size of the minable mineralized material on the date of the construction decision. A further future payment of up to $10 million will be made upon first production from the mining concessions.
Castelo de Sonhos royalty acquisition
In August 2019, we entered into an agreement with TriStar Gold Inc. and its subsidiaries (together “TriStar”) to acquire (i) up to a 1.5% NSR royalty on the Castelo de Sonhos gold project (“CDS”), located in Brazil, and (ii) warrants to purchase up to 19,640,000 common shares of TriStar. Total consideration was $7.5 million, of which $4.5 million was paid in August 2019, $1.5 million was paid in November 2019, and $1.5 million was paid in March 2020.
Aggregate funds we invested with TriStar will be used primarily to advance CDS to the feasibility stage, including advancing permitting activities. A preliminary economic assessment for CDS was prepared by TriStar in calendar 2018 and was based on a total of 2.0 million ounces of mineralized material at an average gold grade of approximately 1.0 gram per tonne. Since August 2019, TriStar has completed reverse circulation drilling, which will support the preparation of a preliminary feasibility study. Refer to Note 3 of our notes to consolidated financial statements for further discussion.
Covid-19 and current economic environment
Several of our operating counterparties previously announced temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing COVID-19 pandemic. The economic and societal impacts associated with COVID-19 are fluid and changing rapidly, and we are currently unable to predict the nature or extent of any impacts on our results of operations and financial condition. We will continue to monitor any further developments that the COVID-19 pandemic may have on stream or royalty interests as part of our regular asset impairment analysis.
We made several key leadership changes as a result of our ongoing management succession planning. After a thorough search process, our Board of Directors appointed William Heissenbuttel as our President and Chief Executive Officer and a member of the Board of Directors, effective January 2, 2020. Mr. Heissenbuttel most recently served as our Chief Financial Officer and Vice President Strategy. In addition, the Board of Directors promoted the following executives effective January 2, 2020: Mark Isto, Executive Vice President and Chief Operating Officer; Paul Libner, Chief Financial Officer and Treasurer; and Randy Shefman, Vice President and General Counsel.
Our Operational Information
Reportable Segments and Financial Information
We manage our business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests. Royal Gold’s long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table (amounts are in thousands):
As of June 30, 2020
As of June 30, 2019
Rest of world
Our reportable segments for purposes of assessing performance for our fiscal years ended June 30, 2020, and 2019 are shown below (amounts are in thousands):
Year Ended June 30, 2020
Cost of sales (1)
Segment gross profit(3)
Year Ended June 30, 2019
Cost of sales
Segment gross profit
Total stream interests
Rest of world
Total royalty interests
|(1)||Excludes depreciation, depletion and amortization.|
|(2)||Depletion amounts are included within Depreciation, depletion and amortization on our consolidated statements of operations and comprehensive income (loss).|
|(3)||Refer to Note 14 to consolidated financial statements for a reconciliation of total segment gross profit to consolidated income (loss) before income taxes.|
Our financial results are primarily tied to the price of gold and, to a lesser extent, the prices of silver and copper, together with the amounts of production from our producing-stage stream and royalty interests. During the fiscal year ended June 30, 2020, we derived approximately 88% of our revenue from precious metals (including 79% from gold and 9% from silver), 9% from copper, and 3% from other minerals. The prices of gold, silver, copper, and other metals have fluctuated widely in recent years. The marketability and the price of metals are influenced by numerous factors beyond our control. Significant declines in the prices of gold, silver, or copper could have a material adverse effect on our results of operations and financial condition.
The mining industry in general, and streaming and royalty segments in particular, are very competitive. We compete with other streaming and royalty companies, mine operators, and financial buyers in efforts to acquire existing streaming and royalty interests. We also compete with the lenders, investors, and streaming and royalty companies providing financing to operators of mineral properties in our efforts to create new streaming and royalty interests. Our competitors may be larger than we are and may have greater resources and access to capital than we have. Key competitive factors in the stream and royalty acquisition and financing business include the ability to identify and evaluate potential opportunities, transaction structure and consideration, and access to capital.
Operators of the mines that are subject to our stream and royalty interests must comply with numerous environmental, mine safety, land use, waste disposal, remediation and public health laws and regulations promulgated by federal, state, provincial and local governments in the United States, Canada, Chile, the Dominican Republic, Ghana, Mexico, Botswana, Australia and other countries where we hold interests. Although we, as a stream or royalty interest owner, are not responsible for ensuring compliance with these laws and regulations, failure by the operators to comply with applicable laws, regulations and permits can result in injunctive action, orders to suspend or cease operations, damages, and civil and criminal penalties on the operators, which could have a material adverse effect on our results of operations and financial condition.
We were incorporated under the laws of the State of Delaware on January 5, 1981. Our executive offices are located at 1144 15th Street, Suite 2500, Denver, Colorado 80202. Our telephone number is (303) 573-1660.
We file periodic and current reports, proxy statements, and other information with the SEC. This includes our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those forms. These reports are available free of charge on our website at www.royalgold.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These reports also can be obtained on the SEC’s website at www.sec.gov. The information on our website is not part of this or any other report filed with or furnished to the SEC.
We currently have 27 employees, 18 of which work out of our office in Denver, Colorado. The remainder work out of our offices in Lucerne, Switzerland, Vancouver, Canada, and Toronto, Canada. Our employees are not subject to a labor contract or collective bargaining agreement. We consider our overall employee relations to be good.
Our global offices are adhering by the guidelines provided to the local health authorities during the COVID-19 pandemic. The adoption of a remote work environment has not caused any material interruptions to the day-to-day activities of the Company.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described in this section. Our future performance is subject to risks and uncertainties that could have a material adverse effect on our business, results of operations, and financial condition and the trading price of our common stock. We may be subject to other risks and uncertainties not presently known to us. In addition, please see our note about forward-looking statements included in Part II, Item 7, MD&A of this Annual Report on Form 10-K.
Risks Relating to our Business
Our revenue is subject to volatility in metal prices, which could negatively affect our results of operations or cash flow.
Market prices for gold, silver, copper, nickel, and other metals may fluctuate widely over time and are affected by numerous factors beyond our control. These factors include metal supply and demand, industrial and jewelry fabrication, investment demand, central banking actions, inflation expectations, currency values, interest rates, forward sales by metal producers, and political, trade, economic, or banking conditions.
Our revenue is directly tied to metal prices. Under our stream agreements, we purchase metal at a fixed price or a stated percentage of the market price and then sell the metal in the open market. If market prices decline, our revenue and cash flow from metal sales decline. A price decline can also impact our revenue under certain sliding-scale royalty agreements as we may receive a lower royalty rate when prices fall below specified thresholds. In addition, some of our royalty agreements are based on the operator’s concentrate sales to smelters and allow for price adjustments between the operator and the smelter based on metals prices on a future date, typically three to five months after shipment of concentrate. These price adjustments can decrease our revenue in future periods if metal prices decline following shipment.
Price declines could cause an operator to reduce, suspend, or terminate production or development at a project, which would impact our future revenue from the project. These production or development decisions could prevent us from recovering our initial investment in the project or result in an impairment to the value of our initial investment.
We own passive interests in mining properties and cannot ensure properties are developed or operated in our best interests.
Our revenue is derived entirely from stream and royalty interests in properties owned and operated by third parties. In general, we have no decision-making authority regarding the development or operation of the mineral properties underlying our stream and royalty interests. Operators make all development and operating decisions, including decisions about permitting, feasibility analysis, mine design and operation, processing, plant and equipment matters, and temporary or permanent suspension of operations. We generally are not entitled to compensation if operations are shut down. This creates risk for us because operators may at times have business interests that are inconsistent with our interests or may act contrary to our interests.
Our revenue is subject to operational and other risks faced by operators of the properties in which we hold stream or royalty interests.
We generally are not required to pay capital or operating costs on projects in which we hold stream or royalty interests. However, our revenue and the value of our investments are indirectly subject to hazards and risks normally associated with developing and operating mining properties, including the following:
|●||insufficient ore reserves|
|●||increased capital or operating costs|
|●||declines in the price of gold, silver, copper, nickel, or other metals|
|●||construction or development delays|
|●||operational disruptions, including those caused by pandemics or other global or local health crises|
|●||inability to obtain or maintain necessary permits|
|●||inability to replace or increase reserves as properties are mined|
|●||inability to maintain, or challenges to, exploration or mining rights|
|●||changes in mining taxes and royalties payable to governments|
|●||significant changes to environmental, permitting, or other regulatory requirements|
|●||challenges to operations, permits, or mining rights by local communities, indigenous populations, non-government organizations, or others|
|●||litigation between operators and third parties relating to the properties|
|●||community or civil unrest, including protests and blockades|
|●||labor shortages, increased labor costs, labor disputes, strikes, or work stoppages|
|●||unavailability of mining, drilling, or other equipment|
|●||unanticipated geological conditions or metallurgical characteristics|
|●||unanticipated ground or water conditions, including lack of access to sufficient water|
|●||inadequate supplies of power or other raw materials|
|●||pit wall or tailings dam failures or underground stability issues|
|●||fires, explosions, or other industrial accidents|
|●||injuries to humans, property, or the environment|
|●||natural catastrophes and environmental hazards such as earthquakes, droughts, floods, forest fires, hurricanes, weather, or climate events|
|●||physical effects of climate change and regulatory changes designed to reduce the effects of climate change;|
|●||uncertain political and economic environments|
|●||insufficient financing or inability to obtain financing|
|●||default by an operator on its obligations to us or its other creditors|
|●||insolvency, bankruptcy, or other financial difficulty of the operator|
|●||changes in laws or regulations or the enforcement of laws or regulations|
The occurrence of any of these events could negatively impact operations at the properties in which we hold stream or royalty interests, which in turn could have a material adverse effect on our revenue and cash flow.
The current COVID-19 pandemic has adversely affected, and may continue to adversely affect, operations at some properties in which we have stream or royalty interests, which could have a material adverse effect on our results of operations and financial condition.
The world is currently experiencing a deadly outbreak of the coronavirus disease 2019, or COVID-19. Public health and government authorities have recommended and mandated precautions to mitigate the spread of COVID-19, including in some cases quarantines, shelter-in-place orders, and restrictions on mining-related activities. As a result, several of our operating counterparties, including at our principal properties, have had temporary operational curtailments. There may be additional curtailments. The COVID-19 pandemic could also disrupt operators’ supply or distribution chains or access to workers, which in turn could adversely impact their production or sales. In addition, development and exploration activities at some properties may be delayed or suspended. Any of these events could have a material adverse impact on our results of operations and financial condition in future periods. We are unable to predict the nature or extent of any impact the COVID-19 pandemic may have on our future results of operations and financial condition.
The current COVID-19 pandemic has significantly impacted the global economy and markets over the past several months and may continue to do so, which could adversely affect our business or the trading price of our stock.
The global economy, metal prices, and financial markets have experienced significant volatility and uncertainty due to COVID-19. Our revenue is directly related to the market price of gold and other metals. Metal price volatility causes our revenue to fluctuate from period to period. This price volatility could also cause operators or developers to defer or forgo projects, which could adversely impact our future revenue. Moreover, in the ordinary course of business, we review opportunities to acquire new stream and royalty interests and currently have acquisition opportunities at various stages of review. Reduced economic and travel activities or illness among our management team as a result of COVID-19 could limit or delay acquisition opportunities or other business activities. In addition, economic volatility, disruptions in the financial markets, or severe price declines for gold or other metals could adversely affect our ability to obtain future debt or equity financing for acquisitions on acceptable terms. Government efforts to counter the economic effects of COVID-19 through liquidity and stimulus programs may be insufficient or ineffective in preventing or reducing the effects of a recession. It is difficult to determine the extent of the economic and market impacts from COVID-19 and the many ways in which they may negatively affect our business and the trading price of our stock.
A significant portion of our revenue comes from a small number of operating properties, which means that adverse developments at these properties could have a more significant or lasting impact on our results of operations than if our revenue was less concentrated.
Approximately 75% of our revenue for fiscal year 2020 came from six properties: Mount Milligan, Andacollo, Pueblo Viejo, Wassa, Peñasquito, and Cortez. We expect these properties to continue to represent a significant portion of revenue going forward. This concentration of revenue could mean that adverse developments, including any adverse decisions made by the operators, at one or more of these properties could have a more significant or longer-term impact on our results of operations than if our revenue was less concentrated.
Operators may fail to comply with their contractual arrangements with us or may interpret their obligations in a manner adverse to us, which could decrease our revenue or increase our costs.
At times, operators may be unable or unwilling to fulfill their contractual obligations to us. In addition, we often rely on the operators for the calculation of our stream deliveries or royalty payments. When we enter into new stream or royalty interests, we attempt to secure contractual rights that allow us to monitor operators’ compliance with their obligations to us, such as audit or access rights. However, these rights may not be sufficient to ensure compliance. In addition, our stream and royalty agreements are often complex and may be subject to interpretation or uncertainties. Operators and other counterparties may interpret our interests in a manner adverse to us. For these or other reasons, we could be forced to expend resources or take legal action to enforce our contractual rights. We may not be successful in enforcing our contractual rights. As a result, our revenue relating to the disputed interests could be adversely affected. We may also need to expend significant monetary and human resources to defend our position, which could adversely affect our results of operations. In addition, we may be required to make retroactive revenue adjustments in future periods relating to past period revenue as a result of information that we learn through audit or access rights.
We often have limited access to data about operating properties, which may make it difficult for us to project or assess the performance of our stream and royalty interests.
We often do not have the contractual right to receive production, operating, and other data from the operators of the properties in which we hold stream and royalty interests. As a result, it may be difficult for us to project or assess the performance of a stream or royalty interest. This could result in delays in, or reductions of, our cash flow from the amounts that we anticipate based on the stage of development of or production from the properties, which could have an adverse impact on our results of operations or financial condition.
Our stream and royalty interests may not result in the anticipated returns or may not otherwise ultimately benefit our business.
We are continually reviewing opportunities to acquire new stream and royalty interests, and we have acquisition opportunities at various stages of review. Any acquisition could be material to us. At times, we also consider opportunities to restructure our existing stream or royalty interests where we believe the restructuring would provide a long-term benefit to us, even though it could reduce near-term revenues or result in the incurrence of transaction-related costs. The success
of our stream and royalty interests is based in part on our ability to make accurate assumptions at the time of acquisition about the amount and timing of revenue to be derived from those interests. These assumptions are based on a variety of factors, including the geological, metallurgical, permitting, environmental, and other aspects of the project. For development projects, we also make assumptions about the cost, timing, and conduct of development. If an operator fails to bring a project into production as expected or if actual performance otherwise falls short of our assumptions, our revenue derived from the project may not be sufficient to yield an adequate, or any, return on our investment. In addition, we could be required to decrease the carrying value of our investment, which could have a material adverse effect on our results of operations or financial condition. We cannot ensure that any acquisition or other transaction will ultimately benefit Royal Gold.
We may not be able to acquire additional stream or royalty interests at appropriate valuations.
Our future success depends largely on our ability to acquire additional stream and royalty interests at appropriate valuations. We may not be able to identify and complete acquisitions of additional interests at appropriate prices or terms. We may not have sufficient liquidity or may not be able to obtain debt or equity financing to fund acquisitions due to economic volatility, credit crises, declines in metal prices, or other reasons. Certain of our competitors are larger and have greater financial resources than we do, and we may not be able to compete effectively against them. In addition, changes to tax rules, accounting policies, or the treatment of stream interests by ratings agencies could make streams or royalties less attractive to counterparties. Any of these factors could adversely affect our ability to acquire new stream or royalty interests, which would adversely affect our future results of operations and financial condition.
Some of the agreements governing our stream and royalty interests contain terms that reduce or cap the revenue generated from those interests.
Revenue from some of our stream and royalty interests decreases or stops after threshold production, delivery, or payment milestones are achieved. For example, our stream interests at Pueblo Viejo, Andacollo, Wassa, and Khoemacau, and certain of our royalty interests at other properties, contain these types of limitations. As a result, past production and revenue relating to these interests may not be indicative of future results.
If the assumptions underlying operators’ production, reserve, or mineralized material estimates are inaccurate or if future events cause operators to negatively adjust their previous estimates, our future revenue or the value of our investments could be adversely affected.
The operators of the properties in which we hold stream and royalty interests generally prepare production and reserve estimates for the properties. We do not independently prepare or verify this information. There are numerous uncertainties inherent in these estimates, many of which are outside the operators’ control. As a result, production and reserve estimates are subjective and necessarily depend upon a number of assumptions, including, among others, reliability of historical data, geologic and mining conditions, metallurgical recovery, metal prices, operating costs, capital expenditures, development and reclamation costs, mining technology improvements, and the effects of government regulation. If any of the assumptions that operators make in connection with production or reserve estimates are incorrect, actual production could be significantly lower than the production or reserve estimates, which could adversely affect our future revenue and the value of our investments. In addition, if operators’ estimates with respect to the timing of production are incorrect, we may experience variances in expected revenue from period to period.
Some operators also report publicly or to us estimates of mineralized material. The term “mineralized material” does not indicate proven or probable reserves as defined by the SEC. Mineralized material is subject to future exploration and development and associated risks and may never convert to future reserves. In addition, estimates of mineralized material are subject to similar uncertainties and assumptions as discussed above with respect to mineral reserves.
Our disclosures relating to operating properties will change as a result of new SEC disclosure rules, and we continue to face uncertainty around how some of these rules apply to a streaming and royalty company.
In 2018, the SEC adopted amendments to its disclosure requirements for mining companies, including streaming and royalty companies. We are required to comply with the new rules for our fiscal year beginning on July 1, 2021. Our disclosures about operating properties will change under the new rules, and, in some cases, we may be required to disclose in our SEC filings more or less information than we currently disclose about these properties. There continues to be uncertainty about how the rules will apply to a streaming and royalty company with significant investments in properties run by international operators that are not required to report under SEC rules.
Most of our revenue is derived from properties outside the United States, and risks associated with conducting business in foreign countries or other sovereign jurisdictions could adversely affect our results of operations or financial condition.
Over 90% of our revenue comes from properties outside of the United States, and many of our operators are organized outside of the United States. Within the United States and other countries, indigenous people may be recognized as sovereign entities and may enforce their own laws and regulations. Our and operators’ activities are subject to the risks associated with conducting business in foreign countries or other sovereign jurisdictions, including the following:
|●||expropriation or nationalization of mining property or other government takings|
|●||seizure of mineral production|
|●||exchange and currency controls and fluctuations|
|●||limitations on foreign exchange or repatriation of earnings|
|●||restrictions on mineral production or price controls|
|●||import or export regulations, including trade wars and sanctions and restrictions on metal exports|
|●||changes in government taxation, royalties, tariffs, or duties|
|●||changes in economic, trade, diplomatic, or other relationships between countries or the effects on global and economic conditions, the stability of global financial markets, or the ability of key market participants to operate in certain financial markets|
|●||high rates of inflation|
|●||unfamiliar or uncertain foreign real estate, mineral tenure, safety, or environmental rules|
|●||war, crime, terrorism, sabotage, blockades, or other forms of civil unrest|
|●||uncertain political or economic environments|
|●||exposure to liabilities under anti-corruption or anti-money laundering laws|
|●||suspension of the enforcement of creditors’ or stockholders’ rights|
|●||loss of access to government-controlled infrastructure, such as roads, bridges, rails, ports, power sources, and water supplies|
These risks may limit or disrupt the development or operation of properties in which we hold stream and royalty interests or impair our rights or interests in these properties, which could adversely affect our results of operations or financial condition.
We and our operating properties may be subject to environmental risks, including risks associated with climate change, which could have a material adverse effect on our financial condition or the value of our investments.
Mining operations are subject to extensive laws and regulations governing land use and the protection of the environment. In addition, many countries have implemented laws and regulations designed to address the effects of climate change, including rules to reduce industrial emissions and increase energy efficiency. These laws and regulations are constantly evolving in a manner generally expected to result in stricter standards, more liability, and increased costs. Compliance with these laws and regulations can impose substantial costs and burdens on operators of properties subject to our interests. In addition, an operator’s failure to comply with these laws and regulations could result in injunctive action, orders to
suspend or cease operations, damages, or civil or criminal penalties on the operator. If any of these events were to occur, our revenue or the value of our investment could be adversely affected.
Further, due to expansive environmental laws, it is possible that we could become subject to environmental liabilities for historic periods during which we owned or operated properties or relative to our current ownership interests in lease and underlying unpatented mining claims. These liabilities could have a material adverse effect on our results of operations or financial condition.
Unknown defects in our stream or royalty interests or the bankruptcy or insolvency of an operator could have a material adverse effect on the value of our investments.
Despite our due diligence practices, it is possible that unknown defects or problems will exist relating to the existence, validity, enforceability, terms, or geographic extent of our stream and royalty interests. Similarly, stream interests and, in many jurisdictions, royalty interests are contractual in nature, rather than interests in land. As a result, these interests may not survive a bankruptcy or insolvency of an operator. We often do not have the protection of security interests that could help us recover all or part of our investment in a stream or royalty interest in the event of an operator’s bankruptcy or insolvency. If our stream or royalty interests were set aside through judicial or administrative proceedings, the value of our investments could be adversely affected.
Anti-corruption laws and regulations could subject us to liability and require us to incur costs.
We are subject to the U.S. Foreign Corrupt Practices Act (the "FCPA") and other laws that prohibit improper payments or offers of payments to third parties, including foreign governments and their officials, for the purpose of obtaining or retaining business. In some cases, we invest in mining operations in jurisdictions that have experienced corruption in the past. Our international investment activities create the risk of unauthorized payments or offers of payments in violation of the FCPA or other anti-corruption laws by one of our employees or agents in violation of our policies. In addition, the operators of the properties in which we own stream and royalty interests may fail to comply with anti-corruption laws and regulations. Although we are passive investors in these properties, enforcement authorities could deem us to have some culpability for the operators’ actions. Any violations of the FCPA or other anti-corruption laws could result in significant civil or criminal penalties to us and could have an adverse effect on our reputation.
A significant disruption to our information technology systems could adversely affect our business and operating results.
We rely on a variety of information technology and automated operating systems to manage and support our operations. For example, we depend on our information technology systems for financial reporting, operational and investment management, and email. These systems contain our proprietary business information and personally identifiable information of our employees. The proper functioning of these systems and the security of this data is critical to the efficient operation and management of our business. In addition, these systems could require modifications or upgrades as a result of technological changes or growth in our business. These changes could be costly and disruptive to our operations and could impose substantial demands on management time. Our systems, and those of third-party providers, could be vulnerable to damage or disruption caused by catastrophic events, power outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic break-ins, unauthorized access, or cyber-attacks. Any security breach could compromise our networks, and the information stored on them could be improperly accessed, disclosed, lost, or stolen. The steps that we have taken to secure our systems and electronic information may not be adequate to prevent a disruption. Any unauthorized activities could disrupt our operations, damage our reputation, or result in legal claims or proceedings, any of which could adversely affect our business, reputation, or operating results.
We depend on the services of our executives and other key employees, and the loss of one or more members of our management team could harm our business.
We believe that our success depends on retaining qualified executives and other key employees. Our management team has significant industry and company-specific experience. If we are unsuccessful at retaining or attracting qualified personnel, our business could be disrupted and our ability to achieve our business objectives and grow effectively could be jeopardized. We do not currently maintain key person life insurance on any of our directors or employees.
Current and future indebtedness could adversely affect our financial condition and impair our ability to operate our business.
As of June 30, 2020, we had $305 million outstanding and $695 million available under our revolving credit facility. We may incur additional indebtedness in the future. Current and future indebtedness could have important consequences, including the following:
|●||require us to dedicate a substantial portion of our cash flow from operations to service indebtedness, thereby reducing the availability of cash flow to fund acquisitions, working capital, or dividends|
|●||limit our flexibility in planning for, or reacting to, changes in our business|
|●||restrict us from exploiting business opportunities|
|●||make us more vulnerable to a downturn in our business or the economy|
|●||place us at a competitive disadvantage compared to our competitors with less indebtedness|
|●||require the consent of our existing lenders to incur additional indebtedness|
|●||limit our ability to borrow additional funds for acquisitions, working capital, or debt-service requirements|
Our credit facility contains financial and other restrictive covenants. For example, the agreement includes financial covenants that require us to maintain a maximum leverage ratio and a minimum interest coverage ratio (as these terms are defined under the agreement). These covenants could limit our ability to engage in activities that are in our long-term best interests. Our failure to comply with these covenants would result in an event of default that, if not waived, could result in the acceleration of all outstanding indebtedness. Our credit facility expires in June 2024. In the future, we may be unable to obtain new financing or refinancing on acceptable terms.
The proposed phase out of the London Interbank Offered Rate ("LIBOR") could adversely affect our results of operations or financial condition.
In 2017, the United Kingdom's Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to phase out LIBOR by the end of calendar 2021. The Federal Reserve Board has convened a group of private-market participants to identify a proposed alternative rate and address the transition from LIBOR to an alternative rate. In 2019, the FASB proposed guidance that would help facilitate the market transition from existing reference rates to alternative rates. Borrowings under our revolving credit facility bear interest at LIBOR plus an applicable margin. Under the agreement governing the facility, if LIBOR is phased out, we are required to negotiate in good faith to establish an alternative rate under the facility. There is currently no definitive information regarding the future use of LIBOR or a replacement rate. We are unable to predict whether and to what extent a LIBOR change would impact our future results of operations and financial condition.
Risks Related to our Common Stock
Our stock price may continue to be volatile, and you could lose all or part of your investment.
The market price of our common stock has fluctuated in the past and may continue to do so in the future. For example, during fiscal year 2020, the market price of our common stock ranged from a low of $59.78 to a high of $139.63. Many
factors unrelated to operating performance can contribute to volatility in the market price of our common stock, including the following:
|●||economic, market, or political conditions, including the effects of COVID-19|
|●||market prices of gold, silver, copper, nickel, and other metals|
|●||developments relating to operating properties|
|●||interest rates and expectations about inflation|
|●||credit market conditions|
These market fluctuations, regardless of cause, may materially and adversely affect our stock price. As a result, you could lose all or part of your investment.
We may issue additional equity securities, which would dilute our existing stockholders and reduce our per-share financial measures and could reduce the market price of our common stock.
We may issue additional equity in the future in connection with acquisitions, strategic transactions, or for other purposes. If we issue additional equity securities, our existing stockholders would be diluted and our per-share financial measures would be reduced. In addition, shares of common stock that we issue in connection with an acquisition may not be subject to resale restrictions. The market price of our common stock could decline if our stockholders sell substantial amounts of our common stock or are perceived by the market as intending to sell these shares other than in an orderly manner.
We may change our practice of paying dividends, which could reduce the value of your investment.
We have paid a cash dividend on our common stock since calendar year 2000. Our board of directors has discretion in determining whether to declare a dividend based on a number of factors, including metal prices, economic or market conditions, earnings, cash flow, financial condition, and funding requirements for future opportunities or operations. In addition, corporate law limitations or future contractual restrictions could limit our ability to pay dividends in the future. If our board of directors reduces or eliminates future dividends, our stock price could fall, and the success of your investment would depend largely on any future stock price appreciation. We have increased our dividend in prior years. There can be no assurance, however, that we will continue to do so or that we will pay any dividends.
Provisions of Delaware law and our organizational documents could delay or prevent a third party from acquiring us.
The anti-takeover provisions of Delaware law impose barriers to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws contain provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. Among other things, these provisions provide for the following:
|●||allow our board of directors to issue shares of common stock and preferred stock without stockholder approval, except as may be required by Nasdaq rules|
|●||allow our board of directors to establish the rights and preferences of authorized and unissued preferred stock|
|●||provide for a classified board, whereby our board of directors is divided into three classes of directors serving staggered three-year terms|
|●||prohibit stockholders from calling special meetings of stockholders|
|●||require advance notice of stockholder proposals and related information|
|●||require vacancies and newly created directorships on the board of directors to be filled only by affirmative vote of a majority of the directors then serving on the board|
These provisions could increase the cost of acquiring us or discourage a third party from acquiring us or removing incumbent management, which could decrease the value of your investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
We do not own or operate the properties on which we hold stream or royalty interests, except for our interest in the Peak Gold JV, and therefore much of the information disclosed in this Form 10-K regarding these properties is provided to us by the operators. For example, the operators of certain properties provide us information regarding metals production, estimates of mineral reserves and additional mineralized material and production estimates. A list of our producing and development stage streams and royalties, as well their respective reserves, are summarized in Table 1 “Operators’ Estimated Proven and Probable Gold Reserves” below within this Item 2. More information is available to the public regarding certain properties in which we have stream or royalty interests, including reports filed with the SEC or with the Canadian securities regulatory agencies available at www.sec.gov or www.sedar.com, respectively.
We manage our business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests. The description of our principal streams and royalties set forth below includes the location, operator, stream or royalty rate, access and any material current developments at the property. For any reported production amounts discussed below, we consider reported production to relate to the amount of metal sales subject to our stream and royalty interests. Please refer to Item 7, MD&A, for discussion on production estimates, historical production and revenue for our principal properties. The map below illustrates the location of our principal producing stage properties.
Principal Producing Properties
We consider both historical and future potential revenues to determine which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from producing properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, technical reports, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause us to conclude that one or more of such stream and royalty interests are no longer principal to our business. Currently, we consider the properties discussed below (listed alphabetically by stream and royalty interest) to be principal to our business. Based on the factors discussed above, we no longer consider Rainy River to be a principal property.
Andacollo (Region IV, Chile)
The Company’s wholly owned subsidiary, RGLD Gold AG (“RGLD Gold”) owns the right to purchase 100% of the gold produced from the Andacollo copper-gold mine until 900,000 ounces of payable gold have been delivered, and 50% thereafter. The cash purchase price equals 15% of the monthly average gold price for the month preceding the delivery date for all gold purchased. As of June 30, 2020, approximately 237,100 ounces of payable gold have been delivered to RGLD Gold.
Andacollo is an open-pit mine and milling operation located in central Chile, Region IV in the Coquimbo Province and is operated by Compañía Minera Teck Carmen de Andacollo (“CMCA”), a 90% owned subsidiary of Teck Resources Limited (“Teck”). The Andacollo mine is located in the foothills of the Andes Mountains approximately 1.5 miles southwest of the town of Andacollo. The regional capital of La Serena and the coastal city of Coquimbo are approximately 34 miles northwest of the Andacollo mine by road, and Santiago is approximately 215 miles south by air. Access to the mine is provided by Route 43 (R-43) south from La Serena to El Peñon. From El Peñon, D-51 is followed east and eventually curves to the south to Andacollo. Both R-43 and D-51 are paved roads.
Stream deliveries from Andacollo were approximately 43,900 ounces of gold during the fiscal year ended June 30, 2020, compared to approximately 51,900 ounces of gold during the fiscal year ended June 30, 2019. Stream deliveries decreased as a result of the temporary suspension of operations during the quarter ended December 31, 2019, due to a workers’ strike from October 14, 2019 through December 5, 2019, which was resolved with the ratification of a new 36-month collective agreement.
Teck expects grades to continue to decline towards reserve grades in calendar year 2020 and future years. The current life of mine for Andacollo is expected to continue until calendar year 2035. Additional permits or permit amendments will be required to execute the life of mine plan.
Khoemacau Project (Botswana)
In February 2019, RGLD Gold entered into a silver stream with Khoemacau Copper Mining (Pty.) Limited (“KCM”) for the purchase of silver produced from the Khoemacau Project (“Khoemacau”). Under the purchase and sale agreement, subject to the satisfaction of certain conditions, RGLD Gold will make advance payments totaling $212 million toward the purchase of 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Base Silver Stream”). At KCM’s option and subject to various conditions, RGLD Gold will make up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced from Khoemacau (the “Option Silver Stream”). The stream rate will drop to 40% of silver produced from Khoemacau following delivery to RGLD Gold of 32 million silver ounces under the Base Silver Stream, or to 50% of the silver produced from Khoemacau following delivery of 40 million silver ounces to RGLD Gold should KCM exercise the entire Option Silver Stream. RGLD Gold will pay a cash price equal to 20% of the spot silver price for each ounce delivered under the Base Silver Stream and Option Silver Stream; however, if KCM achieves mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), RGLD Gold will pay a higher ongoing cash price under the Base Silver Stream and Option Silver Stream for silver ounces delivered in excess of specific annual thresholds.
Khoemacau is a copper-silver development project located within the North West and Ghanzi Districts of Botswana owned by KCM. The license area is generally southwest of the town of Maun and northeast of the town of Ghanzi. Khoemacau is accessed from the city of Maun, approximately 40 miles southwest to the town of Toteng on a major travel route, Botswana’s A3 highway, a paved road and then approximately 16 miles on gravel road to reach the Boseto plant site. The Zone 5 mining area is connected to the Boseto plant by a 20-mile gravel road.
According to KCM, progress continued at Khoemacau during the June 2020 quarter and the project reached approximately 54% of construction completion as of June 30, 2020 with 81% of the capital committed. According to KCM, activities are focused on refurbishment of the Boseto mill, underground development, completion of accommodation, power and water infrastructure at Zone 5 and completing construction of the haul road between Zone 5 and the Boseto mill. Also, according to KCM, underground development has cumulatively advanced 2,360 meters in the five declines, which is in line with planned development rates.
On July 5, 2020, RGLD Gold made its fourth advance payment of $11.1 million, which brings the total contribution to $146.8 million. RGLD Gold expects to commit approximately $35 - $45 million during the remainder of calendar year 2020, and assuming the midpoint of this range, the total remaining commitment in calendar year 2021 is expected to range from approximately $25 million for the Base Silver Stream up to approximately $78 million should KCM elect to fully exercise the Option Silver Stream. Further payments are subject to certain conditions and are scheduled to be made on a quarterly basis using an agreed formula and certification process as project spending progresses.
According to KCM, although a six-month state of emergency has been declared by the Government of Botswana to help prevent the spread of COVID-19, mining has been designated an “essential service” and general development activity at Khoemacau is continuing. However, due to the impacts experienced from travel restrictions, some activities have been slowed or rescheduled. Barring any potential further impacts caused by COVID-19 considerations, we now expect the first shipment of concentrate to occur late in the third calendar quarter of 2021.
Mount Milligan (British Columbia, Canada)
RGLD Gold owns the right to purchase 35% of the payable gold and 18.75% of the payable copper produced from the Mount Milligan copper-gold mine in British Columbia, Canada, which is operated by an indirect subsidiary of Centerra Gold Inc. (“Centerra”). The cash purchase price for gold is equal to the lesser of $435 per ounce, with no inflation adjustment, or the prevailing market price when purchased. The cash purchase price for copper is 15% of the spot price. As of June 30, 2020, approximately 516,500 ounces of payable gold and 34.71 million pounds of payable copper have been delivered to RGLD Gold.
Mount Milligan is an open-pit mine and is located within the Omenica Mining Division in North Central British Columbia, approximately 96 miles northwest of Prince George, 53 miles north of Fort St. James, and 59 miles west of Mackenzie. The Mount Milligan project is accessible by commercial air carrier to Prince George, British Columbia, then by vehicle from the east via Mackenzie on the Finlay Philip Forest Service Road and the North Philip Forest Service Road, and from the west via Fort St. James on the North Road and Rainbow Forest Service Road. Road travel to the Mount Milligan property site is 482 miles from Prince Rupert and 158 miles from Prince George.
Gold stream deliveries from Mount Milligan were approximately 59,900 ounces during the fiscal year ended June 30, 2020, compared to approximately 68,500 ounces during the fiscal year ended June 30, 2019. The decrease reflects differences in the timing of shipments and settlements during the periods, in addition to lower gold grades processed and lower gold recovery, slightly offset by increased tonnage processed.
Copper stream deliveries from Mount Milligan were approximately 12.7 million pounds during the fiscal year ended June 30, 2020, compared to approximately 9.1 million pounds during the fiscal year ended June 30, 2019. Increased deliveries resulted from differences in the timing of shipments and settlements during the periods, in addition to higher tonnage and higher copper grades processed, slightly offset by lower copper recovery.
On March 26, 2020, Centerra published an updated National Instrument 43-101 (“NI 43-101”) technical report for the Mount Milligan mine, which provided a detailed update to the life of mine plan contained in the previous NI 43-101 report for Mount Milligan published by Centerra in calendar 2017.
Centerra reported a reduction in proven and probable reserves due to increased costs, lower expected productivities, and lower process plant throughput compared to their calendar 2017 technical report, as well as an update to the resource model and re-estimation of metallurgical recoveries. Details for the reserves and updated mine plan, which does not contemplate any growth capital or inclusion of additional mineralized material, were reported by Centerra as follows:
|●||Reserves as of December 31, 2019 containing 2.4 million ounces of gold and 959 million pounds of copper (comprised of 191.0 million tonnes grading 0.39 grams per tonne of gold and 0.23% of copper). Reserves were calculated using a gold price of $1,250 per ounce, a copper price of $3.00 per pound, and an exchange rate of US$ 1.00 to C$ 1.25;|
|●||Production based on a 9-year reserve life through calendar 2028;|
|●||Average life of mine recoveries of 61.8% for gold and 80.6% for copper;|
|●||Life of mine payable gold production of 1.45 million ounces, or an average of 161,000 ounces per year;|
|●||Life of mine payable copper production of 735.6 million pounds, or an average of 81.7 million pounds per year; and|
|●||Average life of mine all-in sustaining cost of $704 per ounce of gold sold on a by-product basis, which includes sustaining capital and copper revenue credits (assuming a copper price of $3.00 per pound and an exchange rate of US$ 1.00 to C$ 1.25).|
Significant reductions in proven and probable reserves or mineralized material are indicators of potential impairment for our stream and royalty interests. As part of our regular asset impairment analysis during the quarter ended March 31, 2020, we determined that an impairment of our stream interest at Mount Milligan was not necessary as (i) the earlier financial impairment taken by Centerra does not impact the mine operating performance, and (ii) the reduction in reserves and mineralized material at Mount Milligan resulted in updated gold and copper depletion rates that remain well below current and long-term consensus gold and copper prices. Due to the reduction in gold and copper reserves, as reported by Centerra, the depletion rate of our investment at Mount Milligan increased from $402 to $764 per ounce of gold and from $0.81 to $1.48 per pound of copper.
On April 1, 2020, Centerra announced that reductions of manpower and throughput at Mount Milligan would occur as a result of actions implemented to combat the COVID-19 pandemic. Centerra has since reported that workforce numbers returned to normal over the month of May resulting in mining and plant tonnages returning to planned levels. According to Centerra, process plant throughput averaged approximately 60% of target levels and mining operations experienced a four week partial shutdown during the reduction period, and during April, the process plant was shut down for eleven days to perform routine maintenance and reline the SAG mill.
Centerra also reported that stored water inventory at Mount Milligan, which is critical to the ability to process ore through the mill on a sustainable basis, was in excess of six million cubic meters as at June 30, 2020. Centerra reported that spring water pumping started in April, and substantial snowpack and a wet spring led to volumes pumped as of the end of June that exceeded those of the entire 2019 pumping season. In addition, Centerra reported that Mount Milligan continued to access ground water from the Lower Rainbow Valley wellfield and other groundwater wells near the tailings storage facility during the quarter ended June 30, 2020. Centerra also reported that it continued exploration activities focused on extending the groundwater capacity in the vicinity of the existing infrastructure, and these activities will continue for the remainder of 2020. Further, Centerra reported that it continues to pursue a longer-term solution to its water requirements at Mount Milligan.
On July 31, 2020, Centerra confirmed that there is no change to the previously issued production guidance for Mount Milligan for calendar year 2020 of 140,000 to 160,000 payable ounces of gold and 80 to 90 million pounds of copper.
Pueblo Viejo (Sanchez Ramirez, Dominican Republic)
RGLD Gold owns the right to purchase 7.5% of Barrick’s interest in the gold produced from the Pueblo Viejo mine until 990,000 ounces of gold have been delivered, and 3.75% thereafter. The cash purchase price for gold is 30% of the spot price of gold per ounce delivered until 550,000 ounces of gold have been delivered, and 60% of the spot price of gold per ounce delivered thereafter. RGLD Gold also owns the right to purchase 75% of Barrick’s interest in the silver produced from the Pueblo Viejo mine, subject to a minimum silver recovery of 70%, until 50 million ounces of silver have been delivered, and 37.5% thereafter. The cash purchase price for silver is 30% of the spot price of silver per ounce delivered until 23.1 million ounces of silver have been delivered, and 60% of the spot price of silver per ounce delivered thereafter. As of June 30, 2020, approximately 226,400 ounces of payable gold and 7.9 million ounces of payable silver have been delivered to RGLD Gold.
The Pueblo Viejo mine is located in the province of Sanchez Ramirez, Dominican Republic, approximately 60 miles northwest of Santo Domingo, and is owned by a joint venture in which Barrick holds a 60% interest and is responsible for operations, and in which Newmont Corporation holds a 40% interest. Pueblo Viejo is accessed from Santo Domingo by traveling northwest on Autopista Duarte, Highway #1, approximately 48 miles to Piedra Blanca and proceeding east for approximately 14 miles on Highway #17 to the gatehouse for Pueblo Viejo. Both Highway #1 and Highway #17 are paved.
Gold stream deliveries from Pueblo Viejo were approximately 45,000 ounces of gold during the fiscal year ended June 30, 2020, compared to approximately 41,200 ounces of gold during the fiscal year ended June 30, 2019. Silver stream deliveries were approximately 1.7 million ounces of silver during the fiscal year ended June 30, 2020, compared to approximately 2.0 million ounces of silver during the fiscal year ended June 30, 2019.
Barrick reports that it continues to advance engineering and evaluation work towards a feasibility study for the process plant expansion and proposed tailings storage facility that could extend the mine life at Pueblo Viejo to beyond calendar year 2040. Barrick estimates that the process plant and tailings expansion project could significantly increase throughput and allow the mine to maintain average annual gold production of approximately 800,000 ounces after calendar year 2022 (on a 100% basis), and that the increase in tailings storage capacity has the potential to convert approximately 11 million ounces of mineralized material to reserves (on a 100% basis).
Barrick expects the proportion of lower grade stockpile ore in the feed blend to steadily increase until the mine expansion pits are fully developed as part of the decision on the proposed plant and tailings expansion project. Barrick also reported lower gold production during the June 2020 quarter as a result of a planned maintenance shutdown. For calendar year 2020, Barrick indicated production attributable to their interest at Pueblo Viejo is expected to be between 530,000 and 580,000 ounces of gold.
Wassa (Western Region, Ghana)
RGLD Gold owns the right to purchase 10.5% of the gold produced from the Wassa, Prestea and Bogoso mines, operated by Golden Star Resources Ltd. (“Golden Star”), until an aggregate 240,000 ounces have been delivered. Once the applicable delivery threshold is met, the stream percentage will decrease to 5.5%. The cash purchase price for gold is 20%
of the spot price per ounce delivered until 240,000 ounces of gold have been delivered, and 30% of the spot price per ounce delivered thereafter. As of June 30, 2020, approximately 110,500 ounces of payable gold have been delivered from Wassa, Prestea and Bogoso mines, of that 69,700 ounces of payable gold have been delivered from Wassa to RGLD Gold.
The Wassa underground mine and oxide ore mill are located near the village of Akyempim in the Wassa East District, in the Western Region of Ghana, approximately 50 miles north of Cape Coast and 93 miles west of the capital Accra. The main access to the site is from the east, via the Cape Coast to Twifo-Praso road, then over the combined road-rail bridge on the Pra River. There is also an access road from Takoradi in the south via Mpohor. An airport at Takoradi is capable of handling jet aircraft and is serviced by several commercial flights each day.
Stream deliveries from Wassa were approximately 16,500 ounces of gold during the fiscal year ended June 30, 2020, compared to approximately 16,600 ounces of gold during the fiscal year ended June 30, 2019.
On March 27, 2020, Golden Star reported that deep drilling in calendar year 2019 successfully extended the mineralization at Wassa by approximately 700 feet to the south where the deposit remains open to the south and down dip. Golden Star further reported that the exploration strategy during calendar year 2020 would transition away from growth of the overall resource to infill drilling to help define the potential mine plans for the southern extension of the operation. According to Golden Star, as of December 31, 2019 the proven mineral reserve at Wassa increased 87% over the prior year period to 1.4 million ounces of gold, and total underground mineralized material at Wassa contained approximately 11.2 million ounces of gold.
On July 27, 2020, Golden Star announced that it had signed a binding agreement with Future Global Resources Limited (“FGR”) for the sale of the Prestea and Bogoso mines. This transaction will require the separation of the RGLD Gold stream agreement into separate stream agreements for each of Wassa and Prestea/Bogoso, which is conditional on, among other things, the approval of the board of directors of Royal Gold. Further, on July 28, 2020, Golden Star announced that, if approved, the separated Wassa stream agreement would require Golden Star to deliver 10.5% of the gold produced from Wassa in return for a cash purchase price for gold of 20% of the spot price per ounce delivered, until the delivery of 240,000 ounces, after which the obligation would decrease to 5.5% of the gold produced from Wassa in return for a cash purchase price for gold of 30% of the spot price per ounce delivered.
On July 28, 2020, Golden Star reported calendar year 2020 gold production guidance for Wassa of between 165,000 to 170,000 ounces, up from the previous guidance range of 155,000 to 165,000 ounces.
Cortez (Nevada, USA)
Cortez is a series of large open-pit and underground mines, utilizing mill and heap leach processing, which are operated by Nevada Gold Mines LLC (“NGM”), a joint venture between Barrick and Newmont Corporation (“Newmont”) with respect to their Nevada operations. The operation is located approximately 60 air miles southwest of Elko, Nevada, in Lander County. The site is reached by driving west from Elko on Interstate 80 approximately 46 miles and proceeding south on State Highway 306 approximately 23 miles. Our royalty interest at Cortez applies to the Pipeline and South Pipeline deposits, part of the Gap pit and the Crossroads deposit.
The royalty interests we hold at Cortez include:
On average, above a gold price of $470 per ounce after the relevant deductions, the combined royalty interests of GSR1, GSR2, GSR3, NVR1 and NVR1C are equivalent to an approximate 8.2% gross smelter return royalty to Royal Gold.
We also own three other royalties in the Cortez area where there is currently no production and no reserves attributed to these royalty interests.
Production attributable to our royalty interest at Cortez increased to 173,300 ounces of gold over the prior fiscal year of 96,700 ounces of gold, as a result of production ramping up at the Crossroads deposit, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests and portions of the NVR1 and GSR3 royalty interests.
During the quarter ended March 31, 2020, Barrick provided us with an updated reserve statement and life of mine plan for Cortez. According to Barrick, as of December 31, 2019, total proven and probable reserves subject to our royalty interests contained 3.5 million ounces of gold (consisting of 87.0 million tonnes of ore at a grade of 1.26 grams per tonne). Reserves were calculated at a gold price of $1,200 per ounce.
Further according to Barrick, total gold production at Cortez from the regions subject to our interests is expected to be approximately 175,000 ounces in calendar year 2020, increasing to an approximate average of 425,000 ounces from calendar 2021 through calendar 2026. The expected production increase from calendar year 2020 to calendar year 2021 is primarily due to higher contribution from the Crossroads deposit, which is expected to ramp up through calendar year 2023 and offset declining production from the other royalty regions.
Peñasquito (Zacatecas, Mexico)
We own a production payment equivalent to a 2.0% NSR royalty on all metal production from the Peñasquito open-pit mine, located in the State of Zacatecas, Mexico, and operated by a subsidiary of Newmont. The Peñasquito mine is located approximately 17 miles west of the town of Concepción del Oro, Zacatecas, Mexico. The mine, composed of two main deposits called Peñasco and Chile Colorado, hosts large gold, silver, zinc and lead reserves. The deposits contain both oxide and sulfide material, resulting in heap leach and mill processing. There are two access routes to the site. The first is via a turnoff from Highway 54 onto the State La Pardita road, then onto the Mazapil to Cedros State road. The second access is via the Salaverna by-pass road from Highway 54 approximately 16 miles south of Concepción del Oro. There is a private airport on site and commercial airports in the cities of Saltillo, Zacatecas and Monterrey.
For fiscal 2020, gold production attributable to our royalty interest at Peñasquito increased to 312,200 ounces over the prior fiscal year of 158,800 ounces; silver production increased to 27.8 million ounces over the prior fiscal year of 16.4 million ounces; lead increased to 182.3 million pounds over the prior fiscal year of 117.4 million pounds; and zinc increased to 393.9 million pounds over the prior fiscal year of 216.2 million pounds.
The increase in production is attributable to higher grades and recoveries and tons processed compared to the prior fiscal year, as well as the suspension of operations during the June 2019 quarter, resulting in significantly lower sales from Peñasquito during the prior fiscal year.
On April 22, 2020, Newmont announced Peñasquito reached a definitive agreement with the San Juan de Cedros community (one of 25 neighboring communities) in Zacatecas, Mexico on land use, water availability, infrastructure and social investments, which includes access to 10,000 hectares for exploration and operational purposes, and resolves all outstanding issues with the community.
On May 5, 2020, Newmont announced that operations at Peñasquito were placed on care and maintenance on April 12 due to a Mexican federal government decree to temporarily suspend all non-essential activities in Mexico as part of a nationwide effort to help slow the spread of COVID-19. According to Newmont, a phased ramp-up began in mid-May with milling and mining activities ramping up at the beginning of June, and production in the plant was back to pre-COVID levels by mid-June.
On July 30, Newmont provided full year 2020 production guidance for Peñasquito of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc, and 190 million pounds of lead.
Table 1 below summarizes proven and probable reserves for gold, silver, copper, nickel, zinc, lead and cobalt that are subject to our stream and royalty interests as of December 31, 2019, as reported to us by the operators of the mines. Properties are currently in production unless noted as development (“DEV”) within the table. The exploration royalties we own do not contain proven and probable reserves as of December 31, 2019. Please refer to pages 22-26 for the footnotes to Table 1.
Operators’ Estimated Proven and Probable Gold Reserves
As of December 31, 2019(1)
1.75% - 2.5% NSR(7)
0.40 - 5.0% GSR(8)
Nevada Gold Mines LLC
0.40 - 5.0% GSR(8)
Nevada Gold Mines LLC
Nevada Gold Mines LLC
Nevada Gold Mines LLC
4.52% NVR (9)
Nevada Gold Mines LLC
1.0 - 2.0% NSR(10,11)
0.6 - 0.9% NSR(12)
Goldstrike (SJ Claims)
Nevada Gold Mines LLC
Hasbrouck Mountain (DEV)
West Vault Mining/Clover Nevada
Nevada Gold Mines LLC
Waterton Precious Metals Fund
Relief Canyon (DEV)
Waterton Precious Metals Fund
Nevada Gold Mines LLC
0.0 - 2.0% GSR(17)
Back River - Goose Lake (DEV)
Sabina Gold & Silver
1.0 - 1.5% NSR(19)
0.00013 x quarterly avg. gold price
Kutcho Creek (DEV)
LaRonde Zone 5
35% of payable gold(20)
6.5% of gold produced(21)
100% of payable gold(22)
La Fortuna (DEV)
7.5% of payable gold(24)
La India (DEV)
Mara Rosa (DEV)
Jaguar Nickel (DEV)
Washington H. Soul Pattinson
King of the Hills
Wembley Durack (DEV)
10.5% of payable gold (27)
Golden Star Resources
10.5% of payable gold (27)
Golden Star Resources
Operators’ Estimated Proven and Probable Silver Reserves
As of December 31, 2019(1)
1.0 - 2.0% NSR(10,11)