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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-05-06 · 137 added, 246 removed, 153 unchanged (71% of the section changed)

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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”).

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 Fiscal 2021 10-K.

This MD&A contains forward-looking information.

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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

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● 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.

As of September 30, 2021, we owned nine stream interests, which are on eight producing properties and one development stage property.

Stream interests accounted for approximately 66% of our total revenue for the three months ended September 30, 2021, and 73% for the three months ended September 30, 2020.

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.

As of September 30, 2021, we owned royalty interests on 36 producing properties, 15 development stage properties and 130 exploration stage properties, of which we consider 51 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.

Royalty interests accounted for 34% of our total revenue for the three months ended September 30, 2021, and 27% for the three months ended September 30, 2020.

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, 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.

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;

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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:

For the three months ended September 30, 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

September 30, 2021

September 30, 2020

Gold ($/ounce)

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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.

At times since early 2020, 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.

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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”).

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.

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 operating underground NX Gold Mine in Brazil with Ero.

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

In exchange for the consideration paid upon closing, 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.

We may also make up to an additional $10 million in advance payments from the beginning of calendar 2022 through the end of calendar 2024 based on Ero meeting success-based targets related to regional exploration and resource additions.

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 early 2022 for the six-month transition period from July 1, 2021, to December 31, 2021.

Red Chris Royalty Acquisition

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.

The mine is owned and operated by the Red Chris JV, which is owned 70% by Newcrest and 30% by Imperial Metals Corporation, in which Newcrest is the operator.

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

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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.

The following table shows current production estimates for calendar 2021, as well as actual production through September 30, 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 Year 2021 Operator’s Production

Stream/Royalty

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145,000 - 155,000

Khoemac a u (7)

350,000 - 375,000

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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.

(2) Actual production figures are provided by our operators and cover the period from January 1, 2021, through September 30, 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.

The actual production figures cover the period January 1, 2021, through June 30, 2021.

(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”).

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(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) The estimated and actual production figures for Khoemac a u are not available through the ramp-up period.

(8) Production from Cortez subject to Royal Gold’s royalty interests.

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Stream Interests

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.

Gold stream deliveries from Andacollo were approximately 6,400 ounces for the three months ended September 30, 2021, compared to approximately 13,700 ounces for the three months ended September 30, 2020.

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

Teck expects grades to continue to decline towards reserve grades in calendar 2021 and future years.

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.

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.

Additional permits or permit amendments will be required to execute the life of mine plan.

First concentrate was shipped in mid-July from the long-life Khoemac a u project in Botswana and we received our first silver stream deliveries of approximately 105,800 ounces during the three months ended September 30, 2021.

According to KCM, construction at Khoemac a u is substantially complete and activity is focused on ramping up to full production levels.

Progress within the mine has been slower than planned due to underground equipment operator shortages caused by international travel restrictions, the late arrival of key underground equipment caused by COVID-19 considerations and recent unrest in South Africa, and typical ramp up issues related to drilling and blasting of the first stopes.

With an improvement in the availability of operators, all required equipment now on site, and experience gained from mining the first stopes, progress is being made on resolving these issues and mining rates have steadily improved to approximately 40% of the target mining rate of 10,000 tonnes per day at the end of October.

Stope mining began in September and ground conditions, ore body grades and widths are all in line with expectations.

KCM reported that progress in the process plant has also been in line with expectations, and nameplate capacity of 10,000 tonnes per day was reached consistently for discrete periods during the commissioning period using stockpiled ore.

Recoveries in October reached 85% for copper and 81% for silver and are expected to reach target recoveries of 88% for copper and 84% for silver as the plant operations progress to steady state and with ongoing adjustments to the process.

Copper concentrate produced so far has met required offtake specifications.

KCM expects that the mining rate will continue to ramp-up steadily and reach approximately 75% of target production at the end of the first calendar quarter of 2022, and full sustained production during the third calendar quarter of 2022.

While the Government of Botswana lifted the COVID-19 state of emergency on September 30, 2021, KCM has advised that COVID-19 considerations, both locally and internationally, remain a risk to ramp-up progress.

On October 8, 2021, we acquired the right to receive a further 6% of the payable silver from Khoemac a u with an advance payment of $15.9 million, which was requested by KCM to maintain appropriate working capital levels during the ramp up period.

With project construction essentially complete, KCM has advised that it is well advanced in closing out all major project contracts and there is limited scope for change to the remaining project capital cost to completion.

We have remaining committed funding of $26.5 million to KCM in the form of additional advance payments under the stream, which may be drawn at the election of KCM prior to the earlier of completion of development or 60 days after the start of commercial production.

KCM has advised that it expects to have sufficient working capital available through the ramp-up period and it does not expect to draw materially on this remaining available funding.

With the results experienced during the ramp-up period, KCM continues to expect that Khoemac a u will produce 155,000 to 165,000 tonnes of high-grade copper and silver concentrate a year, containing approximately 60,000 to 65,000 tonnes of payable copper and 1.8 to 2.0 million ounces of payable silver, over an approximate 20-year mine life.

We hold the right to receive 90% of the payable silver produced from Khoemac a u until the delivery of approximately 36.0 million silver ounces, and 45% thereafter.

We will pay a cash price equal to 20% of the spot silver price for each ounce delivered;

however, if KCM achieves mill throughput levels above 13,000 tonnes per day (30% above current mill design capacity), we will pay a higher ongoing cash price for silver ounces delivered in excess of specific annual thresholds.

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.

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.

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.

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.

Gold stream deliveries from Mount Milligan were approximately 10,800 ounces for the three months ended September 30, 2021, compared to approximately 19,600 ounces for the three months ended September 30, 2020.

Copper stream deliveries from Mount Milligan were approximately 2.6 million pounds during the three months ended September 30, 2021, compared to approximately 5.8 million pounds during the three months ended September 30, 2020.

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

Gold stream deliveries from Pueblo Viejo were approximately 9,200 ounces for the three months ended September 30, 2021, compared to approximately 9,400 ounces for the three months ended September 30, 2020.

Silver stream deliveries were approximately 396,500 ounces for the three months ended September 30, 2021, compared to 408,600 ounces for the three months ended September 30, 2020.

Silver deliveries during the three months ended September 30, 2021, included normal-course stream deliveries of approximately 377,800 ounces and previously deferred deliveries of approximately 18,700 ounces.

The deferred ounces are the result of a mechanism in the stream agreement that allows for the deferral of deliveries in a period if silver recoveries fall below a fixed 70% recovery rate, with the delivery of those deferred ounces to be made in future periods as silver recovery allows.

Temporary operational issues with the silver circuit caused recoveries to fall below the fixed 70% recovery rate starting in the quarter ended March 31, 2021, and continuing into the quarter ended June 30, 2021.

Barrick advised that it completed maintenance work on the silver recovery circuit in the quarter ended June 30, 2021, and made modifications to the silver circuit to further improve recoveries in the quarter ended September 30, 2021.

As of September 30, 2021, approximately 418,300 ounces remain deferred, and we expect delivery of these deferred ounces to continue over the next several quarters.

Barrick reported that the plant expansion project to increase throughput and allow the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022 (on a 100% basis) is progressing well.

Barrick also reported that production would end in 2030 without additional tailings storage capacity, but that work continues on a new tailings storage facility to extend the mine life until the 2040s.

Barrick reported that the Government of the Dominican Republic has launched independent studies to review alternatives for a new tailings storage facility and that the Pueblo Viejo Joint Venture will be completing site investigations to improve confidence in the preferred options.

On October 19, 2021, Barrick reported that Pueblo Viejo is on track to deliver production guidance for calendar 2021 of 470,000 to 510,000 ounces of gold (60% interest).

Gold stream deliveries from Wassa were approximately 4,300 ounces for the three months ended September 30, 2021, compared to approximately 4,000 ounces for the three months ended September 30, 2020.

Royalty Interests

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.

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.

Production attributable to our royalty interest at Cortez was approximately 99,600 ounces of gold for the three months ended September 30, 2021, compared to approximately 37,600 ounces of gold for the three months ended September 30, 2020.

The increase was a result of production ramping up at the Crossroads deposit.

During the three months ended September 30, 2021, gold production at Peñasquito was approximately 170,400 ounces;

silver production was approximately 7.79 million ounces;

lead production was approximately 41.9 million pounds;

and zinc production was approximately 98.3 million pounds.

During the three months ended September 30, 2020, gold production was approximately 130,700 ounces;

silver production was approximately 6.38 million ounces;

lead production was approximately 41.7 million pounds;

and zinc production was approximately 98.0 million pounds.

According to Newmont, the increase in production was primarily attributable to higher mill throughput and higher recoveries.

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:

Quarter Ended September 30, 2021, Compared to Quarter Ended September 30, 2020

For the quarter ended September 30, 2021, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $70.2 million, or $1.07 per basic and diluted share, as compared to net income of $106.9 million, or $1.63 per basic and diluted share, for the quarter ended September 30, 2020 .

The decrease in net income was primarily attributable to a one-time gain attributable to the sale of our Peak Gold JV interest in the prior comparable period.

This decrease was partially offset by an increase in revenue, as discussed below.

For the quarter ended September 30, 2021, we recognized total revenue of $174.4 million, comprised of stream revenue of $115.9 million and royalty revenue of $58.5 million at an average gold price of $1,790 per ounce, an average silver price of $24.36 per ounce and an average copper price of $4.25 per pound.

This is compared to total revenue of $146.9 million for the three months ended September 30, 2020, comprised of stream revenue of $106.5 million and royalty revenue of $40.4 million, at an average gold price of $1,909 per ounce, an average silver price of $24.26 per ounce and an average copper price of $2.96 per pound.

Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020, are as follows:

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.

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Three Months Ended

March 31, 2021

March 31, 2020

September 30, 2021

September 30, 2020

Stream/Royalty

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Total Revenue

(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.

(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended September 30, 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

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:

(3) Individually, except for our stream interest at Rainy River, which contributed 6% of total revenue for the three months ended September 30, 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 higher gold sales at Mount Milligan, an increase in average copper prices, higher gold production at Cortez and $4.4 million of revenue from the newly acquired NX Gold Stream,

offset by a decrease in gold sales from Andacollo and lower average gold prices compared to the prior period.

Gold and silver ounces and copper pounds purchased and sold during the three months ended September 30, 2021, and 2020, and gold and silver ounces and copper pounds in inventory as of September 30, 2021, and June 30, 2021, for our streaming interests were as follows:

Three Months Ended

March 31, 2021

March 31, 2020

March 31, 2021

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

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Three Months Ended

March 31, 2021

March 31, 2020

March 31, 2021

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

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Three Months Ended

March 31, 2021

March 31, 2020

March 31, 2021

June 30, 2020

Copper Stream

Purchases (Mlbs.)

Sales (Mlbs.)

Purchases (Mlbs.)

Sales (Mlbs.)

Inventory (Mlbs.)

Mount Milligan

Cost of sales, which excludes depreciation, depletion and amortization, 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.

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.

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.

Nine Months Ended

March 31, 2021

March 31, 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 nine months ended March 31, 2021, and 2020, and may differ from the operators’ public reporting.

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

Individually, except for 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

March 31, 2021

March 31, 2020

March 31, 2021

June 30, 2020

Purchases (oz.)

Inventory (oz.)

Mount Milligan

Nine Months Ended

March 31, 2021

March 31, 2020

March 31, 2021

June 30, 2020

Silver Stream

Purchases (oz.)

Inventory (oz.)

Nine Months Ended

March 31, 2021

March 31, 2020

March 31, 2021

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

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Mount Milligan

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, which excludes depreciation, depletion and amortization, increased to $27.2 million for the three months ended September 30, 2021, from $21.9 million for the three months ended September 30, 2020.

The increase, when compared to the prior period, was primarily due to an increase in gold and copper sales from Mount Milligan and an increase in the average copper price.

This increase was partially offset by a decrease in the average gold price and 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.

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.

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.

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).

Depreciation, depletion and amortization increased to $50.6 million for the three months ended September 30, 2021, from $46.3 million for the three months ended September 30, 2020.

The increase was primarily due to higher gold sales from Mount Milligan, higher gold production at Cortez and maiden gold sales from the newly acquired NX Gold Stream when compared to the prior period.

The increase was offset by lower gold and silver sales from Pueblo Viejo and lower gold sales from Andacollo.

For the three months ended September 30, 2021, we recorded income tax expense totaling $16.0 million, compared with income tax benefit of $2.4 million for the three months ended September 30, 2020.

The income tax expense resulted in an effective tax rate of 18.5% in the current period, compared with (2.3%) for the three months ended September 30, 2020.

The three months ended September 30, 2020, included discrete income tax expense items primarily from the release of an uncertain tax position due to a settlement agreement with a foreign tax authority and a change in the realizability of certain deferred tax assets.

Liquidity and Capital Resources

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.

At September 30, 2021, we had current assets of $232.1 million compared to current liabilities of $60.3 million, which resulted in working capital of $171.8 million and a current ratio of 4 to 1.

This compares to current assets of $297.1 million and current liabilities of $52.1 million at June 30, 2021, resulting in working capital of $245.0 million and a current ratio of approximately 6 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.

The decrease in working capital was primarily due to the cash payments associated with the acquisitions of the Red Chris royalty and NX Gold Stream during the quarter ended September 30, 2021.

During the three months ended September 30, 2021, liquidity needs were met from $129.9 million in net cash provided by operating activities and our available cash resources.

As of September 30, 2021, we had $900 million available and $100 million outstanding under our revolving credit facility.

Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $1.1 billion of total liquidity at September 30, 2021.

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

On October 8, 2021, we repaid $50 million of the outstanding borrowings under the revolving credit facility.

This increased the amount available under our revolving credit facility to $950 million and decreased the amount outstanding to $50 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.

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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.

Net cash provided by operating activities totaled $129.9 million for the three months ended September 30, 2021, compared to $94.2 million for the three months ended September 30, 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 $33.1 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.

Net cash used in investing activities totaled $272.7 million for the three months ended September 30, 2021, compared to net cash provided by investing activities of $49.7 million for the three months ended September 30, 2020.

The period over period change was primarily due to the Red Chris royalty acquisition of $165 million and the NX Gold Stream acquisition of $100 million, whereas the prior year period included $49.2 million received for the sale of our Peak Gold JV investment and $12.1 million for the sale of our Contango shares.

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.

Net cash provided by financing activities totaled $77.1 million for the three months ended September 30, 2021, compared to net cash used in financing activities of $49.8 million for the three months ended September 30, 2020.

The period over period change was primarily due to an increase in borrowings from our revolving credit facility compared to the prior year period, whereas the prior year included a $30 million repayment of our revolving credit facility.

Recent Liquidity Development

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.

Recently Adopted Accounting Standards and Critical Accounting Policies

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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 sales 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 shareholder returns;

liquidity, financing and stockholder returns;

our overall investment portfolio;

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

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;

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, including due to variant strains of the virus;

risks associated with doing business in foreign countries;

increased competition for stream and royalty interests;

environmental risks, including those caused by climate change;

potential cyber-attacks, including ransomware;

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

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and other factors described in Item 1A.

Risk Factors of our Fiscal 2020 10-K and subsequent Forms 10-Q.

Risk Factors of our Fiscal 2021 10-K and this Form 10-Q.

Most of these factors are beyond our ability to predict or control.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis