What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-02-04 compared with 2020-11-05 · 198 added, 126 removed, 176 unchanged (65% of the section changed)

15 unchanged sentences

● 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 September 30, 2020, we owned eight stream interests, which are on six producing properties and two development stage properties.

Stream interests accounted for 73% of our total revenue for the three months ended September 30, 2020.

As of December 31, 2020 , we owned eight stream interests, which are on six producing properties and two development stage properties.

Stream interests accounted for approximately 68% and 70% of our total revenue for the three and six months ended December 31, 2020, respectively, and 72% and 73% for the three and six months ended December 31, 2019, respectively.

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 revenue or metals produced from the project after deducting specified costs, if any.

As of September 30, 2020, we owned royalty interests on 34 producing properties, 15 development stage properties and 131 exploration stage properties, of which we consider 49 to be evaluation stage projects.

As of December 31, 2020 , we owned royalty interests on 35 producing properties, 15 development stage properties and 131 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 27% of our total revenue for the three months ended September 30, 2020

Royalty interests accounted for approximately 32% and 30% of our total revenue for the three and six months ended December 31, 2020, respectively, and 28% and 27% for the three and six months ended December 31, 2019, respectively.

We do not conduct mining operations on the properties in which we hold stream and royalty interests, and we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.

3 unchanged sentences

analysis of technical, financial, legal, and other confidential information of an opportunity;

submission of

indications of interest and term sheets;

submission of indications of interest and term sheets;

participation in preliminary discussions and negotiations;

4 unchanged sentences

The marketability and the price of metals are influenced by numerous factors beyond our control, and significant changes in metal prices can have a material effect on our revenue.

For the three months ended September 30, 2020, and 2019, average metal prices and percentages of revenue by metal were as follows:

Fiscal Three months ended

September 30, 2020

September 30, 2019

Percentage of Revenue

For the three and six months ended December 31, 2020 and 2019, average metal prices and percentages of revenue by metal were as follows:

Three Months Ended

Six Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

Gold ($/ounce)

2 unchanged sentences

COVID-19 and the Current Economic Environment

Since the beginning of calendar year 2020, several of our operating counterparties have instituted temporary operational curtailments due to the ongoing COVID-19 pandemic.

The pandemic and resulting economic and societal impacts have also made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance.

In turn, our revenue and the value of our investments may be similarly impacted.

The effects of the pandemic are fluid and changing rapidly, and we are currently unable to predict the nature or extent of any impact on our results of operations and financial condition.

Throughout 2020 and into 2021, several of our operating counterparties have instituted temporary operational curtailments due to the ongoing COVID-19 pandemic.

In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance.

For the most part, our results of operations and financial condition have not been materially impacted by these measures to date.

However, the effects of the pandemic are fluid and changing rapidly, including with respect to vaccine and treatment developments and deployment and potential mutations of COVID-19.

As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition.

We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis.

Sale of Peak Gold JV Interest

On September 30, 2020, we announced we had entered into an agreement with Kinross Gold Corporation to sell our interest in the Peak Gold Project and our common share position in Contango Ore, Inc.

On September 30, 2020, we announced an agreement with Kinross Gold Corporation to sell our interest in the Peak Gold Project and our common share position in Contango Ore, Inc.

(“Contango”), our partner in Peak Gold, LLC, the owner of the Peak Gold Project.

3 unchanged sentences

Refer to Note 2 of our notes to consolidated financial statements for further discussion on the sale of the Peak Gold JV interest.

Separation of the Wassa and Prestea and Bogoso Stream Agreement

On October 1, 2020, we announced the separation of the Wassa and Prestea and Bogoso gold stream agreement into separate stream agreements effective September 30, 2020.

Separation of the Wassa and Prestea/Bogoso Stream Agreement

On October 1, 2020, we announced the separation of the Wassa and Prestea/Bogoso gold stream agreement into separate stream agreements effective September 30, 2020.

This separation was completed to facilitate the sale by Golden Star Resources Ltd.

(“Golden Star”) of the Prestea and Bogoso mines to Future Global Resources (“FGR”).

The Wassa stream agreement, which remains with Golden Star, provides us the right to purchase 10.5% of the gold produced from the Wassa mine until the delivery of 240,000 ounces, after which the stream percentage will decrease to 5.5%.

The cash purchase price for gold is 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter.

As of October 1, 2020, approximately 124,800 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.

The Prestea and Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea and Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.

(“Golden Star”) of the Prestea/Bogoso mines to Future Global Resources (“FGR”).

The Wassa stream agreement, which remains with Golden Star, continues to provide us the right to purchase 10.5% of the gold produced from the Wassa mine until the delivery of 240,000 ounces, after which the stream percentage will decrease to 5.5%.

The cash purchase price for gold remains at 20% of the spot price per ounce delivered until the delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter.

As of December 31, 2020, approximately 110,200 ounces remain to be delivered from the Wassa mine until the 240,000 ounce delivery threshold is reached.

The Prestea/Bogoso stream agreement with FGR provides us the right to purchase 5.5% of the gold produced from the Prestea/Bogoso mines in return for a cash purchase price of 30% of the spot price per ounce delivered.

Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2020

1 unchanged sentence

In some instances, an operator may revise its original calendar year guidance throughout the year.

The following table shows current production estimates for calendar 2020, as well as actual production through September 30, 2020, for our principal properties as reported to us by the operators.

The following table shows current production estimates for calendar 2020, as well as actual production through December 31, 2020, for our principal properties as reported to us by the operators.

Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2020

12 unchanged sentences

(1) Production estimates received from our operators are for calendar 2020, unless otherwise noted in footnotes to this table.

There can be no assurance that operators will achieve their production estimates.

(2) Actual production figures are provided by our operators and cover the period from January 1, 2020, through September 30, 2020, unless otherwise noted in footnotes to this table.

There can be no assurance that production estimates received from the operators will be achieved.

(2) Actual production figures are provided by our operators and cover the period from January 1, 2020, through December 31, 2020, unless otherwise noted in footnotes to this table.

(3) The estimated and actual production figures shown for Andacollo are contained gold in concentrate.

5 unchanged sentences

The estimated and actual lead and zinc production figures shown are payable lead and zinc in concentrate.

The estimated production figures shown are for the period January 1, 2020 through December 31, 2020, while actual production figures shown are for the period January1, 2020 through September 30, 2020, per the operator.

Full calendar year 2020 information was not available from the operator as of the date of this report.

Property Developments

1 unchanged sentence

Stream Interests

Gold stream deliveries from Andacollo were approximately 9,500 ounces of gold for the three months ended September 30, 2020, compared to approximately 9,700 ounces of gold for the three months ended September 30, 2019.

Teck reported that Andacollo production in the September 2020 quarter was lower than the prior year quarter due to lower ore grades and mill recoveries as well as reduced mill throughput.

According to Teck, a higher proportion of ore processed from stockpiles due to blasting constraints impacted copper grades and mill recoveries.

In addition, mill throughput was impacted by several longer than planned maintenance shutdowns, which were performed by local contractors to comply with COVID-19 travel restrictions.

Impacts to our gold stream deliveries are realized approximately six months after site production.

Teck expects grades to continue to decline towards reserve grades in calendar year 2020 and future years.

Gold stream deliveries from Andacollo were approximately 10,700 ounces for the three months ended December 31, 2020, compared to approximately 18,600 ounces for the three months ended December 31, 2019.

Decreased deliveries during the current period resulted from operational impacts due to COVID-19 in July 2020, in addition to differences in the timing of shipments and settlements during the periods.

Teck expects grades to continue to decline towards reserve grades.

The current life of mine for Andacollo is expected to continue until calendar year 2035.

According to Teck, additional permits or permit amendments will be required to execute the life of mine plan.

According to Khoemac a u Copper Mining (Pty.) Limited (“KCM”), progress continued at the Khoemac a u Project (“Khoemac a u”) during the September 2020 quarter, and the project reached approximately 70% of construction completion as of September 30, 2020, with 87% of the capital committed.

According to KCM, activities are focused on refurbishment and upgrading of the Boseto mill, underground development, completion of accommodation, power and water infrastructure at Zone 5 and completion of haul road construction between Zone 5 and the Boseto mill.

Also, according to KCM, underground development has cumulatively advanced 5,045 meters in the three mines.

According to Khoemac a u Copper Mining (Pty.) Limited (“KCM”), progress continued at the Khoemac a u Project (“Khoemac a u”) during the three months ended December 31, 2020, and the project reached approximately 85% of construction completion as of December 31, 2020.

Also, according to KCM, underground development had cumulatively advanced 8,311 meters in the three mines and approximately 70,000 tonnes of ore were stockpiled on surface at the end of December 2020.

The six-month state of emergency declared by the Government of Botswana in March 2020 to help prevent the spread of COVID-19 was extended on September 28, 2020, for an additional six months through March 2021.

Mining remains designated as an “essential service” and KCM reports that general development activity at Khoemac a u is continuing.

However, due to the impacts experienced from prior lockdowns and travel restrictions, KCM reports that some activities, largely related to the process plant refurbishment and upgrade, have been impacted or rescheduled.

Barring any potential further impacts caused by COVID-19 considerations, KCM continues to expect the first shipment of concentrate to occur late in the third calendar quarter of 2021.

On October 5, 2020, we made our fifth advance payment of $32.5 million, which brings the total contribution to $179.3 million.

We expect to commit the remaining $32.7 million in calendar year 2021 for the Base Silver Stream and $85.7 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.

Mining remains designated as an “essential service” and KCM reports that general development activity at Khoemac a u is continuing without significant impact.

In line with previous reporting, and barring any potential further impacts caused by COVID-19 considerations, KCM is targeting to begin commissioning activities late in the second calendar quarter of 2021 with first shipment of concentrate to occur late in the third calendar quarter of 2021.

On January 6, 2021, Royal Gold made the sixth advance payment of $32.6 million, which brings the total contribution to $212 million and completes the advance payment required to earn the full base silver stream.

For any remaining funding required to complete construction, KCM may elect under the stream agreement to draw up to $53 million in additional stream financing, earning Royal Gold up to an additional 20% option silver stream, draw up to $25 million under a subordinated debt facility provided by Royal Gold, and/or seek at least $25 million in equity from project sponsors.

The subordinated debt facility has a term of seven years, carries interest at a rate of LIBOR +11%, and requires mandatory repayment upon certain events.

KCM currently anticipates that up to $50 million of this additional funding is required to complete construction and ramp up of Khoemac a u to commercial production, largely a result of previously reported schedule impacts caused by COVID-19 considerations.

The added funding mechanisms built into the stream agreement allow KCM to seamlessly access the additional capital required.

KCM is currently reviewing its funding options in advance of the next funding draw, which may occur as early as April 2021, and does not anticipate requiring any further funding after this date to reach commercial production.

Mount Milligan

Gold stream deliveries from Mount Milligan were approximately 19,600 ounces for the three months ended September 30, 2020, compared to approximately 14,000 ounces for the three months ended September 30, 2019.

Increased deliveries resulted from differences in the timing of shipments and settlements during the periods.

Copper stream deliveries from Mount Milligan were approximately 5.8 million pounds for the three months ended September 30, 2020, compared to approximately 2.4 million pounds for the three months ended September 30, 2019.

Increased deliveries resulted from differences in the timing of shipments and settlements during the periods.

On November 4, 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.

Gold stream deliveries from Pueblo Viejo were approximately 9,400 ounces for the three months ended September 30, 2020, compared to approximately 10,500 ounces for the three months ended September 30, 2019.

Silver stream deliveries were approximately 408,600 ounces for the three months ended September 30, 2020, compared to 462,500 ounces for the three months ended September 30, 2019.

The decrease in deliveries resulted from lower gold and silver production in addition to differences in the timing of refinery settlements.

Barrick reports that it continues to advance work on the project to expand the process plant and tailings storage facilities that could extend the mine life at Pueblo Viejo beyond calendar 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 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 reported during the quarter that the environmental impact assessment for the plant has been submitted to the authorities, and orders have been placed for long lead items.

Barrick also reported that field work for the baseline environmental assessment of the additional tailings capacity has started and constructive discussions with the authorities regarding permitting are well underway.

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.

For calendar year 2020, Barrick indicated gold production attributable to its interest (60% basis) at Pueblo Viejo is expected to be between 530,000 and 580,000 ounces.

Gold stream deliveries from Wassa were approximately 4,000 ounces for the three months ended September 30, 2020, compared to approximately 2,900 ounces for the three months ended September 30, 2019.

We entered into a stream agreement with Golden Star on May 6, 2015, as amended (the “Original Stream Agreement”), which provided for the right to purchase 10.5% of the gold produced from Golden Star’s Wassa, and Prestea and Bogoso mines until an aggregate delivery of 240,000 ounces, after which the stream percentage would decrease to 5.5%.

The cash purchase price for gold was 20% of the spot price per ounce delivered until the aggregate delivery of 240,000 ounces, and 30% of the spot price per ounce delivered thereafter.

Effective September 30, 2020, the Wassa, and Prestea and Bogoso stream agreements were separated into two stream agreements to facilitate the sale by Golden Star of the Prestea and Bogoso mines.

The gold stream rates and cash purchase prices for the separated Wassa stream agreement remain consistent with the Original Stream Agreement, and the gold delivery threshold of 240,000 ounces will apply to the Wassa mine only.

From May 6, 2015, through September 30, 2020, approximately 115,200 ounces of payable gold were delivered by Golden Star from the Wassa, and Prestea and Bogoso mines, consisting of 73,700 ounces from Wassa and 41,500 ounces from Prestea and Bogoso.

Based on these deliveries, as of September 30, 2020, approximately 124,800 ounces remain to be delivered from Wassa before the 240,000 ounce delivery threshold is reached.

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.

On October 28, 2020, Golden Star reported the underground operation had produced ore at a record average rate of 4,960 tonnes per day during the quarter and confirmed the capacity of the current ramp system to support a 5,000 tonnes per day rate.

The underground mining rate has now exceeded 4,000 tonnes per day for five consecutive quarters.

The ore processing rate exceeded an average of 6,000 tonnes per day with the addition of low-grade stockpiled material.

Golden Star reported the advancement of several projects to support continued increase in the mining rate with the new paste fill plan achieving 98% construction completion and the completion of a new 11kV surface substation.

According to Golden Star, work on a preliminary economic assessment on the development of the Southern Extension of the Wassa ore body commenced during Q3 2020.

The study is intended to lay out a roadmap for the infrastructure and investment required for the potential expansion of the mining operation into the inferred resource areas.

The study is expected to be completed later this year for announcement to the market in early 2021.

Gold stream deliveries from Mount Milligan were approximately 9,700 ounces for the three months ended December 31, 2020, compared to approximately 18,800 ounces for the three months ended December 31, 2019.

Decreased deliveries were primarily a result of lower processed gold grades partially resulting from reduced open pit operations due to COVID-19 during the three months ended June 30, 2020, in addition to differences in the timing of shipments and settlements during the periods.

Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds during the three months ended December 31, 2020, compared to approximately 4.4 million pounds during the three months ended December 31, 2019.

Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.

On January 14, 2021, Centerra reported that Mount Milligan produced approximately 161,900 ounces of gold during calendar 2020, above previously issued gold production guidance of between 140,000 and 160,000 ounces.

Centerra also reported that copper production for calendar year 2020 was 82.8 million pounds, in line with previously issued copper production guidance of between 80 and 90 million pounds.

Gold stream deliveries from Pueblo Viejo were approximately 10,500 ounces for the three months ended December 31, 2020, compared to approximately 13,200 ounces for the three months ended December 31, 2019.

The decrease in deliveries resulted from lower grade and recovery rates.

On January 14, 2021, Barrick reported that its 60% share of Pueblo Viejo gold production during calendar year 2020 was 542,000 ounces, in line with previously issued guidance of between 530,000 and 580,000 ounces.

Silver stream deliveries were approximately 418,200 ounces for the three months ended December 31, 2020, compared to approximately 417,800 ounces for the three months ended December 31, 2019.

Barrick reported continued progress at Pueblo Viejo during the quarter to expand the process plant and tailings storage facilities.

Barrick estimates that the expansion project could significantly increase throughput and allow the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 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).

As reported by Barrick, the Environmental Impact Assessment for the process plant expansion has been approved and an amended environmental license has been issued, and progress continued with engineering, procurement of long lead equipment packages, earthworks and tendering of contracts for construction activities.

Barrick also reported that studies and permitting discussions to support additional tailings capacity continued to progress.

Gold stream deliveries from Wassa were approximately 4,700 ounces for the three months ended December 31, 2020, compared to approximately 4,900 ounces for the three months ended December 31, 2019.

On January 20, 2021, Golden Star reported full calendar year 2020 gold production from Wassa of 168,000 ounces, within the revised guidance range of 165,000 to 170,000 ounces, and a 7% increase over 2019 production.

Golden Star also provided full calendar year 2021 gold production guidance of 165,000 to 175,000 ounces.

Also according to Golden Star, work on a preliminary economic assessment of the expansion of the Wassa mine into the southern extension of the Wassa ore body is nearing completion, with release of the study results in conjunction with an updated reserve and resource estimate expected from Golden Star in February 2021.

Royalty Interests

Production attributable to our royalty interest at Cortez was approximately 37,600 ounces of gold for the three months ended September 30, 2020, compared to approximately 35,100 ounces of gold for the three months ended September 30, 2019.

Barrick expects production to increase from calendar year 2020 to calendar year 2021 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.

Gold, silver and zinc production attributable to our royalty interest at Peñasquito increased approximately 269%, 38% and 40%, respectively, when compared to the prior year quarter, while lead production decreased 9% when compared to the prior year quarter.

According to Newmont, the increase in production was attributable to higher mill throughput and higher recoveries, partially offset by lower grades, with the exception of a higher gold grade.

Mill throughput was negatively impacted by the suspension of operations in the September 2019 quarter.

Newmont reported positive improvements in mill throughput from their full potential program, which has focused on the front end of the milling operation.

Blast fragmentation in the open pit is also receiving focus from the full potential program, which Newmont expects to contribute to improved throughput.

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.

Production attributable to our royalty interest at Cortez was approximately 57,600 ounces of gold for the three months ended December 31, 2020, compared to approximately 28,000 ounces of gold for the three months ended December 31, 2019.

Barrick expects production in calendar year 2021 to increase from calendar year 2020 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.

Production attributable to our royalty interest at Peñasquito for the three months ended December 31, 2020, increased by approximately 120% for gold and 30% for zinc, and decreased approximately 7% for silver and 15% for lead compared to the prior year quarter.

In December 2020, Newmont provided full year 2021 production guidance for Peñasquito of 660,000 ounces of gold, 30 million ounces of silver, 475 million pounds of zinc, and 190 million pounds of lead, compared to calendar 2020 production guidance, as reported by Newmont in July 2020, of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc and 190 million pounds of lead.

Results of Operations

Quarter Ended September 30, 2020, Compared to Quarter Ended September 30, 2019

For the quarter ended September 30, 2020, we recorded net income of $106.9 million, or $1.63 per basic and diluted share, as compared to net income of $70.5 million, or $1.07 per basic and diluted share, for the quarter ended September 30, 2019.

The increase in net income was primarily attributable to an increase in revenue, a one-time gain attributable to the sale of our Peak Gold JV interest and various discrete income tax benefits, each discussed below.

Quarter Ended December 31, 2020 , Compared to Quarter Ended December 31, 2019

For the quarter ended December 31, 2020, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $59.9 million, or $0.91 per basic and diluted share, as compared to net income of $41.3 million, or $0.63 per basic and diluted share, for the quarter ended December 31, 2019 .

The increase in net income was primarily attributable to an increase in revenue, discussed below.

These increases were partially offset by an increase in our cost of sales and an increase in depreciation, depletion and amortization expense, each discussed below.

For the quarter ended September 30, 2020, we recognized total revenue of $146.9 million, comprised of stream revenue of $106.5 million and royalty revenue of $40.4 million at an average gold price of $1,909 per ounce, an average silver price of $24.26 per ounce and an average copper price of $2.96 per pound.

This is compared to total revenue of $118.8 million for the three months ended September 30, 2019, comprised of stream revenue of $87.0 million and royalty revenue of $31.8 million, at an average gold price of $1,472 per ounce, an average silver price of $16.98 per ounce and an average copper price of $2.63 per pound.

Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended September 30, 2020, compared to the quarter ended September 30, 2019, are as follows:

For the quarter ended December 31, 2020, we recognized total revenue of $158.4 million, comprised of stream revenue of $107.7 million and royalty revenue of $50.7 million at an average gold price of $1,874 per ounce, an average silver price of $24.39 per ounce and an average copper price of $3.25 per pound.

This is compared to total revenue of $123.6 million for the three months ended December 31, 2019, comprised of stream revenue of $89.6 million and royalty revenue of $34.0 million, at an average gold price of $1,481 per ounce, an average silver price of $17.32 per ounce and an average copper price of $2.67 per pound.

Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended December 31, 2020, compared to the quarter ended December 31, 2019, are as follows:

Revenue and Reported Production Subject to Our Stream and Royalty Interests

Quarter Ended September 30, 2020 and 2019

Quarter Ended December 31, 2020 and 2019

(Amounts in thousands, except reported production ozs.

1 unchanged sentence

Three Months Ended

September 30, 2020

September 30, 2019

December 31, 2020

December 31, 2019

Stream/Royalty

6 unchanged sentences

Total Revenue

(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended September 30, 2020, and 2019, and may differ from the operators’ public reporting.

(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended December 31, 2020, and 2019, and may differ from the operators’ public reporting.

(2) Refer to “Property Developments” above for a discussion of recent developments at principal properties.

(3) Individually, except for Rainy River which contributed 6% of total revenue for the three months ended September 30, 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.

The increase in our total revenue resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period.

Gold and silver ounces and copper pounds purchased and sold during the three months ended September 30, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of September 30, 2020, and June 30, 2020, for our streaming interests were as follows:

(3) Individually, except for Rainy River which contributed 6% of total revenue for the three months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.

The increase in our total revenue resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within our royalty segment.

Gold and silver ounces and copper pounds

purchased and sold during the three months ended December 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2020, and June 30, 2020, for our streaming interests were as follows:

Three Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

6 unchanged sentences

Three Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

6 unchanged sentences

Three Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

7 unchanged sentences

Mount Milligan

Cost of sales, which excludes depreciation, depletion and amortization, increased to $21.9 million for the three months ended September 30, 2020 from $20.1 million for the three months ended September 30, 2019.

Cost of sales, which excludes depreciation, depletion and amortization, increased to $24.9 million for the three months ended December 31, 2020, from $21.1 million for the three months ended December 31, 2019.

The increase was primarily due to an increase in the gold, silver and copper prices when compared to the prior period.

1 unchanged sentence

The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.

Explorations costs decreased to $0.6 million for the three months ended September 30, 2020, from $2.6 million for the three months ended September 30, 2019.

Exploration costs decreased to zero for the three months ended December 31, 2020, from $1.5 million for the three months ended December 31, 2019.

Exploration costs were specific to the exploration and advancement of the Peak Gold JV.

Due to COVID-19, exploration activities and corresponding costs decreased compared to the prior period.

On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 2 of our notes to consolidated financial statements.

Depreciation, depletion and amortization increased to $46.3 million for the three months ended September 30, 2020 from $38.7 million for the three months ended September 30, 2019.

The increase was primarily due to higher copper sales at Mount Milligan and higher gold sales at Pueblo Viejo.

An increase in depletions rates at Mount Milligan, as previously discussed in our FY 2020 10-K, also contributed to the increase.

Depreciation, depletion and amortization increased to $47.9 million for the three months ended December 31, 2020, from $40.1 million for the three months ended December 31, 2019.

The increase was primarily due to higher gold sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K.

These increases were partially offset by a decrease in gold sales at Andacollo when compared to the prior period.

Interest and other expense decreased to $1.6 million for the three months ended December 31, 2020, from $2.2 million for the three months ended December 31, 2019.

The decrease was primarily attributable to lower interest expense as a result of lower interest rates on our outstanding debt when compared to the prior period.

Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.

For the three months ended December 31, 2020, we recorded income tax expense totaling $16.0 million, compared with income tax expense of $11.1 million for the three months ended December 31, 2019.

The income tax expense resulted in an effective tax rate of 21.1% in the current period, compared with 21.6% for the three months ended December 31, 2019.

Six Months ended December 31, 2020 , Compared to Six Months Ended December 31, 2019

For the six months ended December 31, 2020, we recorded net income of $166.8 million, or $2.55 per basic share and $2.54 per diluted share, as compared to net income of $111.8 million, or $1.70 per basic and diluted share, for the six months ended December 31, 2019.

The increase in our earnings per share was primarily attributable to an increase in revenue, a one-time gain attributable to the sale of our Peak Gold JV interest during the September 2020 quarter and various discrete income tax benefits recognized during the September 2020 quarter.

Each item contributing to the increase

in our earnings per share during the period is discussed below.

These increases were partially offset by an increase in our cost of sales and an increase in depreciation, depletion and amortization expense, each discussed below.

For six months ended December 31, 2020, we recognized total revenue of $305.2 million, comprised of stream revenue of $214.2 million and royalty revenue of $91.0 million at an average gold price of $1,892 per ounce, an average silver price of $24.32 per ounce and an average copper price of $3.10 per pound.

This is compared to total revenue of $242.4 million for the six months ended December 31, 2019, comprised of stream revenue of $176.6 million and royalty revenue of $65.8 million, at an average gold price of $1,477 per ounce, an average silver price of $17.15 per ounce and an average copper price of $2.65 per pound.

Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, are as follows:

Revenue and Reported Production Subject to Our Stream and Royalty Interests

Six Months Ended December 31, 2020 and 2019

(Amounts in thousands, except reported production ozs.

Six Months Ended

December 31, 2020

December 31, 2019

Stream/Royalty

Production (1)

Mount Milligan

Total stream revenue

Royalty (2) :

Total royalty revenue

Total revenue

(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the six months ended December 31, 2020, and 2019, and may differ from the operators’ public reporting.

Refer to “Property Developments” above for a discussion of recent developments at principal properties.

Individually, except for Rainy River which contributed 6% of total revenue for the six months ended December 31, 2020 and 2019, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.

The increase in our total revenue for the six months ended December 31, 2020 resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within the royalty segment.

Gold and silver ounces and copper pounds purchased and sold during the six months ended December 31, 2020 and 2019, and gold and silver ounces and copper pounds in inventory as of December 31, 2020 and June 30, 2020 for our streaming interests were as follows:

Six Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Purchases (oz.)

Inventory (oz.)

Mount Milligan

Six Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Silver Stream

Purchases (oz.)

Inventory (oz.)

Six Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

June 30, 2020

Copper Stream

Purchases (Mlbs.)

Sales (Mlbs.)

Purchases (Mlbs.)

Sales (Mlbs.)

Inventory (Mlbs.)

Mount Milligan

Cost of sales, which excludes depreciation, depletion and amortization, increased to $46.8 million for the six months ended December 31, 2020, from $41.2 million for the six months ended December 31, 2019.

The increase was primarily due to an increase in the gold, silver and copper prices and an increase in copper sales at Mount Milligan when compared to the prior period.

Cost of sales is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment.

Exploration costs decreased to $0.6 million for the six months ended December 31, 2020, from $4.1 million for the six months ended December 31, 2019.

Exploration costs were specific to the exploration and advancement of the Peak Gold JV.

On September 30, 2020, we sold our Peak Gold JV interest which is discussed earlier in this MD&A and Note 2 of our notes to consolidated financial statements.

Depreciation, depletion and amortization increased to $94.2 million for the six months ended December 31, 2020, from $78.8 million for the six months ended December 31, 2019.

The increase was primarily due to higher copper sales at Mount Milligan and an increase in depletion rates at Mount Milligan, as previously discussed in our Fiscal 2020 10-K.

The increase was partially offset by a decrease in gold sales at Andacollo when compared to the prior period.

We recognized an increase in fair value changes in equity securities of $2.5 million for the three months ended September 30, 2020, compared to a decrease of $1.4 million for the three months ended September 30, 2019.

The increase was primarily due to a $3.6 million mark-to-market increase on the sale of 809,744 Contango common shares as part of the sale of our interest in the Peak Gold JV.

We recognized an increase in fair value changes in equity securities of $2.2 million for the six months ended December 31, 2020 compared to a decrease of $1.2 million for the six months ended December 31, 2019.

The increase was primarily due to a $3.6 million mark-to-market increase on the sale of 809,744 Contango common shares as part of the sale of our interest in the Peak Gold JV during the September 2020 quarter.

Refer to Note 4 of our notes to consolidated financial statements for further discussion on our marketable equity securities.

Interest and other expense decreased to $1.9 million for the three months ended September 30, 2020, from $2.8 million for the three months ended September 30, 2019.

Interest and other expense decreased to $3.5 million for the six months ended December 31, 2020, from $5.1 million for the six months ended December 31, 2019.

The decrease was primarily attributable to lower interest expense as a result of lower interest rates on our outstanding debt when compared to the prior period.

Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.

During the three months ended September 30, 2020, we recorded an income tax benefit totaling $(2.4) million, compared with an income tax benefit of $(23.5) million during the three months ended September 30, 2019.

The income tax benefit resulted in an effective tax rate of (2.3%) in the current period, compared with (51.9%) in the quarter ended September

The three months ended September 30, 2020 effective tax rate included income tax benefits ($24.5 million) resulting primarily from the release of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change to the realizability of certain deferred tax assets.

The three months ended September 30, 2019 effective tax rate included an income tax benefit ($32.3 million) primarily related to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform).

For the six months ended December 31, 2020, we recorded income tax expense totaling $13.7 million, compared with an income tax benefit of $12.4 million for the six months ended December 31, 2019.

The income tax expense resulted in an effective tax rate of 7.6% in the current period, compared with (12.8%) for the six months ended December 31, 2019.

The six months ended December 31, 2020 effective tax rate included income tax benefits of $24.5 million resulting primarily from the release of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change to the realizability of certain deferred tax assets, both of which were recorded during the three months ended September 30, 2020.

For the six months ended December 31, 2019, the effective tax rate included an income tax benefit of $32.3 million primarily related to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform).

Liquidity and Capital Resources

At September 30, 2020, we had current assets of $469.8 million compared to current liabilities of $56.1 million resulting in working capital of $413.6 million and a current ratio of 8 to 1.

At December 31, 2020, we had current assets of $450.5 million compared to current liabilities of $57.2 million, which resulted in working capital of $393.3 million and a current ratio of 8 to 1.

This compares to current assets of $362.2 million and current liabilities of $43.6 million at June 30, 2020, resulting in working capital of $318.6 million and a current ratio of approximately 8 to 1.

The increase in working capital was primarily due to proceeds from the sale of our Peak Gold JV interest and increased revenue.

During the three months ended September 30, 2020, liquidity needs were met from $94.2 million in net cash provided by operating activities and our available cash resources.

As of September 30, 2020, we had $725 million available and $275 million outstanding under our revolving credit facility.

Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $1.1 billion of total liquidity at September 30, 2020.

We were in compliance with each financial covenant under the revolving credit facility as of September 30, 2020.

During the six months ended December 31, 2020, liquidity needs were met from $194.1 million in net cash provided by operating activities and our available cash resources.

As of December 31, 2020 , we had $800 million available and $200 million outstanding under our revolving credit facility.

Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $1.2 billion of total liquidity at December 31, 2020 .

We were in compliance with each financial covenant under the revolving credit facility as of December 31, 2020.

Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt.

On October 2, 2020, we repaid $75 million of the outstanding borrowings under the credit facility.

On January 4, 2021, we repaid $50 million of the outstanding borrowings under the credit facility.

This increased the amount available under our revolving credit facility to $850 million and decreased the amount outstanding to $150 million.

7 unchanged sentences

Operating Activities

Net cash provided by operating activities totaled $94.2 million for the three months ended September 30, 2020, compared to $71.2 million for the three months ended September 30, 2019.

Net cash provided by operating activities totaled $194.1 million for the six months ended December 31, 2020, compared to $149.5 million for the six months ended December 31, 2019.

The increase was primarily due to an increase in proceeds received from our stream and royalty interests, net of cost of sales and production taxes, of approximately $49.9 million.

The increase was partially offset by an increase in income taxes paid of $10.3 million.

Investing Activities

Net cash provided by investing activities totaled $49.7 million for the three months ended September 30, 2020, compared to net cash provided by investing activities of $0.5 million for the three months ended September 30, 2019.

Net cash provided by investing activities totaled $12.1 million for the six months ended December 31, 2020, compared to net cash used in investing activities of $68.1 million for the six months ended December 31, 2019.

The increase was primarily due to $49.2 million received for the sale of our Peak Gold JV investment and $12.1 million for the sale of our Contango shares.

This increase was partially offset by an advance payment of $11.1 million for the Khoemac a u silver stream acquisition during the current period.

This increase was partially offset by advance payments totaling $43.6 million for the Khoemac a u silver stream acquisition during the current period.

Financing Activities

Net cash used in financing activities totaled $49.8 million for the three months ended September 30, 2020, compared to $69.2 million for the three months ended September 30, 2019.

The decrease was primarily due to a decrease in repayments

on our revolving credit facility.

We repaid $30.0 million on our revolving credit facility during the three months ended September 30, 2020, compared to $50.0 million during the three months ended September 30, 2019.

Net cash used in financing activities totaled $143.4 million for the six months ended December 31, 2020, compared to $120.4 million for the six months ended December 31, 2019.

The increase was primarily due to an increase in repayments on our revolving credit facility.

We repaid $105.0 million on our revolving credit facility during the six months ended December 31, 2020, compared to $85.0 million during the six months ended December 31, 2019.

Recent Liquidity and Capital Resource Development

Dividend Increase

On November 17, 2020, we announced an increase in our annual dividend for calendar 2021 from $1.12 to $1.20, payable on a quarterly basis of $0.30 per share.

The newly declared dividend is 7% higher than the dividend paid during calendar 2020.

We have steadily increased our annual dividend for 20 years, or since calendar 2001.

Recently Adopted Accounting Standards and Critical Accounting Policies

33 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis