ROYAL GOLD INC [RGLD] Filings

10-Q 1 rgld-20220930x10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13357

Royal Gold, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		84-0835164
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation)		Identification No.)

1144 15^th Street, Suite 2500
Denver, Colorado		80202
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code (303) 573-1660

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of the Exchange on which Registered
Common Stock, $0.01 par value	RGLD	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 65,643,710 shares of Royal Gold common stock outstanding as of October 27, 2022.

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In this Quarterly Report on Form 10-Q, Royal Gold, Inc., together with its subsidiaries, is collectively referred to as “Royal Gold,” “we,” “us,” or “our.”

INDEX

		PAGE

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	34

SIGNATURES		35

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ITEM 1. FINANCIAL STATEMENTS

ROYAL GOLD, INC.

Consolidated Balance Sheets

(Unaudited, amounts in thousands except share data)


	September 30,		December 31,
	2022		2021
ASSETS
Cash and equivalents	$	122,238	$	143,551
Royalty receivables		28,476		54,088
Income tax receivable		15,056		4,915
Stream inventory		13,691		11,607
Prepaid expenses and other		2,322		1,835
Total current assets		181,783		215,996
Stream and royalty interests, net (Note 3)		3,084,380		2,443,752
Other assets		110,630		97,284
Total assets	$	3,376,793	$	2,757,032
LIABILITIES
Accounts payable	$	7,332	$	6,475
Dividends payable		22,985		22,966
Income tax payable		21,716		19,070
Other current liabilities		12,443		12,917
Total current liabilities		64,476		61,428

Debt (Note 5)		446,327		—
Deferred tax liabilities		140,197		87,705
Other liabilities		5,854		6,688
Total liabilities		656,854		155,821
Commitments and contingencies (Note 12)
EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued		—		—
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,592,597 and 65,564,364 shares outstanding, respectively		656		656
Additional paid-in capital		2,211,353		2,206,159
Accumulated earnings		495,570		381,929
Total Royal Gold stockholders’ equity		2,707,579		2,588,744
Non-controlling interests		12,360		12,467
Total equity		2,719,939		2,601,211
Total liabilities and equity	$	3,376,793	$	2,757,032

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL GOLD, INC.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, amounts in thousands except share data)


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
Revenue (Note 6)	$	131,429	$	174,431		440,226	$	485,047

Costs and expenses
Cost of sales (excludes depreciation, depletion and amortization)		23,221		27,230		69,670		73,367
General and administrative		7,554		7,129		25,797		21,272
Production taxes		1,119		2,054		4,765		6,042
Depreciation, depletion and amortization		37,761		50,611		129,739		139,935
Total costs and expenses		69,655		87,024		229,971		240,616

Operating income		61,774		87,407		210,255		244,431

Fair value changes in equity securities		356		176		(1,221)		4,035
Interest and other income		3,571		819		5,665		2,227
Interest and other expense		(8,814)		(1,908)		(11,110)		(4,873)
Income before income taxes		56,887		86,494		203,589		245,820

Income tax expense		(10,954)		(16,028)		(20,347)		(39,242)
Net income and comprehensive income		45,933		70,466		183,242		206,578
Net income and comprehensive income attributable to non-controlling interests		(141)		(290)		(633)		(699)
Net income and comprehensive income attributable to Royal Gold common stockholders	$	45,792	$	70,176	$	182,609	$	205,879
Net income per share attributable to Royal Gold common stockholders:
Basic earnings per share	$	0.70	$	1.07	$	2.78	$	3.14
Basic weighted average shares outstanding		65,579,834		65,556,608		65,571,737		65,552,586
Diluted earnings per share	$	0.70	$	1.07	$	2.78	$	3.13
Diluted weighted average shares outstanding		65,660,152		65,627,845		65,661,197		65,628,827
Cash dividends declared per common share	$	0.35	$	0.30	$	1.05	$	0.90

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL GOLD, INC.

Consolidated Statements of Changes in Stockholders’ Equity

Three months ended September 30, 2022, and 2021

(unaudited, amounts in thousands except share data)


	Royal Gold Stockholders

				Additional
	Common Shares			Paid-In		Accumulated		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Interests		Equity
Balance at June 30, 2022	65,569,687	$	656	$	2,210,809	$	472,764	$	12,429	$	2,696,658
Stock-based compensation and related share issuances	22,910		—		544		—		—		544
Distributions to non-controlling interests	—		—		—		—		(210)		(210)
Net income and comprehensive income	—		—		—		45,792		141		45,933
Dividends declared	—		—		—		(22,986)		—		(22,986)
Balance at September 30, 2022	65,592,597	$	656	$	2,211,353	$	495,570	$	12,360	$	2,719,939

	Royal Gold Stockholders

				Additional
	Common Shares			Paid-In		Accumulated		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Interests		Equity
Balance at June 30, 2021	65,551,061	$	656	$	2,203,863	$	286,249	$	12,647	$	2,503,415
Stock-based compensation and related share issuances	12,741		—		594		—		—		594
Distributions to non-controlling interests	—		—		—		—		(271)		(271)
Net income and comprehensive income	—		—		—		70,176		290		70,466
Dividends declared	—		—		—		(19,691)		—		(19,691)
Balance at September 30, 2021	65,563,802	$	656	$	2,204,457	$	336,734	$	12,666	$	2,554,513

ROYAL GOLD, INC.

Consolidated Statements of Changes in Stockholders’ Equity

Nine Months ended September 30, 2022, and 2021

(unaudited, amounts in thousands except share data)


	Royal Gold Stockholders

				Additional
	Common Shares			Paid-In		Accumulated		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Interests		Equity
Balance at December 31, 2021	65,564,364	$	656	$	2,206,159	$	381,929	$	12,467	$	2,601,211
Stock-based compensation and related share issuances	28,233		—		5,194		—		—		5,194
Distributions to non-controlling interests	—		—		—		—		(740)		(740)
Net income and comprehensive income	—		—		—		182,609		633		183,242
Dividends declared	—		—		—		(68,968)		—		(68,968)
Balance at September 30, 2022	65,592,597	$	656	$	2,211,353	$	495,570	$	12,360	$	2,719,939

	Royal Gold Stockholders

				Additional
	Common Shares			Paid-In		Accumulated		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Interests		Equity
Balance at December 31, 2020	65,548,415	$	656	$	2,201,076	$	189,910	$	13,037	$	2,404,679
Stock-based compensation and related share issuances	15,387		—		3,381		—		—		3,381
Distributions to non-controlling interests	—		—		—		—		(1,070)		(1,070)
Net income and comprehensive income	—		—		—		205,879		699		206,578
Dividends declared	—		—		—		(59,055)		—		(59,055)
Balance at September 30, 2021	65,563,802	$	656	$	2,204,457	$	336,734	$	12,666	$	2,554,513

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL GOLD, INC.

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)


	Nine Months Ended
	September 30,		September 30,
	2022		2021
Cash flows from operating activities:
Net income and comprehensive income	$	183,242	$	206,578
Adjustments to reconcile net income and comprehensive income to net cash provided by operating activities:
Depreciation, depletion and amortization		129,739		139,935
Non-cash employee stock compensation expense		6,632		4,340
Fair value changes in equity securities		1,221		(4,035)
Deferred tax (benefit) expense		(17,757)		8,465
Other		734		1,418
Changes in assets and liabilities:
Royalty receivables		25,612		(8,643)
Stream inventory		(2,083)		1,678
Income tax receivable		(10,141)		4,858
Prepaid expenses and other assets		(3,073)		(1,608)
Accounts payable		857		2,859
Income tax payable		2,646		615
Uncertain tax positions		—		(12,378)
Other liabilities		(1,310)		(1,111)
Net cash provided by operating activities	$	316,319	$	342,971

Cash flows from investing activities:
Acquisition of stream and royalty interests		(715,829)		(384,315)
Khoemacau subordinated debt facility		—		(25,000)
Proceeds from sale of equity securities		—		8,651
Other		(676)		(910)
Net cash used in investing activities	$	(716,505)	$	(401,574)

Cash flows from financing activities:
Repayment of debt		(50,000)		(200,000)
Borrowings from revolving credit facility		500,000		100,000
Net payments from issuance of common stock		(1,438)		(959)
Common stock dividends		(68,938)		(59,046)
Other		(751)		(3,043)
Net cash provided by (used in) financing activities	$	378,873	$	(163,048)
Net decrease in cash and equivalents		(21,313)		(221,651)
Cash and equivalents at beginning of period		143,551		381,859
Cash and equivalents at end of period	$	122,238	$	160,208

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING STANDARDS

Royal Gold Inc., together with its subsidiaries (“Royal Gold,” the “Company,” “we,” “us,” or “our”), is engaged in the business of acquiring and managing precious metals 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. A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine at a price determined for the life of the transaction by the purchase agreement. Royalties are non-operating interests in a mining project that provide the right to revenue or metals produced from the project after deducting contractually specified costs, if any.

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2022. These interim unaudited consolidated financial statements should be read in conjunction with our Transition Report on Form 10-K for the six months ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 17, 2022 (“Transition Report”).

Recent Accounting Standards

We have evaluated all the recently issued, but not yet effective, accounting standards that have been issued or proposed by the Financial Accounting Standards Board or other standards-setting bodies through the filing date of these unaudited consolidated financial statements and do not believe the future adoption of any such standards will have a material impact on our consolidated financial statements.

2. ACQUISITIONS

Acquisition of Great Bear Royalties Corporation

On September 9, 2022, we completed the previously announced acquisition of all of the issued and outstanding shares of Great Bear Royalties Corporation (“GBR”) for cash consideration of approximately C$199.6 million (US$151.7 million) (“the Acquisition Price”). GBR’s sole material asset is a 2.0% net smelter return royalty (“Great Bear Royalty”) that covers the entirety of the Great Bear Project in the Red Lake district of Ontario, Canada, owned and operated by a subsidiary of Kinross Gold Corporation (“Kinross”). The Great Bear Royalty includes all metals produced from contiguous claims covering 9,140 hectares and will be registered on title to the relevant claims. Royalty payments will be made quarterly with applicable standard deductions. The purchase price was funded with available cash on hand.

As part of the acquisition and in exchange for information and access to the project provided by Kinross, we granted an option to Kinross to purchase a 25% interest in the Great Bear Royalty (0.5% of the 2.0% royalty rate) for an amount equal to 25% of the Acquisition Price, adjusted for inflation, at any time from the transaction closing date until the earlier of a construction decision for the Great Bear Project and 10 years after the transaction closing date.

The Great Bear Royalty is the sole material asset of GBR and represents substantially all the fair value of GBR’s gross assets. As a result, the GBR acquisition has been accounted for as an asset acquisition and the fair values of the GBR assets acquired are shown below:

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)


	(in thousands)
Purchase Price	$	151,679
Cash		315
Other assets		293
Royalty interests in mineral property (Great Bear royalty)		151,071
Total allocated purchase price	$	151,679

The $151.1 million allocated fair value of the Great Bear Royalty, plus $2.3 million of direct transaction costs and deferred tax of $53.6 million have been capitalized with the Great Bear Royalty interest and allocated to exploration stage royalty interests within Stream and royalty interests, net on our consolidated balance sheets. The deferred tax was recorded as a gross-up to the Great Bear Royalty mineral interest as prescribed by the applicable guidance.

Acquisition of Additional Royalty Interest on Cortez Complex

On August 2, 2022, we acquired a sliding scale gross royalty (“Cortez Complex Royalty”) on production from an area including the Cortez mine operational area and the Fourmile development project (the “Cortez Complex”) for cash consideration of $525 million. The area within the Cortez Complex is owned or controlled by Nevada Gold Mines LLC (“NGM”), a joint venture between Barrick Gold Corporation (“Barrick”) and Newmont Corporation, with the exception of the Fourmile development project which is 100% owned and operated by Barrick. The royalty is a life of mine sliding scale gross royalty payable at a rate of 0% at a gold price less than $400 per ounce, increasing to 3% at a gold price above $900 per ounce, and is payable on 40% of all production from the Cortez Complex. Based on information available, the royalty would not cover the existing deposits within the Robertson property. At current gold prices the Cortez Complex Royalty is an effective 1.2% gross royalty on the Cortez Complex and is not subject to any stepdowns or caps. Deductions from the Cortez Complex Royalty payments are limited to third-party royalties that existed prior to the creation of the royalty in 2008, which include the existing Crossroads and Pipeline royalties owned by Royal Gold. The purchase price was funded with debt and available cash on hand.

The acquisition has been accounted for as an asset acquisition and the $525 million cash consideration, plus direct acquisition costs, have been recorded and allocated between production and exploration stage royalty interests (Note 3) within Stream and royalty interests, net on our consolidated balance sheets. On the date of acquisition, approximately $199 million and $326 million was allocated to production stage and exploration stage royalty interests, respectively. The acquisition cost of the production stage Cortez Complex Royalty will be depleted using the units of production method, which is estimated using aggregate proven and probable reserves, as provided by NGM.

The royalty is payable after cumulative production from the Cortez Complex of 15 million gold equivalent ounces from January 1, 2008 onwards. During the quarter ended September 30, 2022, the production threshold was reached and approximately 3,300 ounces of gold production was attributable to the royalty. We expect all production from the Cortez Complex in the fourth quarter of 2022 to be subject to the royalty. The royalty is payable within forty-five days after the end of each calendar quarter.

Lawyers Royalty Acquisition

On March 24, 2022, we acquired a 0.5% net smelter returns royalty (“NSR”) on production from the Lawyers Project, currently operated by Benchmark Metals Inc., which is located in British Columbia, Canada. As part of this transaction, we also acquired a right of first offer (“ROFO”) for an existing 2.0% NSR royalty over the Ranch Project owned by Thesis Gold, Inc. that is located adjacent to the Lawyers Project. We paid $8.0 million in cash consideration for the royalty and ROFO to Guardsmen Resources Inc. The Lawyers Project acquisition has been accounted for as an asset acquisition. The $8.0 million cash consideration, plus direct acquisition costs, have been recorded as an exploration stage royalty interest (Note 3) within Stream and royalty interests, net on our consolidated balance sheets.

Khoemacau Silver Stream

On February 23, 2022, we made an advance payment of $10.0 million toward the option stream which increased our right to receive payable silver produced from Khoemacau from 90% to 93%, and on March 14, 2022, we made our final advance payment of $16.5 million toward the option stream which increased our right to receive payable silver produced from 93%

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)

to 100%. Cumulative advance payments of $265 million, plus direct acquisition costs, have been recorded as a production stage stream interest within Stream and royalty interests, net on our consolidated balance sheets.

As of September 30, 2022, $25.0 million of the subordinated debt facility, and $4.4 million of accrued interest remains outstanding on the Khoemacau subordinated debt facility, and these amounts are included in Other assets in our consolidated balance sheets. Refer to our Transition Report for further details on the Khoemacau silver stream acquisition and subordinated debt facility.

3. STREAM AND ROYALTY INTERESTS, NET

The following tables summarize our stream and royalty interests, net as of September 30, 2022 and December 31, 2021.


As of September 30, 2022 (Amounts in thousands):	Cost		Accumulated Depletion		Net
Production stage stream interests:
Mount Milligan	$	790,635	$	(379,708)	$	410,927
Pueblo Viejo		610,404		(281,730)		328,674
Andacollo		388,182		(149,586)		238,596
Khoemacau		265,911		(11,621)		254,290
Rainy River		175,727		(58,328)		117,399
Wassa		146,475		(93,474)		53,001
Other		69,100		(11,200)		57,900
Total production stage stream interests		2,446,434		(985,647)		1,460,787

Production stage royalty interests:
Cortez		280,219		(28,352)		251,867
Voisey's Bay		205,724		(117,228)		88,496
Red Chris		116,187		(1,797)		114,390
Peñasquito		99,172		(56,529)		42,643
Other		447,246		(395,641)		51,605
Total production stage royalty interests		1,148,548		(599,547)		549,001
Total production stage stream and royalty interests		3,594,982		(1,585,194)		2,009,788

Development stage stream interests:
Other		12,038		—		12,038
Development stage royalty interests:
Côté		45,421		—		45,421
Other		73,233				73,233
Total development stage stream and royalty interests		130,692		—		130,692

Exploration stage stream interests:
NX Gold		34,253		—		34,253
Exploration stage royalty interests:
Cortez		325,654		—		325,654
Great Bear		206,965		—		206,965
Pascua-Lama		177,690		—		177,690
Red Chris		48,895		—		48,895
Côté		29,610		—		29,610
Other		120,833		—		120,833
Total exploration stage stream and royalty interests		943,900		—		943,900
Total stream and royalty interests, net	$	4,669,574	$	(1,585,194)	$	3,084,380

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ROYAL GOLD, INC.

Notes to Consolidated Financial Statements

(Unaudited)


As of December 31, 2021 (Amounts in thousands):	Cost		Accumulated Depletion		Net
Production stage stream interests:
Mount Milligan	$	790,635	$	(336,921)	$	453,714
Pueblo Viejo		610,405		(260,321)		350,084
Andacollo		388,182		(139,035)		249,147
Khoemacau		239,411		(3,402)		236,009
Rainy River		175,727		(50,115)		125,612
Wassa		146,475		(84,915)		61,560
Other		69,101		(4,193)		64,908
Total production stage stream interests		2,419,936		(878,902)		1,541,034

Production stage royalty interests:
Voisey's Bay		205,724		(113,602)		92,122
Red Chris		116,187	<