ROYAL GOLD INC 10-Q

ITEM 1A. RISK FACTORS The following risk factors supplement, and should be read in conjunction with, the risk factors included in Part I, Item 1A of our 2024 10-K. Our indebtedness or difficulties in accessing the commercial debt market could adversely affect our financial condition and impair our ability to operate our business. Following our payment of the Advance under the Kansanshi precious metals purchase agreement and exercise of the accordion feature under our revolving credit facility, we had $1.4 billion available under our revolving credit facility, $825 million of which was drawn. We anticipate making additional draws under our revolving credit facility to fund the closing of the Sandstorm and Horizon Transactions. Historically, we have used borrowings under our revolving credit facility to finance investments and acquisitions, and we may incur indebtedness for investments, acquisitions or other purposes in future periods. Our credit facility expires in June 2030. In the future, we may be unable to obtain new financing or refinance indebtedness on acceptable terms or in amounts sufficient for our business objectives. Our ability to obtain financing, our borrowing costs, and the terms of any financings depend, in part, on prevailing market conditions at the time we seek financing, which may vary based on factors such as market interest rates and ancillary fees, acceptable return targets for lenders, changes in strategy among lenders, and lenders’ willingness to provide financing to the mining industry. Weakness in financial markets or economic conditions, or depressed market prices for gold, silver, copper, or other metals, may also increase the interest rates that lenders require us to pay or adversely affect our ability to obtain financing. Further, financial institutions are facing increasingly rigorous regulation, including more stringent capital and leverage requirements, which may decrease their ability or willingness to lend to us in amounts and on terms comparable to our current credit facility, or at all. Higher borrowing costs, future increases in our level of indebtedness, or difficulties in accessing the commercial debt market could adversely affect us as follows: • 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 or greater access to financing • 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 • increase our cost of capital, including as a result of higher interest rates and the effects of exchange rates 32 • decrease our future earnings • increase our exposure to the credit risks of bank group lenders or those institutions with which we maintain deposits Our credit agreement contains financial and other restrictive covenants. 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 could result in an event of default that, if not waived, could result in the acceleration of all outstanding indebtedness. The issuance of a significant number of shares of Royal Gold common stock and a resulting “market overhang” could adversely affect the market price of shares of Royal Gold common stock after completion of the Sandstorm Transaction. On completion of the Sandstorm Transaction, a significant number of additional shares of Royal Gold common stock will be issued and available for trading in the public market. The increase in the number of shares of our common stock may lead to sales of such shares or the perception that such sales may occur (commonly referred to as “market overhang”), either of which may adversely affect the market for, and the market price of, shares of our common stock. The market price of Royal Gold common stock may decline if large amounts of Royal Gold common stock are sold following the completion of the Sandstorm Transaction and may be affected by factors different from those that historically have affected or that are currently affecting the market price of Royal Gold common stock. The market price of Royal Gold common stock may fluctuate significantly following completion of the Sandstorm Transaction and holders of Royal Gold common stock could lose some or all of the value of their investment. If the Sandstorm Transaction is consummated, Royal Gold will issue shares of Royal Gold common stock to former Sandstorm shareholders. The Sandstorm arrangement agreement contains no restrictions on the ability of former Sandstorm shareholders to sell or otherwise dispose of such shares following completion of the Sandstorm Transaction. Former Sandstorm shareholders may decide not to hold the shares of Royal Gold common stock that they receive in the Sandstorm Transaction, and Royal Gold’s historic stockholders may decide to reduce their investment in Royal Gold as a result of the changes to Royal Gold’s investment profile as a result of the Sandstorm Transaction. These sales of Royal Gold common stock (or the perception that these sales may occur) could have the effect of depressing the market price for Royal Gold common stock. In addition, Royal Gold’s financial position after completion of the Sandstorm Transaction may differ from its financial position before the completion of the Sandstorm Transaction, and the results of Royal Gold’s operations and cash flows after the completion of the Sandstorm Transaction may be affected by factors different from those currently affecting its financial position or results of operations and cash flows, all of which could adversely affect the market price of Royal Gold common stock. Accordingly, the market price and performance of Royal Gold common stock is likely to be different from the performance of Royal Gold common stock prior to the Sandstorm Transaction. The Sandstorm and Horizon Transactions are subject to a number of conditions which may not be satisfied or waived, may delay the completion of the Transactions and could result in additional expenditures of money and resources. Each of Royal Gold’s, Sandstorm’s and Horizon’s obligations to consummate the Transactions, as applicable, are subject to the satisfaction (or waiver by Royal Gold, Sandstorm, or Horizon to the extent permissible under applicable laws) of a number of conditions, including, for the Sandstorm Transaction, approvals by Royal Gold’s stockholders and Sandstorm’s shareholders, approvals by the Supreme Court of British Columbia and receipt of certain regulatory clearances and approvals, and, for the Horizon Transaction, approvals by the Supreme Court of British Columbia and receipt of certain regulatory clearances and approvals. Many of the conditions to completion of the Transactions are not within Royal Gold’s control and Royal Gold cannot predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to the outside date set out in the Transactions, it is possible that either, or both, of the Transactions may be terminated. In addition, completion of the Transactions may take longer and could cost more than we expect. The requirements for obtaining the required regulatory approvals and clearances could delay the completion of the Transactions for a significant period of time or prevent them from occurring. Any delay in completing the Transactions may adversely affect the synergies and other benefits that Royal Gold expects to achieve if the Transactions and the integration of businesses were to be completed within the expected timeframe. Royal Gold, Sandstorm and Horizon are expected to incur significant transaction costs in connection with the Transactions, which may be in excess of those anticipated by them. Royal Gold, Sandstorm and Horizon have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Transactions, combining the operations of the companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by Royal 33 Gold whether or not the Transactions are completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs, and filing fees. Royal Gold will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. Royal Gold, Sandstorm and Horizon will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Transactions and the integration of the companies’ businesses. While Royal Gold, Sandstorm and Horizon have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The combined company may be unable to integrate the businesses of Royal Gold, Sandstorm and Horizon successfully or realize the anticipated benefits of the Transactions. The Transactions involve the combination of companies that currently operate as independent public companies. The combination of independent businesses is complex, costly and time consuming, and significant management attention and resources will be required to integrate the business practices and operations of Sandstorm and Horizon into Royal Gold. This may divert our focus and resources from other strategic opportunities and/or operational matters during this integration stage. The success and the ability to realize the anticipated benefits of the Transactions will depend upon our ability to effectively manage the integration of Sandstorm and Horizon. Potential difficulties and risks that may accompany the Transactions include the following: • the inability to successfully combine the business or personnel of Royal Gold, Sandstorm and Horizon in a manner that permits the combined company to achieve, on a timely basis, or at all, the cost savings and other benefits anticipated to result from the Transactions; • complexities associated with managing and supporting the combined businesses and the expanded operations and portfolio; and • potential unknown liabilities and unforeseen increased expenses or delays associated with the Transactions. The benefits and synergies realized from the Transactions may vary from our expectations. The combined company may fail to realize the anticipated benefits and synergies expected from the Transactions, which could adversely affect the combined company’s business, financial condition and operating results. For example, no assurances can be given that certain development assets which are expected to be completed in the near to mid-term, including Platreef, MARA and the Hod Maden Project, will begin production on the expected timelines or at all, or that their actual operating performance will meet our expectations. Expected benefits from the Transactions are based on estimates of a variety of key factors, including mineral reserves and resources, grade, recovery rates, and the ability of processing infrastructure to meet desired throughput rates, among others, and such estimates may prove incorrect. Significant demands will be placed on the combined company as a result of the Transactions. As a result of the pursuit and completion of the Transactions, significant demands will be placed on the managerial, operational and financial personnel and systems of the combined company. We cannot provide any assurance that the systems, procedures and controls of the combined company will be adequate to support the expanded portfolio of streaming and royalty interests and other assets and associated increased costs and complexity following and resulting from the Transactions. The combined company’s interest in the Hod Maden project following closing of the Transactions will subject to the risks associated with the conduct of joint ventures and joint operations. Horizon has a 30% equity interest in the entity which owns the Hod Maden project, and following closing of the Transactions, the combined company will hold this interest. Horizon is not the operator of the Hod Maden project and Horizon’s interest in the Hod Maden project is subject to the risks normally associated with the conduct of joint ventures or joint operations. The existence or occurrence of one or more of the following circumstances and events could have a material adverse impact on the combined company’s profitability or the viability of its interests held through the joint arrangement, which could have a material adverse impact on the combined company’s future cash flows, earnings, results of operations and financial condition: increases in the capital requirements to develop the Hod Maden project; the inability of the operator to secure sufficient project-level financing for a portion of the development costs for Hod Maden or not 34 being able to obtain such sufficient financing on favorable terms to the combined company or the other joint venture partners; changes in the timing or amount of cash calls to fund the equity portion of the Hod Maden project by the joint venture partners and the ability of the joint venture partners (including the combined company) to fund or finance such cash calls; the ability of the operator to fulfil its role as operator of the Hod Maden project, including social and regulatory licenses to operate; that mining, environmental or operating licenses already issued for the Hod Maden project could be suspended or revoked, or amendments to existing permits be rejected; disagreements with the partners on how to develop and operate the Hod Maden project efficiently; the combined company’s inability to exert influence over certain strategic decisions made in respect of the Hod Maden project; the inability of our operating partners to meet their obligations to the joint operation or third parties; and litigation with our partners regarding joint operation matters. The success of any joint operation will be dependent on the operator for the timing of activities related to the Hod Maden project and the combined company will be largely unable to direct or control the activities of the operator. The combined company will be unable to provide assurance that all decisions of the operator will achieve the expected goals, including the successful development of the Hod Maden project and its transition to commercial production. Royal Gold stockholders will have reduced ownership in the combined company. Royal Gold will issue 0.0625 shares of Royal Gold common stock in exchange for each Sandstorm common share held (other than Sandstorm common shares held by Royal Gold or its affiliates or dissenting Sandstorm shareholders), subject to adjustment if applicable, pursuant to the terms of the Sandstorm arrangement agreement. Following the completion of the Sandstorm Transaction, it is anticipated that persons who were stockholders of Royal Gold and shareholders of Sandstorm immediately prior to the Sandstorm Transaction will own approximately 77% and 23% of the combined company, respectively, on a fully diluted basis. As a result, Royal Gold’s current stockholders will have less influence over the combined company as stockholders than they currently have over Royal Gold. Royal Gold, Sandstorm and Horizon may be the targets of legal claims, securities class actions, derivative lawsuits and other claims and negative publicity related to the Transactions. Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisitions, mergers or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Royal Gold’s, Sandstorm’s and Horizon’s respective liquidity and financial condition. Lawsuits that may be brought against Royal Gold, Sandstorm, Horizon or their respective directors which could seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the arrangement agreements already implemented and to otherwise enjoin the parties from consummating the Transactions. In each arrangement agreement, one of the conditions to the closing is that no law (including injunction or judgements) is in effect that makes the Transaction illegal or enjoins or otherwise prohibits Royal Gold, Sandstorm or Horizon, as applicable, from consummating the Transaction. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of a Transaction, that injunction may delay or prevent the Transactions from being completed within the expected timeframe or at all, which may adversely affect Royal Gold’s, Sandstorm’s and Horizon’s respective business, financial position, results of operations and cash flows. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.