What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-12 compared with 2020-08-06 · 221 added, 175 removed, 128 unchanged (76% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A discussion of the changes in our financial condition and results of operations for the fiscal years ended June 30, 2019, and 2018, has been omitted from this Annual Report, but may be found in Item 7, MD&A, of our Annual Report on Form 10-K for the year ended June 30, 2019, filed with the SEC on August 8, 2019, which is available free of charge on the SEC’s website at www.sec.gov and our website at www.royalgold.com.

General Presentation

A discussion of the changes in our financial condition and results of operations for the fiscal years ended June 30, 2020, and 2019, has been omitted from this report, but may be found in Item 7, MD&A, of our Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on August 6, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our website at www.royalgold.com.

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 to finance projects that are in production or in the development stage in exchange for stream or royalty 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 June 30, 2020, we owned seven stream interests, which are on six producing properties and two development stage properties.

Our stream interests accounted for approximately 72% of our total revenue for each of the fiscal years ended June 30, 2020, and 2019.

As of June 30, 2021, we owned eight stream interests, which are on six producing properties and two development stage properties.

Stream interests accounted for 69% and 72% of our total revenue for the fiscal years ended June 30 2021, and 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 a percentage of revenue or metals produced from the project after deducting specified costs, if any.

● 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 June 30, 2021, we owned royalty interests on 35 producing properties, 15 development stage properties and 129 exploration stage properties, of which we consider 50 to be evaluation stage projects.

We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves.

Royalties accounted for approximately 28% of our total revenue for each of the fiscal years ended June 30, 2020, and 2019.

We do not conduct mining operations on the properties in which we hold stream and royalty interests.

Except for our interest in the Peak Gold JV, we are not required to contribute to capital costs, exploration costs, environmental costs, or other operating costs on those properties.

In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams and royalties on operating mines, to create new stream and royalty interests through the financing of mine development or exploration, or to acquire companies that hold stream and royalty interests.

We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial, legal and other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.

Our financial results are primarily tied to the price of gold and, to a lesser extent, the prices of silver and copper, together with the amounts of production from our producing stage stream and royalty interests.

For the fiscal years ended June 30, 2020 and 2019, gold, silver, and copper price averages and percentage of revenue by metal were as follows:

Fiscal Year ended

Royalty interests accounted for 31% and 28% of our total revenue for the fiscal years ended June 30, 2021, and 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 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

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 fiscal years ended June 30, 2021 and 2020, average metal prices and percentages of revenue by metal were as follows:

June 30, 2021

June 30, 2020

Percentage of Revenue

Gold ($/ounce)

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Copper ($/pound)

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

COVID-19 Pandemic

Throughout calendar year 2020 and into calendar year 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, including the emergence of variant strains of the virus, 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 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 3 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 Limited (“FGR”).

Refer to Note 4 of our notes to the consolidated financial statements for further discussion on the separation of the Wassa and Prestea and Bogoso stream agreement.

Completion of Base Silver Stream at Khoemac a u Project

On January 6, 2021, we made the sixth advance payment of $32.6 million toward the Khoemac a u Project silver stream.

With this payment, we have completed the total $212 million advance payment required to earn the base silver stream of 80% of payable silver.

A seventh advance payment of $10.6 million was made toward the option silver stream on April 7, 2021, and as of that date, we hold the right to purchase 84% of the payable silver from Khoemac a u until the delivery of approximately 33.6 million ounces of silver, and 42% thereafter.

Côté Royalty Acquisition

On June 7, 2021, we acquired a 1.0% net smelter return royalty on certain claims covering the Côté Gold Project in Northern Ontario, Canada.

The Côté Gold Project is owned 92.5% by the Côté Gold Joint Venture (a joint venture owned 70% by IAMGOLD Corporation and 30% by Sumitomo Metal Mining Co., Ltd.), and 7.5% by a third party.

The royalty covers the Chester 3 claims, which in turn cover approximately 70% of the current reserves of the Côté Gold Project, as well as other areas outside the current project area.

Royal Gold acquired the royalty from a third-party royalty holder for $75 million in cash consideration.

NX Gold Mine Gold Stream Acquisition

On June 30, 2021, we announced that we entered into a precious metals purchase agreement for gold produced from the NX Gold Mine in Brazil (“NX Gold Stream”) with Ero Gold Corp., a wholly owned subsidiary of Ero Copper Corp., and certain of its affiliates (together, “Ero”).

On August 6, 2021, we made an advance payment of $100 million upon closing of the transaction.

We will make up to an additional $10 million of further payments from the beginning of calendar year 2022 through the end of calendar year 2024 based on Ero’s achievement of meeting success-based targets related to regional exploration and resource additions.

In return, we will receive 25% of the gold produced from the NX Gold Mine until the delivery of 93,000 ounces, and 10% thereafter.

We will pay 20% of the spot gold price for each ounce delivered until the delivery of 49,000 ounces, and 40% of the spot gold price thereafter.

A delivery of approximately 2,500 ounces of gold based on mine production through to closing is expected to be received from Ero within five business days of closing the transaction.

Change in Fiscal Year End

On August 9, 2021, our board of directors approved a change in our fiscal year end from June 30 to December 31 effective as of December 31, 2021.

As a result, we expect to file a Transitional Report on Form 10-KT in February 2022 for the six-month stub period from July 1, 2021, to December 31, 2021.

Operators’ Production Estimates by Stream and Royalty Interest for Calendar Year 2021

We received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2021.

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

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

The following table shows these production estimates for our principal producing properties for calendar year 2021 as well as the actual production reported to us by the various operators through June 30, 2021.

The estimates and production reports are prepared by the operators.

We do not participate in the preparation or calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information.

Please refer to Part I, Item 2, Properties, of this report for further discussion on any updates at our principal producing properties.

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

Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar Year 2021

Principal Producing Properties

Calendar 2020 Operator’s Production

Calendar Year 2021 Operator’s Production

Stream/Royalty

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145,000 - 155,000

350,000 - 375,000

Peñasquito (8)

(1) Production estimates received from our operators are for calendar 2020.

(1) Production estimates received from our operators are for calendar year 2021.

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

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(2) Actual production figures shown are from our operators and cover the period January 1, 2021, through June 30, 2021, unless otherwise noted in footnotes to this table.

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

(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 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.

(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.

The operator did not provide estimated or actual silver production.

(6) The estimated and actual production figures shown for Wassa is payable gold in doré.

(7) Production from Cortez subject to Royal Gold’s 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.

COVID-19 and current economic environment

Several of our operating counterparties announced temporary operational curtailments or the withdrawal or review of previously disclosed guidance due to the ongoing COVID-19 pandemic.

The economic and societal impacts associated with COVID-19 are fluid and changing rapidly, and we are currently unable to predict the nature or extent of any impact on our results of operations and financial condition.

We will continue to monitor any further developments that the COVID-19 pandemic may have on stream or royalty interests as part of our regular asset impairment analysis.

Historical Production

The following table discloses historical production for the past two fiscal years for the principal producing properties that are subject to our stream and royalty interests, as reported to us by the operators of the mines.

We do not participate in the preparation or calculation of the operators’ production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information.

We do not participate in the

preparation or calculation of the operators’ production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information.

Historical Production (1) by Stream and Royalty Interest

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For our royalty interests, historical production relates to the payable metal amounts as reported to us by the operators of the mines subject to our royalty rate for each fiscal year presented.

Results of Operations

Fiscal Year Ended June 30, 2021, Compared with Fiscal Year Ended June 30, 2020

For the fiscal year ended June 30, 2021, we recorded net income attributable to Royal Gold stockholders of $302.5 million, or $4.61 per basic share and $4.60 per diluted share, as compared to net income attributable to Royal Gold stockholders of $199.3 million, or $3.04 per basic share and $3.03 per diluted share, for the fiscal year ended June 30, 2020.

The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a one-time gain attributable to the sale of our Peak Gold JV interest during the September 2020 quarter and (iii) various discrete income tax benefits recognized during the September 2020 and June 2021 quarters.

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

For the fiscal year ended June 30, 2021, we recognized total revenue of $615.9 million, which is comprised of stream revenue of $424.0 million and royalty revenue of $191.9 million, at an average gold price of $1,849 per ounce, an average silver price of $25.38 per ounce and an average copper price of $3.60 per pound, compared to total revenue of $498.8 million, which is comprised of stream revenue of $359.9 million and royalty revenue of $138.9 million, at an average gold price of $1,560 per ounce, an average silver price of $16.90 per ounce and an average copper price of $2.57 per pound, for the fiscal year ended June 30, 2020.

Revenue and the corresponding production, attributable to our stream and royalty interests, for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020 is as follows:

Revenue and Reported Production Subject to our Stream and Royalty Interests

Fiscal Years Ended June 30, 2021 and 2020

(In thousands, except reported production in ozs.

June 30, 2021

June 30, 2020

Stream/Royalty

Production (1)

Mount Milligan

Total stream revenue

Royalty (2) :

Total royalty revenue

Total revenue

(1) Reported production relates to the amount of metal sales, subject to our stream and royalty interests, for the fiscal years ended June 30, 2021 and 2020, and may differ from the operators’ public reporting.

(2) Refer to Item 2, Properties, for further discussion on our principal stream and royalty interests.

(3) Individually, with the exception of the Rainy River stream (5.5% in fiscal year 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 fiscal year ended June 30, 2021, compared with the fiscal year ended June 30, 2020, resulted primarily from an increase in the average gold, silver and copper prices compared to the prior period and an increase in production within the royalty segment.

Gold and silver ounces and copper pounds purchased and sold during the fiscal years ended June 30, 2021 and 2020, as well as gold, silver and copper in inventory as of June 30, 2021 and 2020, for our stream interests were as follows:

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Purchases (oz.)

Inventory (oz.)

Mount Milligan

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Silver Stream

Purchases (oz.)

Inventory (oz.)

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Copper Stream

Purchases (Mlbs.)

Sales (Mlbs.)

Purchases (Mlbs.)

Sales (Mlbs.)

Inventory (Mlbs.)

Mount Milligan

Cost of sales increased to $92.9 million for the fiscal year ended June 30, 2021, from $83.9 million for the fiscal year ended June 30, 2020.

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.

This increase was partially offset by a decrease in gold sales at Mount Milligan and Andacollo when compared to the prior period.

Cost of sales, which excludes depreciation, depletion and amortization, 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 $28.4 million for the fiscal year ended June 30, 2021, from $30.2 million for the fiscal year ended June 30, 2020.

The decrease was primarily due to additional non-cash stock compensation expense of approximately $3.3 million recognized in the prior year period due to 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 fiscal year ended June 30, 2021, from $5.2 million for the fiscal year ended June 30, 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 3 of our notes to consolidated financial statements.

Depreciation, depletion and amortization increased to $183.6 million for the fiscal year ended June 30, 2021, from $175.4 million for the fiscal year ended June 30, 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 Annual Report on Form 10-K for the year ended June 30, 2020.

The increase in depreciation, depletion and amortization was offset by a decrease in gold sales at Mount Milligan and Andacollo.

We recognized a gain in fair value changes in equity securities of $6.0 million for the fiscal year ended June 30, 2021, compared to a gain in fair value changes in equity securities of $1.4 million for the fiscal year ended June 30, 2020.

The change was primarily due to an increase in the fair value of marketable equity securities as discussed further in Note 5 of our notes to consolidated financial statements.

Interest and other expense decreased to $6.4 million for the fiscal year ended June 30, 2021, from $9.8 million for the fiscal year ended June 30, 2020.

The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding during the current period when compared to the prior period.

Refer to Note 6 of our notes to consolidated financial statements for further discussion on our debt.

During the fiscal year ended June 30, 2021, we recognized income tax expense totaling $36.9 million, compared with an income tax benefit of $3.7 million during the fiscal year ended June 30, 2020.

This resulted in an effective tax rate of 10.9% during the current period, compared with (1.9%) in the prior period.

The effective tax rate for the fiscal year ended June 30, 2021, was primarily impacted by the release of uncertain tax liabilities resulting from settlement agreements with foreign tax authorities in various jurisdictions.

The effective tax rate for the fiscal year ended June 30, 2020, was primarily impacted by a net step-up of tax assets due to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland (Swiss Tax Reform) and the release of an uncertain tax liability resulting from a settlement agreement with a foreign tax authority.

Liquidity and Capital Resources

At June 30, 2021, we had current assets of $297.1 million compared to current liabilities of $52.1 million resulting in working capital of $245.0 million and a current ratio of 6 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 decrease in our working capital was primarily attributable to the repayment of our outstanding debt, which is discussed further below under “Summary of Cash Flows.”

During the fiscal year ended June 30, 2021, liquidity needs were met from $407.2 million in net cash provided by operating activities and our available cash resources.

As of June 30, 2021, we had $1 billion available and no amounts 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 June 30, 2021.

Refer to Note 6 of our notes to consolidated financial statements and below (“Recent Liquidity and Capital Resource Developments”) for further discussion on our debt.

In August 2021, we borrowed $100 million under our revolving credit facility for business development activities and have $900 million available.

We believe that our current financial resources and operating cash flows will be adequate to cover our operating needs 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 I, Item 1A of this report for a discussion of certain risks that may impact our liquidity and capital resources.

Recent Liquidity and Capital Resource Developments

Revolving Credit Facility Amendment

On July 7, 2021, we entered into a fourth amendment to our revolving credit facility dated as of June 2, 2017.

The amendment extends the maturity date from June 3, 2024, to July 7, 2026, adds provisions to provide for the eventual replacement of LIBOR and makes certain changes to the lenders under the agreement.

Dividend Increase

On November 17, 2020, we announced an increase in our annual dividend for calendar year 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 year 2020.

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

We expect to pay our annual dividend using cash on hand.

Summary of Cash Flows

Operating Activities

Net cash provided by operating activities totaled $407.2 million for the fiscal year ended June 30, 2021, compared to $340.8 million for the fiscal year ended June 30, 2020.

The change 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 $86.1 million over the fiscal year ended June 30, 2020.

This increase was offset by $27.4 million of higher cash taxes paid, net of refunds over the fiscal year ended June 30, 2020.

The increase in cash taxes paid during the current period is primarily attributable to an increase in required estimated tax payments due to increased taxable income and payments that were deferred due to COVID-19.

Investing Activities

Net cash used in investing activities totaled $116.7 million for the fiscal year ended June 30, 2021, compared to net cash used in investing activities of $152.9 million for the fiscal year ended June 30, 2020.

The decrease in net cash used in investing activities was primarily due to $49.2 million received for the sale of our Peak Gold JV investment and $21.3 million for the sale of equity securities.

This decrease was partially offset by the $18.0 million KCM drew against the subordinated debt facility.

Financing Activities

Net cash used in financing activities totaled $383.6 million for the fiscal year ended June 30, 2021, compared to net cash provided by financing activities of $11.8 million for the fiscal year ended June 30, 2020.

The increase in net cash used in financing activities was primarily due to an increase in repayments on our revolving credit facility.

We repaid $305.0 million on our revolving credit facility during the fiscal year ended June 30, 2021, compared to $115.0 million during the fiscal year ended June 30, 2020.

Contractual Obligations

Our contractual obligations as of June 30, 2021, were as follows:

Payments Due by Period (in thousands)

Contractual Obligations

Operating leases

The above table does not include stream commitments as discussed in Note 15 of our notes to consolidated financial statements.

We believe we will be able to fund all current obligations from net cash provided by operating activities.

Off - Balance-Sheet Arrangements

We do not have any off-balance-sheet arrangements.

Critical Accounting Policies

Listed below are the accounting policies we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.

Please also refer to Note 2 of the notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Please also refer to Note 2 of our notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Use of Estimates

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Stream and royalty interests include acquired stream and royalty interests in production, development and exploration stage properties.

The costs of acquired stream and royalty interests are capitalized as tangible assets as such interests do not meet the definition of a financial asset under U.S.

The costs of acquired stream and royalty interests are capitalized as tangible assets as such interests do not meet the definition of a financial asset.

Production stage stream and royalty interests are depleted using the units of production method over the life of the mineral property (as stream sales occur or royalty payments are recognized), which are estimated using proven and probable reserves as provided by the operator.

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At such time as the associated exploration stage mineral interests are converted to proven and probable reserves, the mineral property is depleted over its life, using proven and probable reserves.

Exploration costs are expensed when incurred.

Asset Impairment

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Estimates of gold, silver, copper, and other metal prices, and operators’ estimates of proven and probable reserves or mineralized material related to our stream or royalty properties are subject to certain risks and uncertainties which may affect the recoverability of our investment in these stream and royalty interests in mineral properties.

It is possible that changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these stream and royalty interests.

Refer to Note 4 to consolidated financial statements for a discussion of the impairment assessment results for the fiscal year ended June 30, 2020.

GAAP, a performance obligation is a promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer.

A contract’s transaction price is allocated to each distinct

performance obligation and recognized as revenue when, or as, a performance obligation is satisfied.

In accordance with this guidance, revenue attributable to our stream interests and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers.

It is possible that

changes could occur to these estimates, which could adversely affect the net cash flows expected to be generated from these stream and royalty interests.

Refer to Note 4 of our notes to consolidated financial statements for a discussion of the impairment assessment results for the fiscal year ended June 30, 2021.

A performance obligation is a promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, a performance obligation is satisfied.

In accordance with this guidance, revenue attributable to our stream and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers.

The amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement.

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The sales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between 10 days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales activity in effect at the time) commencing shortly after receipt and purchase of the metal.

Temporary modifications may be made to our metal sales guidelines from time to time as required to meet our needs.

Temporary modifications may be made to our metal sales guidelines from time to time as required

to meet our needs.

Revenue from gold, silver and copper sales is recognized on the date of the settlement, which is also the date that title to the metal passes to the purchaser.

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Exploration Costs

Exploration costs are specific to our Peak Gold JV for exploration and advancement of the Peak Gold project as discussed further in Note 2 to consolidated financial statements.

Exploration costs associated with the exploration and advancement of Peak Gold are expensed when incurred.

Exploration costs were specific to our Peak Gold JV for exploration and advancement of the Peak Gold project as discussed further in Note 3 of our notes to consolidated financial statements.

Exploration costs associated with the exploration and advancement of Peak Gold were expensed when incurred.

As a result of the sale of our Peak Gold project as discussed further in this MD&A and in Note 3 to our consolidated financial statements, we do not expect to incur exploration costs in the future.

Our annual tax rate is based on income, statutory tax rates in effect and tax planning opportunities available to us in the various jurisdictions in which the Company operates.

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Actual income taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year’s liability by taxing authorities.

We treat global intangible low-taxed income (“GILTI”) as a period cost and therefore do not record deferred tax impacts of GILTI in our consolidated financial statements.

Our deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations.

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We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Liquidity and Capital Resources

At June 30, 2020, we had current assets of $362.2 million compared to current liabilities of $43.6 million resulting in working capital of $318.6 million and a current ratio of 8 to 1.

This compares to current assets of $154.7 million and current liabilities of $33.6 million at June 30, 2019, resulting in working capital of $121.1 million and a current ratio of approximately 5 to 1.

The increase in our current ratio was primarily attributable to an increase in our cash and equivalents, which is discussed further below under “Summary of Cash Flows.”

During the fiscal year ended June 30, 2020, liquidity needs were met from $340.8 million in net cash provided by operating activities and our available cash resources.

As of June 30, 2020, we had $695 million available and $305 million outstanding under our revolving credit facility.

Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $1 billion of total liquidity at June 30, 2020.

Refer to Note 6 of our notes to consolidated financial statements and below (“Recent Liquidity and Capital Resource Developments”) for further discussion on our debt.

On July 2, 2020, we repaid $30 million of the outstanding borrowings under the credit facility.

This payment increased the amount available under our revolving credit facility to $725 million and decreased the amount outstanding to $275 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 remaining conditional funding schedule in connection with the Khoemac a u silver stream acquisition.

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.

Please refer to our risk factors included in Part I, Item 1A of this report for a discussion of certain risks that may impact our liquidity and capital resources.

Recent Liquidity and Capital Resource Developments

Revolving Credit Facility Drawdown

On April 3, 2020, we drew an additional $200 million on our revolving credit facility.

There is no immediate requirement for the additional funds.

However, due to the uncertain environment caused by the COVID-19 pandemic, and the impact on certain operations where we hold a stream or royalty interest, we believe the drawdown was a prudent precautionary measure to help ensure cash is readily available to support continued business activities.

We remain committed to reducing our debt, and absent the requirement to fund any new business opportunities, we expect to further manage our debt levels once the operating environment returns to normal.

Dividend Increase

On November 19, 2019, we announced an increase in our annual dividend for calendar 2020 from $1.06 to $1.12, payable on a quarterly basis of $0.28 per share.

The newly declared dividend is 6% higher than the dividend paid during calendar 2019.

We have steadily increased our annual dividend since calendar 2001.

Revolving Credit Facility Amendment

On September 20, 2019, we entered into a third amendment to our revolving credit facility dated as of June 2, 2017.

Under the amendment, our Swiss subsidiary RGLD Gold was added as a co-borrower and joint and several obligor, certain of the Company’s Canadian subsidiaries were added as guarantors, and certain equity pledges that previously had been granted in favor of the lenders to support the facility were released, with the result that the facility is now unsecured.

Summary of Cash Flows

Operating Activities

Net cash provided by operating activities totaled $340.8 million for the fiscal year ended June 30, 2020, compared to $253.2 million for the fiscal year ended June 30, 2019.

The increase was primarily due to an increase in proceeds received from our stream interests, net of cost of sales, of approximately $49.5 million and lower income taxes paid of $12.9 million.

Investing Activities

Net cash used in investing activities totaled $152.9 million for the fiscal year ended June 30, 2020, compared to cash used in investing activities of $5.6 million for the fiscal year ended June 30, 2019.

The increase in cash used in investing

activities was due to an increase in acquisitions of stream and royalty interests.

During the fiscal year ended June 30, 2020, we made advance payments totaling $135.7 million for the Khoemac a u silver stream acquisition.

Financing Activities

Net cash provided by financing activities totaled $11.8 million for the fiscal year ended June 30, 2020, compared to cash used in financing activities of $216.9 million for the fiscal year ended June 30, 2019.

The decrease in cash used in financing activities is primarily due to a decrease in debt repayments (net of borrowings) when compared to the prior fiscal year.

Contractual Obligations

Our contractual obligations as of June 30, 2020, are as follows:

Payments Due by Period (in thousands)

Contractual Obligations

Revolving credit facility (1)

Operating leases

(1) Amounts represent principal ($305 million) and estimated interest payments ($21.0 million) assuming no early extinguishment.

For information on our revolving credit facility, see Note 6 to consolidated financial statements.

The above table does not include stream commitments as discussed in Note 15 to consolidated financial statements.

We believe we will be able to fund all current obligations from net cash provided by operating activities.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Results of Operations

Fiscal Year Ended June 30, 2020, Compared with Fiscal Year Ended June 30, 2019

For the fiscal year ended June 30, 2020, we recorded net income attributable to Royal Gold stockholders of $199.3 million, or $3.04 per basic share and $3.03 per diluted share, as compared to net income attributable to Royal Gold stockholders of $93.8 million, or $1.43 per basic and diluted share, for the fiscal year ended June 30, 2019.

The increase in our earnings per share was primarily attributable to (i) an increase in revenue, (ii) a decrease in our interest expense and (iii) discrete income tax benefits recognized, primarily attributable to recent Swiss tax reform during the quarter ended September 30, 2019 and the release of an uncertain tax liability resulting from a settlement agreement with a foreign tax authority.

Each are discussed further below.

For the fiscal year ended June 30, 2020, we recognized total revenue of $498.8 million, which is comprised of stream revenue of $359.9 million and royalty revenue of $138.9 million, at an average gold price of $1,560 per ounce, an average silver price of $16.90 per ounce and an average copper price of $2.57 per pound, compared to total revenue of $423.1 million, which is comprised of stream revenue of $305.8 million and royalty revenue of $117.2 million, at an average gold price of $1,263 per ounce, an average silver price of $15.00 per ounce and an average copper price of $2.79 per pound, for the fiscal year ended June 30, 2019.

Revenue and the corresponding production, attributable to our stream and royalty interests, for the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019 is as follows:

Revenue and Reported Production Subject to our Stream and Royalty Interests

Fiscal Years Ended June 30, 2020 and 2019

(In thousands, except reported production in ozs.

June 30, 2020

June 30, 2019

Stream/Royalty

Production (1)

Mount Milligan

Total stream revenue

Royalty (2) :

Total royalty revenue

Total revenue

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

(2) Refer to Item 2, Properties, for further discussion on our principal stream and royalty interests.

(3) Individually, with the exception of the Rainy River stream (5.5% in fiscal year 2020 and 5.2% in fiscal year 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 fiscal year ended June 30, 2020, compared with the fiscal year ended June 30, 2019, resulted primarily from an increase in our stream revenue and an increase in the average gold and silver prices.

The increase in our stream revenue was primarily attributable to an increase in gold and copper sales at Mount Milligan and gold sales at Pueblo Viejo.

These increases were partially offset by lower gold sales at Andacollo which was due to a decrease in deliveries resulting from a temporary suspension of operations during the December 2019 quarter due to a worker’s strike.

Gold and silver ounces and copper pounds purchased and sold during the fiscal years ended June 30, 2020 and 2019, as well as gold, silver and copper in inventory as of June 30, 2020 and 2019, for our stream interests were as follows:

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Purchases (oz.)

Inventory (oz.)

Mount Milligan

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Silver Stream

Purchases (oz.)

Inventory (oz.)

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Copper Stream

Purchases (Mlbs.)

Sales (Mlbs.)

Purchases (Mlbs.)

Sales (Mlbs.)

Inventory (Mlbs.)

Mount Milligan

Our royalty revenue increased during the fiscal year ended June 30, 2020, compared with the fiscal year ended June 30, 2019, primarily due to an increase in production at Peñasquito and Cortez and an increase in the average gold and silver prices.

Refer to Part I, Item 2, Properties, for discussion and any updates on our principal producing properties.

Cost of sales increased to $83.9 million for the fiscal year ended June 30, 2020, from $77.5 million for the fiscal year ended June 30, 2019.

The increase was primarily due to increased gold and copper sales from Mount Milligan and an increase in gold sales from Pueblo Viejo, partially offset by a decrease in silver sales from Pueblo Viejo.

Cost of sales, which excludes depreciation, depletion and amortization, is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment.

Depreciation, depletion and amortization increased to $175.4 million for the fiscal year ended June 30, 2020, from $163.1 million for the fiscal year ended June 30, 2019.

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

An increase in depletion rates at Mount Milligan as a result of updated reserves, as discussed in Part I, Item 2, Properties, also contributed to the increase in our depletion expense during the current period.

We recognized a gain in fair value changes in equity securities of $1.4 million for the fiscal year ended June 30, 2020, compared to a loss in fair value changes in equity securities of $6.8 million for the fiscal year ended June 30, 2019.

The change was primarily due to an increase in the fair value of marketable equity securities as discussed further in Note 5 to the consolidated financial statements.

Interest and other expense decreased to $9.8 million for the fiscal year ended June 30, 2020, from $29.7 million for the fiscal year ended June 30, 2019.

The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding during the current period when compared to the prior period.

During the prior period, we settled the $370 million aggregate principal amount due under our convertible senior notes that matured in June 2019.

Refer to Note 6 of our notes to consolidated financial statements for further discussion on our outstanding debt.

During the fiscal year ended June 30, 2020, we recognized an income tax benefit totaling $3.7 million compared with an expense of $17.5 million during the fiscal year ended June 30, 2019.

This resulted in an effective tax rate of (1.9%) during the current period, compared with 16.4% in the prior period.

The effective tax rate for the fiscal year ended June 30, 2020

was primarily impacted by a net step-up of tax assets due to the enactment of the Federal Act on Tax Reform and AHV Financing in Switzerland and the release of an uncertain tax liability resulting from a settlement agreement with a foreign tax authority.

The effective tax rate for the fiscal year ended June 30, 2019 was primarily impacted by true-ups related to the Tax Cuts and Jobs Act partially offset by the implementation of the global intangible low-taxed income tax regime.

Forward-Looking Statements

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Forward-looking statements include, among others, the following:

statements about our expected financial performance, including revenue, expenses, earnings or cash flow;

statements about our expected financial performance and outlook, including sale volume, revenue, expenses, tax rates, 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;

liquidity, financing and stockholder returns;

our overall investment portfolio;

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Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the following:

a low-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;

a lower-price environment for gold, silver, copper, nickel or other metals;

risks associated with doing business in foreign countries;

increased competition for stream and royalty interests;

environmental risks, included those caused by climate change;

potential cyber-attacks, including ransomware;

our ability to identify, finance, value and complete acquisitions;

5 unchanged sentences

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.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis