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 March 31, 2021, we owned eight stream interests, which are on six producing properties and two development stage properties. Stream interests accounted for approximately 67% and 69% of our total revenue for the three and nine months ended March 31, 2021, respectively, and 71% and 72% for the three and nine months ended March 31, 2020, 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 March 31, 2021, we owned royalty interests on 35 producing properties, 17 development stage properties and 127 exploration stage properties, of which we consider 48 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 33% and 31% of our total revenue for the three and nine months ended March 31, 2021, respectively, and 29% and 28% for the three and nine months ended March 31, 2020, 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.
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
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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 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 nine months ended March 31, 2021 and 2020, average metal prices and percentages of revenue by metal were as follows:
Three Months Ended
Nine Months Ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
Metal
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Gold ($/ounce)
$
1,794
68%
$
1,583
79%
$
1,859
73%
$
1,512
77%
Silver ($/ounce)
$
26.26
12%
$
16.90
8%
$
24.96
10%
$
17.07
9%
Copper ($/pound)
$
3.86
15%
$
2.56
10%
$
3.35
12%
$
2.62
10%
Other
N/A
5%
N/A
3%
N/A
5%
N/A
4%
COVID-19 Pandemic
Throughout calendar 2020 and into calendar 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 will ultimately depend on many factors that are outside of our control, including the severity and duration of the pandemic, government and operator actions in response to the pandemic, and the development, availability, and public acceptance of effective treatments and vaccines. 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 Manh Choh Project (formerly known as the Peak Gold Project) and our common share position in Contango Ore, Inc. (“Contango”), our partner in Peak Gold, LLC and owner of the Manh Choh 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 Manh Choh 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 Manh Choh 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 the 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 gold stream and the Prestea and Bogoso gold streams into two 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”).
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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 payable 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 March 31, approximately 115,700 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 payable from the Prestea and 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 2021
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 2021, as well as actual production through March 31, 2021, for our principal properties as reported to us by the operators.
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2021
Principal Producing Properties
Calendar 2021 Operator’s Production
Calendar 2021 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)
N/A
10,500
Mount Milligan (4)
180,000 - 200,000
N/A
Copper
70 - 80 Million
N/A
Pueblo Viejo (5)
470,000 - 510,000
N/A
137,000
N/A
Wassa (6)
165,000 - 175,000
N/A
Royalty:
Cortez (7)
350,000 - 375,000
58,600
Peñasquito (8)
660,000
30 Million
178,000
8.2 Million
Lead
190 Million
50 Million
Zinc
475 Million
111 Million
(1) Production estimates received from our operators are for calendar 2021. 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, 2021, through March 31, 2021, unless otherwise noted in footnotes to this table.
(3) The actual production figure shown for Andacollo is contained gold in concentrate. The estimated production figure was not available on the date of this report.
(4) The estimated production figures shown for Mount Milligan are payable gold and copper in concentrate. The actual production figure was not available on the date of this report.
(5) The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent the 60% interest in Pueblo Viejo held by Barrick Gold Corporation (“Barrick”). The operator did not provide estimated or actual silver production.
(6) The estimated production figure shown for Wassa is payable gold in doré. The actual production figure was not available on the date of this report.
(7) Production from Cortez subject to Royal Gold’s royalty interests.
(8) 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.
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.
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Stream Interests
Andacollo
Gold stream deliveries from Andacollo were approximately 10,700 ounces for the three months ended March 31, 2021, compared to approximately 9,500 ounces for the three months ended March 31, 2020.
Teck Resources Limited (“Teck”) expects grades to continue to decline towards reserve grades. The current life of mine for Andacollo is expected to continue until calendar 2035. According to Teck, additional permits or permit amendments will be required to execute the life of mine plan.
Khoemacau
According to Khoemacau Copper Mining (Pty.) Limited (“KCM”), progress continued at the Khoemac a u Project (“Khoemac a u”) during the three months ended March 31, 2021, and the project reached approximately 92% of construction completion as of March 31, 2021. 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, completion of haul road surfacing between Zone 5 and the Boseto mill, and the tailings storage facility. The Zone 5 area was connected to the national power grid in February 2021 and commissioning of support systems within the Boseto plant was initiated in March 2021. Also, according to KCM, underground development had cumulatively advanced 11,181 meters in the three mines and approximately 190,000 tonnes of ore were stockpiled on surface at the end of March 2021.
The state of emergency declared by the Government of Botswana in March 2020 to help prevent the spread of COVID-19 was extended again on March 30, 2021 for a further six months through September 30, 2021. Mining remains designated as an “essential service” and KCM reports that general development activity at Khoemac a u is continuing. Barring any potential further unforeseen impacts caused by COVID-19 considerations, KCM expects to continue commissioning activities through the second quarter of calendar 2021 with first shipment of concentrate to occur in the third quarter of calendar 2021 and a ramp-up to nameplate production capacity by the beginning of calendar 2022.
On January 6, 2021, Royal Gold made the sixth advance payment of $32.6 million toward the silver stream. With this payment, Royal Gold has completed the total $212 million advance payment required to earn the base silver stream of 80% of payable silver. On April 7, 2021, we made a seventh advance payment of $10.6 million toward the option silver stream, which increased our right to purchase 84% of the payable silver from Khoemacau until the delivery of approximately 33.6 million silver ounces and 42% thereafter. Additionally, on April 7, 2021, KCM drew $18.0 million on a $25.0 million subordinated debt facility provided by Royal Gold. 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.
Royal Gold has remaining committed funding of $49.4 million to KCM in the form of $42.4 million of additional advance payments and $7.0 million of debt, both of which may be drawn at the election of KCM prior to completion of construction. KCM has advised that subject to maintaining the schedule mentioned above for commissioning, first concentrate and operational ramp-up, no further material funding will be required from Royal Gold.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 12,200 ounces for the three months ended March 31, 2021, compared to approximately 12,100 ounces for the three months ended March 31, 2020.
Copper stream deliveries from Mount Milligan were approximately 3.4 million pounds during each of the three months ended March 31, 2021, and 2020.
In calendar 2021, Centerra Gold Inc. (“Centerra”) expects total gold production to be in the range of 180,000 to 200,000 ounces and copper production of between 70 to 80 million pounds, compared to actual gold and copper production of 161,900 ounces and 83 million pounds, respectively, in calendar 2020. Gold and copper production is expected to be slightly back-end weighted in calendar 2021 with 45% or more of the total annual metal production to occur in the first half of the year and up to 55% in the second half of the year.
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Centerra expects to continue to work on continuous improvement projects in calendar 2021, including secondary crusher improvements and the installation of staged flotation reactors, which is expected to improve metal recoveries in future years. Centerra also expects to have adequate water inventory levels for targeted throughput and is working with government regulators, its First Nations partners, and other stakeholders to maintain access to its existing water resources and secure a stable long-term water solution.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 11,100 ounces for the three months ended March 31, 2021, compared to approximately 10,200 ounces for the three months ended March 31, 2020.
Silver stream deliveries were approximately 247,500 ounces for the three months ended March 31, 2021, compared to approximately 394,700 ounces for the three months ended March 31, 2020. Decreased deliveries were the result of temporary operational issues with the silver circuit that caused silver recoveries to fall below the fixed 70% recovery rate specified in the stream agreement. The stream agreement includes a deferral mechanism for ounces that cannot be delivered at this fixed recovery rate, with the economic impact of any shortfall in deliveries to be made up in future periods. Deferred deliveries of approximately 362,000 ounces of silver are expected to be made incrementally as Barrick expects the operational issues with the silver circuit to be resolved.
Barrick reported continued progress at Pueblo Viejo during the March 2021 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 over 9 million ounces of mineralized material to reserves (on a 100% basis). Barrick expects completion of the process plant expansion by the end of calendar 2022.
In calendar 2021, gold production from Barrick’s 60% interest in Pueblo Viejo is expected to be between 470,000 and 510,000 ounces, compared to actual gold production of 542,000 ounces in calendar 2020.
Wassa
Gold stream deliveries from Wassa were approximately 4,400 ounces for the three months ended March 31, 2021, compared to approximately 3,800 ounces for the three months ended March 31, 2020.
In calendar 2021, Golden Star expects Wassa to produce between 165,000 and 175,000 ounces, in line with the calendar 2020 actual production performance, which benefited from an increase in the underground mining rates and the processing of low-grade stockpiles. The contribution from low-grade stockpiles is expected to continue throughout calendar 2021, subject to gold prices sustaining near current levels. Golden Star expects mining rates for calendar 2021 to be in excess of 4,500 tonnes per day, in line with the 4,469 tonnes per day achieved in calendar 2020.
Golden Star released an updated mineral reserve on March 1, 2021. The mineral reserve plan outlines a six-year mine life with annual production averaging 177,000 ounces of gold. In addition, Golden Star issued a Preliminary Economic Assessment (“PEA”) on the Southern Extension of the Wassa orebody. The PEA supports an 11-year mine life with average annual gold production of 294,000 ounces for total gold production of 3.5 million ounces. Golden Star is targeting early calendar 2023 for the completion of a final feasibility study on the Southern Extension.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez was approximately 51,900 ounces of gold for the three months ended March 31, 2021, compared to approximately 57,700 ounces of gold for the three months ended March 31, 2020.
Nevada Gold Mines LLC expects total gold production from the regions subject to our interests at Cortez to be approximately 350,000 to 375,000 ounces in calendar 2021, compared to actual calendar 2020 gold production of 206,000, and average approximately 415,000 ounces per year from calendar 2022 through calendar 2026. The Crossroads deposit is expected to provide the majority of the royalty ounces during this period.
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Peñasquito
Production attributable to our royalty interest at Peñasquito for the three months ended March 31, 2021, increased by approximately 86% for gold, and decreased approximately 6% for silver, 17% for lead and 4% for zinc compared to the prior year quarter. The increase in gold production was a result of higher ore grade milled and higher mill throughput, while the decrease in silver, lead and zinc was a result of lower ore grade milled, partially offset by higher mill throughput.
On December 8, 2020, Newmont Corporation provided full calendar 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 actual production of 526,000 ounces of gold, 28 million ounces of silver, 318 million pounds of zinc and 179 million pounds of lead.
Results of Operations
Quarter Ended March 31, 2021, Compared to Quarter Ended March 31, 2020
For the quarter ended March 31, 2021, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $54.0 million, or $0.82 per basic and diluted share, as compared to net income of $38.6 million, or $0.59 per basic and diluted share, for the quarter ended March 31, 2020 . The increase in net income was primarily attributable to an increase in revenue and a decrease in depreciation, depletion and amortization expense, each discussed below.
For the quarter ended March 31, 2021, we recognized total revenue of $142.6 million, comprised of stream revenue of $95.3 million and royalty revenue of $47.3 million at an average gold price of $1,794 per ounce, an average silver price of $26.26 per ounce and an average copper price of $3.86 per pound. This is compared to total revenue of $136.4 million for the three months ended March 31, 2020, comprised of stream revenue of $97.4 million and royalty revenue of $39.0 million, at an average gold price of $1,583 per ounce, an average silver price of $16.90 per ounce and an average copper price of $2.56 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020, are as follows:
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Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended March 31, 2021 and 2020
(Amounts in thousands, except reported production oz. and lbs.)
Three Months Ended
Three Months Ended
March 31, 2021
March 31, 2020
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
33,803
$
32,298
Gold
9,200
oz.
14,000
oz.
Copper
4.4
Mlbs.
4.3
Mlbs.
Pueblo Viejo
$
30,173
$
28,302
Gold
10,500
oz.
13,200
oz.
Silver
418,200
oz.
417,800
oz.
Andacollo
Gold
$
13,022
7,100
oz.
$
22,055
13,900
oz.
Wassa
Gold
$
8,774
4,800
oz.
$
8,647
5,600
oz.
Other (3)
$
9,574
$
6,158
Gold
4,300
oz.
3,400
oz.
Silver
66,200
oz.
47,900
oz.
Total stream revenue
$
95,346
$
97,459
Royalty (2) :
Peñasquito
$
13,128
$
7,425
Gold
180,400
oz.
97,200
oz.
Silver
8.1
Moz.
8.7
Moz.
Lead
50.1
Mlbs.
60.5
Mlbs.
Zinc
119.3
Mlbs.
124.5
Mlbs.
Cortez
Gold
$
8,609
51,900
oz.
$
6,400
57,700
oz.
Other (3)
Various
$
25,506
N/A
$
25,152
N/A
Total royalty revenue
$
47,243
$
38,977
Total Revenue
$
142,589
$
136,437
(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended March 31, 2021, and 2020, 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 our stream interest at Rainy River, which contributed 6% of total revenue for the three months ended March 31, 2021, 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 gold production at Peñasquito, offset by a decrease in revenue from Andacollo due to lower gold sales. Gold and silver ounces and copper pounds purchased and sold during the three months ended
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March 31, 2021 and 2020, and gold and silver ounces and copper pounds in inventory as of March 31, 2021, and June 30, 2020, for our streaming interests were as follows:
Three Months Ended
Three Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
12,200
9,200
12,100
14,000
6,800
3,300
Pueblo Viejo
11,100
10,500
10,200
13,200
11,100
11,100
Andacollo
10,700
7,100
9,400
13,900
6,500
100
Wassa
4,400
4,800
3,800
5,600
2,700
2,900
Other
4,600
4,300
4,500
3,400
1,500
1,500
Total
43,000
35,900
40,000
50,100
28,600
18,900
Three Months Ended
Three Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
247,500
418,200
394,700
417,800
247,500
451,200
Other
72,200
66,200
40,800
47,900
72,300
23,400
Total
319,700
484,400
435,500
465,700
319,800
474,600
Three Months Ended
Three Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
3.4
4.4
3.4
4.3
—
0.8
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $21.5 million for the three months ended March 31, 2021, from $22.0 million for the three months ended March 31, 2020. The decrease was primarily due to lower gold sales from Mount Milligan, Pueblo Viejo and Andacollo compared to the prior period. This decrease was partially offset by an increase in 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.
General and administrative costs decreased to $6.9 million for the three months ended March 31, 2021, from $9.6 million for the three months ended March 31, 2020. The decrease was primarily due to additional non-cash stock compensation expense of approximately $3.3 million from the accelerated vesting of certain equity awards in connection with the retirement of our former President and Chief Executive Officer and our former Vice President and General Counsel in January 2020.
Exploration costs decreased to zero for the three months ended March 31, 2021, from $0.6 million for the three months ended March 31, 2020. 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 decreased to $41.3 million for the three months ended March 31, 2021 from $51.2 million for the three months ended March 31, 2020. The decrease was primarily due to lower gold sales at Mount Milligan, Andacollo and Pueblo Viejo when compared to the prior period. The decrease was also attributable to decreases in our gold and silver depletion rates at Pueblo Viejo and gold depletion rate at Mount Milligan. Our gold and silver depletion rates at Pueblo Viejo decreased in the current period due to an increase in proven and probable reserves as reported by Barrick, while our gold depletion rate at Mount Milligan decreased as a result of improved gold recoveries.
Interest and other expense decreased to $1.8 million for the three months ended March 31, 2021, from $2.1 million for the three months ended March 31, 2020. 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 March 31, 2021, we recorded income tax expense totaling $17.7 million, compared with income tax expense of $8.7 million for the three months ended March 31, 2020. The income tax expense resulted in an effective tax rate of 24.6% in the current period, compared with 18.5% for the three months ended March 31, 2020. The
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three months ended March 31, 2021 included approximately $2.6 million of certain discrete income tax expense items, which were primarily due to a change in the realizability of certain deferred tax assets. The effective tax rate for the three months ended March 31, 2020 included income tax benefits resulting from foreign exchange rate movements compared to the U.S. dollar. Absent these discrete income tax expense items, our effective tax rate would have been approximately 21% during the third quarter.
Nine Months Ended March 31, 2021, Compared to Nine Months Ended March 31, 2020
For the nine months ended March 31, 2021, we recorded net income of $220.9 million, or $3.36 per basic and diluted share, as compared to net income of $150.3 million, or $2.30 per basic share and $2.29 per diluted share, for the nine months ended March 31, 2020. 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 nine months ended March 31, 2021, we recognized total revenue of $447.8 million, comprised of stream revenue of $309.5 million and royalty revenue of $138.3 million at an average gold price of $1,859 per ounce, an average silver price of $24.96 per ounce and an average copper price of $3.35 per pound. This is compared to total revenue of $378.9 million for the nine months ended March 31, 2020, comprised of stream revenue of $274.1 million and royalty revenue of $104.8 million, at an average gold price of $1,512 per ounce, an average silver price of $17.07 per ounce and an average copper price of $2.62 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020, are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Nine Months Ended March 31, 2021 and 2020
(Amounts in thousands, except reported production ozs. and lbs.)
Nine Months Ended
Nine Months Ended
March 31, 2021
March 31, 2020
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
113,135
$
93,423
Gold
38,000
oz.
43,500
oz.
Copper
12.5
Mlbs.
10.9
Mlbs.
Pueblo Viejo
$
88,998
$
73,534
Gold
31,000
oz.
33,100
oz.
Silver
1.3
Moz.
1.4
Moz.
Andacollo
Gold
$
54,297
28,700
oz.
$
63,324
41,800
oz.
Wassa
Gold
$
24,644
13,300
oz.
$
18,760
12,500
oz.
Other (3)
$
28,494
$
25,024
Gold
13,300
oz.
15,400
oz.
Silver
141,300
oz.
133,500
oz.
Total stream revenue
$
309,568
$
274,065
Royalty (2) :
Peñasquito
$
36,289
$
19,422
Gold
521,700
oz.
228,500
oz.
Silver
23.2
Moz.
22.6
Moz.
Lead
143.8
Mlbs.
151.7
Mlbs.
Zinc
311.1
Mlbs.
303.6
Mlbs.
Cortez
Gold
$
22,421
147,200
oz.
$
14,109
120,800
oz.
Other (3)
Various
$
79,551
N/A
$
71,257
N/A
Total royalty revenue
$
138,261
$
104,788
Total revenue
$
447,829
$
378,853
(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the nine months ended March 31, 2021, and 2020, and may differ from the operators’ public reporting.
(2)
Refer to “Property Developments” above for a discussion of recent developments at principal properties.
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(3)
Individually, except for our stream interest at Rainy River, which contributed 6% of total revenue for the nine months ended March 31, 2021 and 2020, 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 nine months ended March 31, 2021 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 nine months ended March 31, 2021 and 2020, and gold and silver ounces and copper pounds in inventory as of March 31, 2021 and June 30, 2020 for our streaming interests were as follows:
Nine Months Ended
Nine Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
41,500
38,000
44,900
43,500
6,800
3,300
Andacollo
35,100
28,800
37,700
41,800
6,500
100
Pueblo Viejo
31,000
31,000
33,900
33,100
11,100
11,100
Wassa
13,100
13,300
11,600
12,500
2,700
2,900
Other
13,400
13,300
15,900
15,400
1,500
1,500
Total
134,100
124,400
144,000
146,300
28,600
18,900
Nine Months Ended
Nine Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
1,074,200
1,278,000
1,274,900
1,355,800
247,500
451,200
Other
190,300
141,300
138,300
133,500
72,300
23,400
Total
1,264,500
1,419,300
1,413,200
1,489,300
319,800
474,600
Nine Months Ended
Nine Months Ended
As of
As of
March 31, 2021
March 31, 2020
March 31, 2021
June 30, 2020
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
11.8
12.5
10.2
11.0
—
0.8
Cost of sales, which excludes depreciation, depletion and amortization, increased to $68.2 million for the nine months ended March 31, 2021, from $63.1 million for the nine months ended March 31, 2020. The increase was primarily due to an increase in gold, silver and copper prices and an increase in copper sales at Mount Milligan when compared to the prior period. This increase was partially offset by a decrease in gold sales at Andacollo 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.
General and administrative costs decreased to $21.2 million for the nine months ended March 31, 2021, from $23.7 million for the nine months ended March 31, 2020. The decrease was primarily due to additional non-cash stock compensation expense of approximately $3.3 million from the accelerated vesting of certain equity awards in connection with the retirement of our former President and Chief Executive Officer and our former Vice President and General Counsel in January 2020.
Exploration costs decreased to $0.6 million for the nine months ended March 31, 2021, from $4.7 million for the three months ended March 31, 2020. 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 $135.5 million for the nine months ended March 31, 2021, from $130.0 million for the nine months ended March 31, 2020. The increase was primarily due to higher copper sales at Mount Milligan and an increase in depletion rates at Mount Milligan through the six months ended December 31, 2020, as previously discussed in our Fiscal 2020 10-K. During the three months ended March 31, 2021, the gold depletion rate at Mount Milligan decreased as a result of improved gold recoveries. The increase in depreciation, depletion and amortization was partially offset by a decrease in gold sales at Andacollo when compared to the prior period.
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We recognized an increase in fair value changes in equity securities of $4.1 million for the nine months ended March 31, 2021, compared to a decrease in fair value of $5.0 million for the nine months ended March 31, 2020. 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 $5.3 million for the nine months ended March 31, 2021, from $7.1 million for the nine months ended March 31, 2020. 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 nine months ended March 31, 2021, we recorded income tax expense totaling $31.3 million, compared with an income tax benefit of $3.7 million for the nine months ended March 31, 2020. The income tax expense resulted in an effective tax rate of 12.4% in the current period, compared with (2.6%) for the nine months ended March 31, 2020. The nine months ended March 31, 2021 effective tax rate included income tax benefits of $21.8 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. For the nine months ended March 31, 2020, 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 March 31, 2021, we had current assets of $446.3 million compared to current liabilities of $62.7 million, which resulted in working capital of $383.6 million and a current ratio of 7 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 increased revenue and proceeds from the sale of our interests in the Manh Choh Project during the quarter ended September 30, 2020.
During the nine months ended March 31, 2021, liquidity needs were met from $286.3 million in net cash provided by operating activities and our available cash resources. As of March 31, 2021, we had $850 million available and $150 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 March 31, 2021. We were in compliance with each financial covenant under the revolving credit facility as of March 31, 2021. Refer to Note 5 of our notes to consolidated financial statements for further discussion on our outstanding debt. On April 1, 2021, we repaid the remaining $150 million outstanding under the credit facility. Upon this repayment, the amount available under our revolving credit facility is $1 billion, with no amounts outstanding.
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 any conditional funding schedules. 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.
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Cash Flows
Operating Activities
Net cash provided by operating activities totaled $286.3 million for the nine months ended March 31, 2021, compared to $249.2 million for the nine months ended March 31, 2020. The increase was primarily due to an increase in cash proceeds received from our stream and royalty interests, net of cost of sales and production taxes, of approximately $54.4 million. The increase was partially offset by an increase in income taxes paid of $24.1 million.
Investing Activities
Net cash used in investing activities totaled $21.6 million for the nine months ended March 31, 2021, compared to net cash used in investing activities of $105.1 million for the nine months ended March 31, 2020. The decrease 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 decrease was partially offset by advance payments totaling $77.2 million for the Khoemac a u silver stream acquisition during the current period, compared to $87.8 million during the prior year period.
Financing Activities
Net cash used in financing activities totaled $213.5 million for the nine months ended March 31, 2021, compared to $169.9 million for the nine months ended March 31, 2020. The increase was primarily due to an increase in repayments on our revolving credit facility. We repaid $155.0 million on our revolving credit facility during the nine months ended March 31, 2021, compared to $115.0 million during the nine months ended March 31, 2020.
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. We expect to pay our annual dividend using cash on hand.
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 shareholder returns; 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,
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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 and subsequent Forms 10-Q. 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.