What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 141 added, 140 removed, 150 unchanged (65% of the section changed)

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General Presentation

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations.

You should read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Fiscal 2021 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 Transition Report on Form 10-K for the six months ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 17, 2022 (“Transition Report”).

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 Securities and Exchange Commission.

Certain information provided in this Quarterly Report on Form 10-Q about operating properties in which we hold interests, including information about mineral 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.

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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 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.

As of March 31, 2022, we owned nine stream interests, which are on eight producing properties and one development stage property.

Stream interests accounted for approximately 65% of our total revenue for the three months ended March 31, 2022, and 67% for the three months ended March 31, 2021.

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

As of March 31, 2022, we owned royalty interests on 35 producing properties, 17 development stage properties and 126 exploration stage properties, of which we consider 51 to be evaluation stage projects.

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

Royalty interests accounted for 35% of our total revenue for the three months ended March 31, 2022, and 33% for the three months ended March 31, 2021.

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.

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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 months ended September 30, 2021, and 2020, average metal prices and percentages of revenue by metal were as follows:

For the three months ended March 31, 2022 and 2021, average metal prices and percentages of revenue by metal were as follows:

Three Months Ended

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Gold ($/ounce)

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Copper ($/pound)

Lawyers Royalty Acquisition

On March 24, 2022, we acquired a 0.5% net smelter returns royalty (“NSR”) on production from the Lawyers Project, an exploration stage project currently operated by Benchmark Metals Inc., which is located in British Columbia, Canada.

As part of this transaction, we also acquired a right of first offer (“ROFO”) for an existing 2.0% NSR royalty over the Ranch Project that is located adjacent to the Lawyers Project.

We paid $8.0 million in cash consideration for the royalty and ROFO to Guardsmen Resources Inc.

NX Gold Exploration Payment

On March 22, 2022, we made a payment of $3.2 million to a subsidiary of Ero Copper Corporation (“Ero”) as part of our commitment to support achievement of success-based targets related to regional exploration and mineral resource additions.

As of March 31, 2022, $6.8 million of additional exploration and mineral resource addition payments remain if Ero meets certain success-based targets through calendar 2024.

Refer to our Transition Report for further information on the NX Gold stream acquisition.

COVID-19 Pandemic

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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.

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 2022

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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 September 30, 2021, for our principal properties as reported to us by the operators.

The following table shows current production estimates for calendar 2022, as well as actual production through March 31, 2022, for our principal properties as reported to us by the operators.

Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2022

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Khoemac a u (7)

350,000 - 375,000

Peñasquito (9)

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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 September 30, 2021, unless otherwise noted in footnotes to this table.

Please also refer to our cautionary language regarding forward-looking statements, as well as the Risk Factors identified in Part I, Item 1A, of our Transition Report for information regarding factors that could affect actual results.

(2) Actual production figures shown are from the operators and cover the period from January 1, 2022, through March 31, 2022, unless otherwise noted in footnotes to this table.

Such amounts may differ from our reported revenue and production.

(3) The actual production figure shown for Andacollo is contained gold in concentrate.

(4) The estimated production figures shown for Mount Milligan are payable gold and copper in concentrate.

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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(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.

(8) Production from Cortez subject to our royalty interests.

(9) The estimated and actual gold and silver production figures shown for Peñasquito are payable gold and silver in concentrate and doré.

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Stream Interests

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.

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.

Gold stream deliveries from Andacollo were approximately 6,100 ounces for the three months ended March 31, 2022, compared to approximately 10,700 ounces for the three months ended March 31, 2021.

The decrease in deliveries resulted primarily from Andacollo experiencing lower gold grades and lower gold recoveries, in line with the expected downward trend of gold grades, as well as differences in the timing of shipments and settlements during the periods.

The current life of mine for Andacollo is expected to continue until 2035.

According to Teck, additional permits or permit amendments will be required to execute the life of mine plan.

Khoemac a u Project

Silver stream deliveries from Khoemac a u were approximately 115,210 ounces for the three months ended March 31, 2022.

First concentrate was shipped in mid-July 2021 from Khoemac a u and we received our first silver stream deliveries during the quarter ended September 30, 2021.

According to Khoemac a u Copper Mining (Pty.) Limited (“KCM”), average monthly underground production increased consistently during the quarter ended March 31, 2022, from approximately 3,900 tons per day in January to approximately 6,300 tons per day in March.

KCM reported that issues experienced in the quarter ended December 31, 2021, related to stope ore production and workforce availability associated with COVID-19 were largely resolved during the quarter ended March 31, 2022.

KCM expects that the mining rate will continue to increase steadily from current levels and reach full sustained production by the fourth quarter of 2022, absent further COVID-19 impacts.

With the results experienced so far during the ramp-up period, KCM continues to expect that at full production Khoemac a u will produce 171,000 to 182,000 tons of high-grade copper and silver concentrate a year, containing approximately 66,000 to 72,000 tons of payable copper and 1.8 to 2.0 million ounces of payable silver, over an approximate 20-year mine life from Zone 5.

During the quarter ended March 31, 2022, our interest in the payable silver from Khoemac a u increased from 90% to 100% upon the draw by KCM of the remaining $26.5 million stream advance payments.

After the final draw on March 14, 2022, we hold the right to receive 100% of the payable silver produced from Khoemac a u until the delivery of 40.0 million silver ounces, and 50% 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.

however, if KCM achieves mill expansion throughput levels above 14,300 tons 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 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.

Gold stream deliveries from Mount Milligan were approximately 10,000 ounces for the three months ended March 31, 2022, compared to approximately 12,200 ounces for the three months ended March 31, 2021.

Decreased gold deliveries resulted from differences in the timing of shipments and settlements during the periods.

Copper stream deliveries from Mount Milligan were approximately 2.7 million pounds during the three months ended March 31, 2022, compared to approximately 3.4 million pounds during the three months ended March 31, 2021.

Decreased copper deliveries resulted from differences in the timing of shipments and settlements during the periods.

On January 18, 2022, Centerra Gold Inc.

(“Centerra”) reported updated guidance for Mount Milligan.

Centerra expects gold production at Mount Milligan during calendar 2022 of between 190,000 and 210,000 ounces of gold, compared to the previously issued guidance range of 170,000 to 190,000 ounces and actual calendar 2021 production of 196,400 ounces.

Centerra also expects copper production in calendar 2022 to be in the range of 70 to 80 million pounds compared to the previous guidance range of 90 to 100 million pounds and actual calendar 2021 production of 73.3 million pounds.

Centerra expects gold and copper production for calendar 2022 to be back-end weighted, with the first half of the calendar year representing approximately 40% of the metal production total while the second half of the calendar year representing up to approximately 60% of the metal production total.

Centerra reported that the changes to expected gold and copper production at the Mount Milligan mine are due to planned mine sequence changes.

Centerra also reported that a new National Instrument 43-101 (“NI 43-101”) technical report for Mount Milligan is expected to be issued in the second quarter of calendar 2022.

Centerra also reported that it obtained an amendment to the Mount Milligan mine environmental assessment certificate in January 2022, which will allow access to long-term surface water sources for the life of the project, subject to the receipt of ordinary course permits.

In addition, according to Centerra, water inventory in the tailings storage facility as of March 31, 2022, combined with the incoming freshet in the second quarter of calendar 2022, is expected to secure continued operations for a period of 12 months or longer.

Further, Centerra reported mineral reserves and mineral resources for Mount Milligan for the year ended December 31, 2021.

Centerra disclosed that compared to the year ended December 31, 2020, proven and probable mineral reserves decreased by 310,000 ounces of contained gold and 101 million pounds of contained copper, primarily due to mining

depletion, while measured and indicated mineral resources increased by 1.4 million ounces of contained gold and 453 million pounds of contained copper, due to an updated mineral resource estimate after completion of the 2021 infill drilling program.

Additionally, over the same period, inferred mineral resources increased by 125,000 ounces of contained gold and 19 million pounds of contained copper.

Gold stream deliveries from Pueblo Viejo were approximately 7,100 ounces for the three months ended March 31, 2022, compared to approximately 11,100 ounces for the three months ended March 31, 2021.

Decreased deliveries resulted from processing lower grade gold stockpile material.

Silver stream deliveries were approximately 274,500 ounces for the three months ended March 31, 2022, compared to approximately 247,500 ounces for the three months ended March 31, 2021.

Deliveries during the first quarter included approximately 20,000 ounces of deferred silver.

The deferred ounces are the result of a mechanism in the stream agreement that allows for the deferral of deliveries in a period if Barrick’s share of silver production is insufficient to cover its stream delivery obligations.

The stream agreement terms include a fixed 70% silver recovery rate.

If actual recovery rates fall below the contractual 70% recovery rate, ounces may be deferred with deferred ounces to be delivered in future periods as silver recovery allows.

As of March 31, 2022, approximately 439,000 ounces remain deferred, and the timing for the delivery of the entire deferred amount is uncertain.

On February 16, 2022, Barrick reported that its share of Pueblo Viejo gold production for calendar 2022 is expected to range between 400,000 and 440,000 ounces compared to actual calendar 2021 gold production of 488,000, with maintenance planned in the first quarter of calendar 2022.

Also on February 16, 2022, Barrick reported continued progress on the plant expansion and mine life extension project to increase throughput and allow the mine to maintain minimum average annual gold production of approximately 800,000 ounces after calendar 2022 and beyond calendar 2040 (100% basis).

With respect to the plant expansion, on May 4, 2022, Barrick reported that as of March 31, 2022, construction was 39% complete, with completion expected by the end of calendar 2022.

With respect to the mine life extension, Barrick also disclosed that social, environmental and technical studies for additional tailings capacity continued to advance.

On April 8, 2022, Barrick further reported that the Government of the Dominican Republic had completed its strategic review of alternative sites for the location of the new tailings storage facility (“TSF”).

Barrick reported that the final location and construction of the TSF would be subject to the completion of an Environmental and Social Impact Assessment (“ESIA”) in accordance with Dominican Republic legislation and international standards.

Once completed, the ESIA would be submitted to the Government of the Dominican Republic for evaluation and final decision.

Gold stream deliveries from Wassa were approximately 4,500 ounces for the three months ended March 31, 2022, compared to approximately 4,400 ounces for the three months ended March 31, 2021.

Royalty Interests

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.

Gold production attributable to our royalty interest at Cortez was approximately 102,000 ounces for the three months ended March 31, 2022, compared to approximately 51,900 ounces for the three months ended March 31, 2021.

The increase was due to increased production from the Pipeline pit, offset by a reduction in production from Crossroads.

Nevada Gold Mines LLC (“NGM”) recently provided an updated mineral reserve and life of mine plan for our royalty areas at Cortez.

As of December 31, 2021, at a gold price of $1,200 per ounce, proven and probable mineral reserves on the areas subject to our royalties contained 4.1 million ounces of gold (62.4 million tons of ore at a gold grade of 0.048 ounces per ton), compared to 3.5 million ounces of gold (81.5 million tons of ore at a gold grade of 0.043 ounces per ton) as of December 31, 2020 at the same gold price.

Reserves for December 31, 2021, include approximately 3.0 million ounces of gold for the royalty areas covering the Crossroads and Pipeline deposits, as well as 1.1 million ounces of gold for the Goldrush project that fall within our royalty area.

NGM expects gold production subject to our royalty interests covering the Crossroads and Pipeline areas of approximately 280,000 ounces in calendar 2022, and average annual gold production for calendar 2022 through calendar 2026 to be approximately 332,000 ounces.

NGM’s forecast for future gold production is lower than NGM’s previous forecast provided in calendar 2021 primarily due to the overall optimization of production and revenue at the Cortez mine complex.

Our interest in this production is approximately equivalent to an 8% gross smelter return royalty.

We own a 1% net value royalty on a portion of the Goldrush project.

Production attributable to our royalty interest at Peñasquito was approximately 133,400 ounces of gold, 7.65 million ounces of silver, 41.9 million pounds of lead and 120 million pounds of zinc for the three months ended March 31, 2022.

This compares to approximately 180,400 ounces of gold, 8.12 million ounces of silver, 50.1 million pounds of lead and 119 million pounds of zinc for the three months ended March 31, 2021.

Gold production was lower compared to the prior year quarter due to lower grade ore milled and lower mill recovery.

Newmont Corporation (“Newmont”) expects Peñasquito to deliver lower gold production in calendar 2022 of 475,000 ounces compared to actual calendar 2021 gold production of 660,000 ounces, due to lower-grade, harder ore mined from the Chile Colorado pit and stripping of the next phases of the Peñasco and Chile Colorado pits continuing through calendar 2023.

Newmont expects co-product production at Peñasquito in calendar 2022 to be 29 million ounces of silver, 150 million pounds of lead and 350 million pounds of zinc, which is consistent with calendar 2021 production levels, with increased production starting in calendar 2023 due to higher silver, lead and zinc content delivered from the Chile Colorado pit.

Results of Operations

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:

Quarter Ended March 31, 2022, Compared to Quarter Ended March 31, 2021

For the quarter ended March 31, 2022, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $65.7 million, or $1.00 per basic and diluted share, as compared to net income of $54.0 million, or $0.82 per basic and diluted share, for the quarter ended March 31, 2021 .

The increase in net income was primarily attributable to an increase in revenue, as discussed below.

For the quarter ended March 31, 2022, we recognized total revenue of $162.4 million, comprised of stream revenue of $105.3 million and royalty revenue of $57.1 million at an average gold price of $1,877 per ounce, an average silver price of $24.01 per ounce and an average copper price of $4.53 per pound.

This is compared to total revenue of $142.6 million for the three months ended March 31, 2021, 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.

Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, are as follows:

Revenue and Reported Production Subject to Our Stream and Royalty Interests

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Three Months Ended

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

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 September 30, 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 March 31, 2022, and 2021, 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 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:

(3) Individually, except for our stream interest at Rainy River, which contributed 6% of total revenue for the three months ended March 31, 2022 and 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 and Andacollo, an increase in the average gold and copper prices, higher gold production at Cortez and $4.0 million of revenue from the newly acquired NX Gold stream, offset by a decrease in gold and silver sales from Pueblo Viejo compared to the prior period.

Gold and silver ounces and copper pounds purchased and sold during the three months ended March 31, 2022 and 2021,

and gold and silver ounces and copper pounds in inventory as of March 31, 2022, and December 31, 2021, for our streaming interests were as follows:

Three Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

March 31, 2022

March 31, 2021

March 31, 2022

December 31, 2021

Purchases (oz.)

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Three Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

March 31, 2022

March 31, 2021

March 31, 2022

December 31, 2021

Silver Stream

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Three Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

June 30, 2021

March 31, 2022

March 31, 2021

March 31, 2022

December 31, 2021

Copper Stream

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Mount Milligan

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, which excludes depreciation, depletion and amortization, increased to $22.6 million for the three months ended March 31, 2022, from $21.5 million for the three months ended March 31, 2021.

The increase, when compared to the prior period, was primarily due to an increase in gold sales from Mount Milligan, offset by a decrease in gold sales at Pueblo Viejo.

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.

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.

General and administrative costs increased to $8.9 million for the three months ended March 31, 2022, from $6.9 million for the three months ended March 31, 2021.

The increase was primarily due to an increase in employee-related costs including non-cash compensation expense, as well as higher costs associated with environmental, social and governance (“ESG”) initiatives.

Depreciation, depletion and amortization increased to $48.0 million for the three months ended March 31, 2022, from $41.3 million for the three months ended March 31, 2021.

The increase was primarily due to higher gold sales from Mount Milligan, higher gold production at Cortez and additional depletion from the newly acquired Khoemac a u and NX Gold streams when compared to the prior period.

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

For the three months ended March 31, 2022, we recorded income tax expense totaling $15.3 million, compared with income tax expense of $17.7 million for the three months ended March 31, 2021.

The income tax expense resulted in an effective tax rate of 18.8% in the current period, compared with 24.6% for the three months ended March 31, 2021.

The three months ended March 31, 2021, included an income tax expense attributable to an increase in valuation allowance on certain deferred tax assets.

Liquidity and Capital Resources

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 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 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.

At March 31, 2022, we had current assets of $258.6 million compared to current liabilities of $49.5 million, which resulted in working capital of $209.1 million and a current ratio of 5 to 1.

This compares to current assets of $216.0 million and current liabilities of $61.4 million at December 31, 2021, resulting in working capital of $154.6 million and a current ratio of approximately 4 to 1.

The increase in working capital was primarily due to an increase in our available cash, resulting from increased revenue during the current period.

During the three months ended March 31, 2022, liquidity needs were met from $101.1 million in net cash provided by operating activities and our available cash resources.

As of March 31, 2022, we had $1 billion available 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, 2022.

We were in compliance with each financial covenant under the revolving credit facility as of March 31, 2022.

Refer to Note 5 of our notes to consolidated financial statements for further discussion on our debt.

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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We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.

Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2021 10-K for a discussion of certain risks that may impact our liquidity and capital resources.

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

Operating Activities

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.

Net cash provided by operating activities totaled $101.1 million for the three months ended March 31, 2022, compared to $92.2 million for the three months ended March 31, 2021.

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 $9.1 million.

Investing Activities

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.

Net cash used in investing activities totaled $37.8 million for the three months ended March 31, 2022, compared to $33.7 million for the three months ended March 31, 2021.

The increase was primarily due to the acquisition of stream and royalty interests.

Financing Activities

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.

Net cash used in financing activities totaled $23.2 million for the three months ended March 31, 2022, compared to net cash used in financing activities of $70.1 million for the three months ended March 31, 2021.

The decrease was primarily due to a repayment of $50 million on our revolving credit facility during the prior year quarter.

Recently Adopted Accounting Standards and Critical Accounting Policies

Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently adopted accounting standards.

Refer to our Fiscal 2021 10-K for discussion on our critical accounting policies.

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Transition Report for discussion on our critical accounting policies.

Forward-Looking Statements

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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;

operators’ expected operating and financial performance, including production, deliveries, mine plans, mineral resources

and reserves, access to and adequacy of water sources, development, cash flows and capital expenditures;

liquidity, financing and stockholder returns;

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prices for gold, silver, copper, nickel and other metals;

potential impairments;

or tax changes.

estimates of fair value and potential impairments;

and tax changes.

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

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

operating activities or financial performance of properties on which we hold stream or royalty interests, including variations between actual and forecasted performance, operators’ ability to complete projects on schedule and as planned, changes to mine plans and reserves, liquidity needs, mining and environmental hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our stream or royalty agreements, or operational disruptions due to COVID-19, including due to variant strains of the virus;

operating activities or financial performance of properties on which we hold stream or royalty interests, including inaccuracies in operators’ disclosures, variations between actual and forecasted performance, operators’ ability to complete projects on schedule and as planned, operators’ changes to mine plans, and mineral resources 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;

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and other factors described in Item 1A.

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

Risk Factors of our Transition Report 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