ROYAL GOLD INC 10-K

ITEM 1. BUSINESS Overview 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 do not conduct mining operations on the properties in which we hold stream and royalty interests and are not required to contribute to capital costs, environmental costs, or other operating costs on the properties. Please refer to Item 2, Properties, for a discussion of the developments at our principal 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 stream and royalty interests 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. As discussed in further detail throughout this report, some key takeaways and developments for our business since the beginning of fiscal year 2021 were as follows: ● We had record revenue of $615.9 million during fiscal year 2021, compared to $498.8 million during fiscal year 2020. This was a 23% increase year over year. ​ ● We increased our calendar year dividend to $1.20 per basic share, which is paid in quarterly installments throughout calendar year 2021. This represents a 7% increase compared with the dividend paid during calendar year 2020. ​ ● On September 30, 2020, we announced we had entered into 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., our partner in Peak Gold, LLC, the owner of the Manh Choh Project. Consideration received for the sale of these interests included cash of $61.3 million and certain net smelter return royalties. ​ 2 Table of Contents ● On October 1, 2020, we announced the separation of the Wassa and Prestea and Bogoso gold stream agreement into separate stream agreements effective September 30, 2020. For more information, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. ​ ● 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 from Khoemac a u until the delivery of 32.0 million ounces, and 40% thereafter. 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. ​ ● On June 7, 2021, we acquired a 1.0% net smelter return royalty on production from mining claims that comprise a portion of the Côté Gold open pit project located in Ontario, Canada from a third-party for $75 million in cash consideration. ​ ● On June 30, 2021, we announced we had entered into a precious metals purchase agreement with Ero Gold Corp, a wholly-owned subsidiary of Ero Copper Corp. (together “Ero”), to acquire a gold stream interest in their NX Gold mine in Brazil for $100 million in cash consideration, with further payments of up to $10 million in cash depending on defined success-based targets. This transaction closed on August 6, 2021. ​ ● 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 early 2022 for the six-month stub period from July 1, 2021, to December 31, 2021. ​ ● On August 11, 2021, we acquired a 1.0% net smelter return royalty covering approximately 5,100 hectares which include the currently known mineralization and prospective exploration areas of the Red Chris Mine in British Columbia, Canada. We paid $165 million in cash consideration for the royalty to Glencore Canada Corporation, a wholly owned subsidiary of Glencore International AG. The Red Chris Mine is an operating open pit mine producing gold, copper and silver, and is located on the northern edge of the Skeena Mountains. ● Throughout fiscal year 2021, several of our operating counterparties instituted temporary operational curtailments due to the ongoing COVID-19 pandemic. In addition, the pandemic and resulting economic and societal impacts have made it difficult for operators to forecast expected production amounts and, at times, operators have had to withdraw or revise previously disclosed guidance. For the most part, our results of operations and financial condition were not materially impacted by these measures. However, the effects of the pandemic will ultimately depend on many factors that are outside of our control, including the severity and duration of the pandemic, including the emergence of variant strains of the virus, government and operator actions in response to the pandemic, and the development, availability, and public acceptance of effective treatments and vaccines. As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition. We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis. ​ Certain Definitions Dollar or “$”: Refers to U.S. dollars. We refer to Canadian dollars as C$. Gold equivalent ounces (GEOs): GEOs are calculated as Royal Gold’s revenue divided by the average gold price for the period. Gross smelter return (GSR) royalty: A defined percentage of the gross revenue from a resource extraction operation, less, if applicable, certain contract-defined costs paid by or charged to the operator. 3 Table of Contents Metal stream: 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. Mineralized material: That part of a mineral system that has potential economic significance, but is not included in the proven and probable reserve estimates until further drilling and metallurgical work is completed, and until other economic and technical feasibility factors based on such work have been resolved. Net smelter return (NSR) royalty: A defined percentage of the gross revenue from a resource extraction operation less a proportionate share of incidental transportation, insurance, refining and smelting costs. Net value royalty (NVR): A defined percentage of the gross revenue from a resource extraction operation less certain contract-defined costs. Probable reserves: Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. Proven reserves: Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Payable metal: Ounces or pounds of metal in concentrate after deduction of a percentage of metal in concentrate by a third-party smelter pursuant to smelting contracts. Reserve: That part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Royalty: The right to receive a percentage or other denomination of mineral production from a mining operation. Ton: A unit of weight equal to 2,000 pounds or 907.2 kilograms. Tonne: A unit of weight equal to 2,204.6 pounds or 1,000 kilograms. Our Operational Information 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, 2021, we owned eight stream interests, which are on six producing properties and two development stage properties. Our stream interests accounted for approximately 69% and 72% of our total revenue for each of the fiscal years ended June 30, 2021, and 2020, respectively. We expect stream interests to represent 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. 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 4 Table of Contents operators are engaged in the search for reserves. Royalties accounted for approximately 31% and 28% of our total revenue for each of the fiscal years ended June 30, 2021, and 2020, respectively. Our long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table (amounts are in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of June 30, 2021 ​ As of June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Total stream ​ ​ ​ ​ ​ ​ ​ Total stream ​ ​ Stream ​ Royalty ​ and royalty ​ Stream ​ Royalty ​ and royalty ​ interest interest interests, net interest interest interests, net Canada ​ $ 624,212 ​ $ 252,547 ​ $ 876,759 ​ $ 702,732 ​ $ 189,855 ​ $ 892,587 Dominican Republic ​ ​ 366,698 ​ ​ — ​ ​ 366,698 ​ ​ 406,469 ​ ​ — ​ ​ 406,469 Chile ​ ​ 256,604 ​ ​ 224,116 ​ ​ 480,720 ​ ​ 277,661 ​ ​ 223,922 ​ ​ 501,583 Africa ​ ​ 291,112 ​ ​ 321 ​ ​ 291,433 ​ ​ 215,463 ​ ​ 321 ​ ​ 215,784 Mexico ​ ​ — ​ ​ 66,867 ​ ​ 66,867 ​ ​ — ​ ​ 75,951 ​ ​ 75,951 United States ​ ​ — ​ ​ 112,817 ​ ​ 112,817 ​ ​ — ​ ​ 159,445 ​ ​ 159,445 Australia ​ ​ — ​ ​ 28,117 ​ ​ 28,117 ​ ​ — ​ ​ 30,006 ​ ​ 30,006 Rest of world ​ ​ 12,038 ​ ​ 26,709 ​ ​ 38,747 ​ ​ 12,038 ​ ​ 25,050 ​ ​ 37,088 Total ​ $ 1,550,664 ​ $ 711,494 ​ $ 2,262,158 ​ $ 1,614,363 ​ $ 704,550 ​ $ 2,318,913 ​ Our reportable segments for purposes of assessing performance for our fiscal years ended June 30, 2021, and 2020 are shown below (amounts are in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended June 30, 2021 ​ Revenue Cost of sales (1) Production taxes Depletion (2) Segment gross profit (3) Stream interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Canada ​ $ 190,537 ​ $ 40,121 ​ $ — ​ $ 78,520 ​ $ 71,896 Dominican Republic ​ ​ 115,583 ​ ​ 33,453 ​ ​ — ​ ​ 39,771 ​ ​ 42,359 Chile ​ ​ 82,164 ​ ​ 12,048 ​ ​ — ​ ​ 21,057 ​ ​ 49,059 Africa ​ ​ 35,705 ​ ​ 7,276 ​ ​ — ​ ​ 11,246 ​ ​ 17,183 Total stream interests ​ ​ 423,989 ​ ​ 92,898 ​ ​ — ​ ​ 150,594 ​ ​ 180,497 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Royalty interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 68,611 ​ $ — ​ $ 3,482 ​ $ 5,938 ​ $ 59,191 Mexico ​ ​ 58,212 ​ ​ — ​ ​ — ​ ​ 9,084 ​ ​ 49,128 Canada ​ ​ 31,671 ​ ​ — ​ ​ 3,261 ​ ​ 12,341 ​ ​ 16,069 Australia ​ ​ 21,466 ​ ​ — ​ ​ — ​ ​ 1,889 ​ ​ 19,577 Africa ​ ​ 2,801 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,801 Rest of world ​ ​ 9,106 ​ ​ — ​ ​ — ​ ​ 3,367 ​ ​ 5,739 Total royalty interests ​ ​ 191,867 ​ ​ — ​ ​ 6,743 ​ ​ 32,619 ​ ​ 152,505 Total ​ $ 615,856 ​ $ 92,898 ​ $ 6,743 ​ $ 183,213 ​ $ 333,002 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended June 30, 2020 ​ Revenue Cost of sales (1) Production taxes Depletion (2) Segment gross profit (3) Stream interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Canada ​ $ 158,736 ​ $ 39,257 ​ $ — ​ $ 65,017 ​ $ 54,462 Dominican Republic ​ ​ 96,978 ​ ​ 27,882 ​ ​ — ​ ​ 45,115 ​ ​ 23,981 Chile ​ ​ 74,219 ​ ​ 10,878 ​ ​ — ​ ​ 23,846 ​ ​ 39,495 Africa ​ ​ 29,935 ​ ​ 5,873 ​ ​ — ​ ​ 10,700 ​ ​ 13,362 Total stream interests ​ ​ 359,868 ​ ​ 83,890 ​ ​ — ​ ​ 144,678 ​ ​ 131,300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Royalty interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 48,692 ​ $ — ​ $ 2,451 ​ $ 4,954 ​ $ 41,287 Canada ​ ​ 30,524 ​ ​ — ​ ​ 1,373 ​ ​ 10,397 ​ ​ 18,754 Mexico ​ ​ 32,731 ​ ​ — ​ ​ — ​ ​ 7,797 ​ ​ 24,934 Australia ​ ​ 15,252 ​ ​ — ​ ​ — ​ ​ 1,939 ​ ​ 13,313 Africa ​ ​ 2,575 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,575 Rest of world ​ ​ 9,177 ​ ​ — ​ ​ — ​ ​ 5,282 ​ ​ 3,895 Total royalty interests ​ ​ 138,951 ​ ​ — ​ ​ 3,824 ​ ​ 30,369 ​ ​ 104,758 Total ​ $ 498,819 ​ $ 83,890 ​ $ 3,824 ​ $ 175,047 ​ $ 236,058 ​ (1) Excludes depreciation, depletion and amortization. (2) Depletion amounts are included within Depreciation, depletion and amortization on our consolidated statements of operations and comprehensive income. (3) Refer to Note 15 of our notes to consolidated financial statements for a reconciliation of total segment gross profit to consolidated income before income taxes. 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. During the fiscal year ended June 30, 2021, we derived approximately 84% of our revenue from precious metals (including 74% from gold and 10% from silver), 12% from copper, and 4% from other minerals. The prices of gold, silver, copper, and other metals have fluctuated widely in recent years. The marketability and the price of metals are influenced by numerous factors beyond our control. Significant declines in the prices of gold, silver, or copper could have a material adverse effect on our results of operations and financial condition. Competition The mining industry in general, and stream and royalty segments in particular, are very competitive. We compete with other stream and royalty companies, mine operators, and financial buyers in efforts to acquire existing stream and royalty interests. We also compete with the lenders, investors, and streaming and royalty companies providing financing to operators of mineral properties in our efforts to create new stream and royalty interests. Our competitors may be larger than we are and may have greater resources and access to capital than we have. Key competitive factors in the stream and royalty acquisition and financing business include the ability to identify and evaluate potential opportunities, transaction structure and consideration, and access to capital. Regulation Operators of the mines that are subject to our stream and royalty interests must comply with numerous environmental, mine safety, land use, waste disposal, remediation and public health laws and regulations promulgated by federal, state, provincial and local governments in the United States, Canada, Chile, the Dominican Republic, Ghana, Mexico, Botswana, Australia and other countries where we hold interests. Although we, as a stream or royalty interest owner, are not 6 Table of Contents responsible for ensuring compliance with these laws and regulations, failure by the operators to comply with applicable laws, regulations and permits can result in injunctive action, orders to suspend or cease operations, damages, and civil and criminal penalties on the operators, which could have a material adverse effect on our results of operations and financial condition. Human Capital Resources Employees We currently have 28 employees, 19 of whom work out of our headquarters in Denver, Colorado. The remainder work out of our offices in Lucerne, Switzerland, Vancouver, Canada, and Toronto, Canada. Our employees are not subject to a labor contract or collective bargaining agreement. Strategy The continued growth and success of our business depends on our people, and our people are our most important resource. Management is responsible for ensuring that our policies and practices support our desired corporate culture and employee development. Our human capital management strategy is built on attracting the best talent and developing and retaining talent. ​ Diversity and Inclusion ​ We believe that diversity can enhance creativity, productivity, and organizational strength. We strive to maintain an environment where the perspectives and experiences of all personnel are respected and valued. We seek to identify potential future candidates for employment and membership on our Board using a wide range of criteria that, depending on the position, may include diversity, experience in the mining industry, integrity, perspective, broad business judgment and leadership skills, personal qualities and reputation in the business community, and relevant technical, management, political, legal, governance, finance and other experience. ​ We are committed to an inclusive work environment where individuals are treated with fairness and respect and are given equal opportunity to develop and advance without regard age, race, sex, gender identity or characteristics, color, religion, national origin, disability, sexual orientation, marital status, military status, pregnancy, genetic information, or any other status protected by state or local law. ​ We are committed to providing equal opportunities for promotion, compensation, training and development to all qualified individuals. We maintain a Diversity Policy that outlines our values, commitment to a diverse Board, management team and workforce, and procedures for carrying out the policy. ​ Safety ​ We are committed to the wellbeing of all our employees. We promote a safe and healthy workplace and require strict adherence to legal and ethical standards in our business practices. For each of the past five years, we have recorded a total recordable injury frequency rate of zero for our employees. We maintain a People Policy that outlines our approach to maintaining safe work conditions for our employees. ​ Human Rights ​ We are committed to respecting human rights in the jurisdictions where we operate and affirm our commitment to comply with all applicable laws concerning human rights through our Human Rights Policy. ​ ​ ​ ​ ​ 7 Table of Contents Compensation and Benefits ​ We offer competitive compensation and benefits to attract and retain top talent. We provide competitive medical and other insurance coverage for employees and eligible dependents and provide for sick leave in the case of illness or absence due to the sickness of the employee or an immediate family member. ​ Development ​ We support the continued professional development of our employees by underwriting or subsidizing education and professional development programs for our employees. ​ Host Community Commitment ​ We actively seek opportunities to advance sustainability initiatives with the goal of supporting communities that host the operations in which we hold stream and royalty interests during and following our operators’ mining operations. Many of our operators also actively and positively impact the communities where they mine. We encourage their efforts and often make our own financial contributions in support of their programs. ​ Local Community Support ​ We also believe in giving back at home, supporting the communities where we live and work. Our annual charitable giving is administered by a committee of employees that selects donation targets and recipients in our local communities. We are proud to partner with leading charities in Denver, Luzern, Toronto, and Vancouver that are actively responding to community needs with respect to medical supplies, homelessness, food security, elder care, and education. ​ SEC Filings We file periodic and current reports, proxy statements, and other information with the SEC. This includes our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those forms. These reports are available free of charge on our website at www.royalgold.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These reports also can be obtained on the SEC’s website at www.sec.gov. The information on our website is not part of this or any other report filed with or furnished to the SEC.