Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Presentation
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. You should read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, filed with the Securities and Exchange Commission (the “SEC”) on August 6, 2020 (“Fiscal 2020 10-K”).
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We do not own, develop, or mine the properties on which we hold stream or royalty interests. Certain information provided in this Quarterly Report on Form 10-Q about operating properties in which we hold interests, including information about reserves, historical production, production estimates, property descriptions, and property developments, was provided to us by the operators of those properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC. We have not verified, and are not in a position to verify, and expressly disclaim any responsibility for the accuracy, completeness, or fairness of, this third-party information and refer the reader to the public reports filed by the operators for information regarding those properties.
We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 2020 10-K.
Overview of Our Business
We acquire and manage precious metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or finance projects that are in production or in the development stage in exchange for stream or royalty interests.
We manage our business under two segments:
● Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. As of 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 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. 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.
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We are continually reviewing opportunities to grow our portfolio, whether through the creation or acquisition of new or existing stream or royalty interests or other acquisition activity. We generally have acquisition opportunities in various stages of review. Our review process may include, for example, engaging consultants and advisors to analyze an opportunity; analysis of technical, financial, legal, and other confidential information of an opportunity; submission of indications of interest and term sheets; participation in preliminary discussions and negotiations; and involvement as a bidder in competitive processes.
Business Trends and Uncertainties
Metal Prices
Our financial results are primarily tied to the price of gold, silver, copper, and other metals. Metal prices have fluctuated widely in recent years and we expect this volatility to continue. 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 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
Metal
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Gold ($/ounce)
$
1,874
76%
$
1,481
74%
$
1,892
76%
$
1,477
76%
Silver ($/ounce)
$
24.39
10%
$
17.32
10%
$
24.32
10%
$
17.15
9%
Copper ($/pound)
$
3.25
11%
$
2.67
13%
$
3.10
11%
$
2.65
10%
Other
N/A
3%
N/A
3%
N/A
3%
N/A
5%
COVID-19 and the Current Economic Environment
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 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. Consideration received for the sale of these interests included cash of $61.3 million, an incremental 28% net smelter return royalty on silver produced from an area of interest which includes the current Peak Gold Project resource area, and an incremental 1% net smelter return royalty on certain State of Alaska mining claims acquired by a wholly owned subsidiary of Contango in the transaction. Peak Gold, LLC, retains the right to acquire 50% of the incremental 28% net smelter return royalty on silver for $4 million.
After this transaction, our interests in the Peak Gold Project and State of Alaska mining claim property owned by Contango consist solely of net smelter return royalties. 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/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/Bogoso mines to Future Global Resources (“FGR”).
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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
We generally receive annual production estimates from many of the operators of our producing mines during the first quarter of each calendar year. In some instances, an operator may revise its original calendar year guidance throughout the year. 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
Principal Producing Properties
Calendar 2020 Operator’s Production
Calendar 2020 Operator’s Production
Estimate (1)
Actual (2)
Gold
Silver
Base Metals
Gold
Silver
Base Metals
Stream/Royalty
(oz.)
(oz.)
(lbs.)
(oz.)
(oz.)
(lbs.)
Stream:
Andacollo (3)
53,000
49,200
Mount Milligan (4)
140,000 - 160,000
161,900
Copper
80 - 90 Million
82.8 Million
Pueblo Viejo (5)
530,000 - 580,000
N/A
542,000
N/A
Wassa (6)
165,000 - 170,000
168,000
Royalty:
Cortez GSR1
66,900
101,700
Cortez GSR2
109,600
103,900
Cortez GSR3
146,300
161,100
Cortez NVR1
113,500
121,600
Cortez NVR1C
30,100
44,500
Peñasquito (7)
510,000
28 million
343,000
20.4 Million
Lead
190 million
130 Million
Zinc
360 million
281 Million
(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 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.
(4) The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate.
(5) The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo. The operator did not provide estimated or actual silver production.
(6) The estimated and actual production figures shown for Wassa are payable gold in doré.
(7) The estimated and actual gold and silver production figures shown for Peñasquito are payable gold and silver in concentrate and doré. 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.
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Property Developments
This section provides recent updates for our principal properties as reported by the operators, either directly to us or in their publicly available documents.
Stream Interests
Andacollo
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.
Khoemacau
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. 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 surfacing between Zone 5 and the Boseto mill. 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 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 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.
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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.
Pueblo Viejo
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.
Wassa
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
Cortez
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.
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Peñasquito
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 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 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:
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Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended December 31, 2020 and 2019
(Amounts in thousands, except reported production ozs. and lbs.)
Three Months Ended
Three Months Ended
December 31, 2020
December 31, 2019
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
44,713
$
30,629
Gold
16,900
oz.
12,900
oz.
Copper
4.1
Mlbs.
4.3
Mlbs.
Pueblo Viejo
$
27,554
$
23,614
Gold
9,400
oz.
10,500
oz.
Silver
408,600
oz.
462,400
oz.
Andacollo
Gold
$
17,766
9,500
oz.
$
20,665
13,900
oz.
Wassa
Gold
$
6,761
3,600
oz.
$
4,794
3,300
oz.
Other (3)
$
10,925
$
9,923
Gold
5,100
oz.
6,100
oz.
Silver
52,000
oz.
20,500
oz.
Total stream revenue
$
107,719
$
89,625
Royalty (2) :
Peñasquito
$
12,952
$
7,577
Gold
210,600
oz.
95,800
oz.
Silver
8.7
Moz.
9.3
Moz.
Lead
52.1
Mlbs.
61.5
Mlbs.
Zinc
93.8
Mlbs.
72.1
Mlbs.
Cortez
Gold
$
8,128
57,600
oz.
$
3,292
28,000
oz.
Other (3)
Various
$
29,561
N/A
$
23,149
N/A
Total royalty revenue
$
50,641
$
34,018
Total Revenue
$
158,360
$
123,643
(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 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
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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
Three Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
9,700
16,900
18,800
12,900
3,800
3,300
Pueblo Viejo
10,500
9,400
13,200
10,500
10,500
100
Andacollo
10,700
9,500
18,600
13,900
2,900
11,100
Wassa
4,700
3,600
4,900
3,300
3,100
2,900
Other
4,500
5,100
5,600
6,100
1,200
1,500
Total
40,100
44,500
61,100
46,700
21,500
18,900
Three Months Ended
Three Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
418,200
408,600
417,700
462,400
418,200
451,200
Other
65,400
52,000
48,100
51,100
66,300
23,400
Total
483,600
460,600
465,800
513,500
484,500
474,600
Three Months Ended
Three Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
2.5
4.1
4.4
4.3
1.0
0.8
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. 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. 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.
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. 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 $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
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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. and lbs.)
Six Months Ended
Six Months Ended
December 31, 2020
December 31, 2019
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
79,332
$
61,126
Gold
28,800
oz.
29,500
oz.
Copper
8.2
Mlbs.
6.7
Mlbs.
Pueblo Viejo
$
58,824
$
45,232
Gold
20,500
oz.
20,000
oz.
Silver
859,800
Moz.
938,000
oz.
Andacollo
Gold
$
41,275
21,600
oz.
$
41,269
27,900
oz.
Wassa
Gold
$
15,870
8,500
oz.
$
10,113
6,900
oz.
Other (3)
$
18,921
$
18,866
Gold
9,200
oz.
11,900
oz.
Silver
75,100
oz.
85,600
oz.
Total stream revenue
$
214,222
$
176,606
Royalty (2) :
Peñasquito
$
23,161
$
11,997
Gold
341,300
oz.
131,300
oz.
Silver
15.1
Moz.
13.9
Moz.
Lead
93.7
Mlbs.
91.2
Mlbs.
Zinc
191.8
Mlbs.
179.2
Mlbs.
Cortez
Gold
$
13,812
95,300
oz.
$
7,709
63,100
oz.
Other (3)
Various
$
54,045
N/A
$
46,105
N/A
Total royalty revenue
$
91,018
$
65,811
Total revenue
$
305,240
$
242,417
(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.
(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 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.
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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
Six Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
29,300
28,800
32,800
29,500
3,800
3,300
Andacollo
24,400
21,600
28,300
27,900
2,900
100
Pueblo Viejo
19,900
20,500
23,700
20,000
10,500
11,100
Wassa
8,700
8,500
7,800
6,900
3,100
2,900
Other
8,900
9,200
11,400
11,900
1,200
1,500
Total
91,200
88,600
104,000
96,200
21,500
18,900
Six Months Ended
Six Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
826,800
859,800
880,200
938,000
418,200
451,200
Other
118,000
75,100
97,500
85,600
66,300
23,400
Total
944,800
934,900
977,700
1,023,600
484,500
474,600
Six Months Ended
Six Months Ended
As of
As of
December 31, 2020
December 31, 2019
December 31, 2020
June 30, 2020
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
8.3
8.2
6.8
6.7
1.0
0.8
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. 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.
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 $2.2 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 $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.
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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
Overview
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 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 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.
We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and capital expenditures for the foreseeable future. Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests, including the conditional funding schedule in connection with the Khoemac a u silver stream. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. We currently, and generally at any time, have acquisition opportunities in various stages of active review. In the event of one or more substantial stream or royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary. We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2020 10-K for a discussion of certain risks that may impact our liquidity and capital resources.
Cash Flows
Operating Activities
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 $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 advance payments totaling $43.6 million for the Khoemac a u silver stream acquisition during the current period.
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Financing Activities
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
Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently adopted accounting standards. Refer to our Fiscal 2020 10-K for discussion on our critical accounting policies.
Forward-Looking Statements
This report and our other public communications include “forward-looking statements” within the meaning of U.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from these statements.
Forward-looking statements are often identified by words like “will,” “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” or negatives of these words or similar expressions. Forward-looking statements include, among others, the following: statements about our expected financial performance, including revenue, expenses, earnings or cash flow; operators’ expected operating and financial performance, including production, deliveries, mine plans and reserves, development, cash flows and capital expenditures; planned and potential acquisitions or dispositions, including funding schedules and conditions; liquidity, financing and dividends; our overall investment portfolio; macroeconomic and market conditions including the impacts of COVID-19; prices for gold, silver, copper, nickel and other metals; potential impairments; or tax changes.
Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the following: a lower-price environment for gold, silver, copper, nickel or other metals; operating activities or financial performance of properties on which we hold stream or royalty interests, including variations between actual and forecasted performance, operators’ ability to complete projects on schedule and as planned, changes to mine plans and reserves, liquidity needs, mining and environmental hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our stream or royalty agreements, or operational disruptions due to COVID-19; risks associated with doing business in foreign countries; our ability to identify, finance, value and complete acquisitions; adverse economic and market conditions; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; and other factors described in Item 1A. Risk Factors of our Fiscal 2020 10-K. Most of these factors are beyond our ability to predict or control.
Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any
forward-looking statements, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.