Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Presentation
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations of Royal Gold. 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. You should review our important note about forward-looking statements following this MD&A.
We do not own, develop, or mine the properties on which we hold stream or royalty interests. Certain information provided in this Quarterly Report on Form 10-Q about operating properties in which we hold interests, including information about 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.
Overview of Our Business
We acquire and manage precious metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or finance projects that are in production or in the development stage in exchange for stream or royalty interests.
We manage our business under two segments:
● Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. As of June 30, 2022, we owned nine stream interests, which are on eight producing properties and one development stage property. Stream interests accounted for approximately 72% and 68% of our total revenue for the three and six months ended June 30, 2022, respectfully, and 68% for each of the three and six months ended June 30, 2021, respectfully. 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 June 30, 2022, we owned royalty interests on 33 producing properties, 18 development stage properties and 125 exploration stage properties, of which we consider 53 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 28% and 32% of our total revenue for the three and six months ended June 30, 2022, respectfully, and 32% for each of the three and six months ended June 30, 2021, respectfully.
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. Our review process may include, for example, engaging consultants and advisors to analyze an opportunity; analysis of technical, financial, legal, and other confidential information of an opportunity; submission of
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indications of interest and term sheets; participation in preliminary discussions and negotiations; and involvement as a bidder in competitive processes.
Business Trends and Uncertainties
Metal Prices
Our financial results are primarily tied to the price of gold, silver, copper, and other metals. Metal prices have fluctuated widely in recent years and we expect this volatility to continue. The marketability and price of metals are influenced by numerous factors beyond our control, and significant changes in metal prices can have a material effect on our revenue.
For the three and six months ended June 30, 2022, and 2021, average metal prices and percentages of revenue by metal were as follows:
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Metal
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Gold ($/ounce)
$
1,871
71%
$
1,816
76%
$
1,874
71%
$
1,805
72%
Silver ($/ounce)
$
22.60
11%
$
26.69
8%
$
23.32
10%
$
26.47
10%
Copper ($/pound)
$
4.31
14%
$
4.40
11%
$
4.43
14%
$
4.12
13%
Other
N/A
4%
N/A
5%
N/A
5%
N/A
5%
Acquisition of Additional Royalty Interest on Cortez Complex
On August 1, 2022, we announced that we acquired a sliding-scale gross royalty (the “Cortez Royalty”) on an area including the Cortez mine operational area and the Fourmile development project in Nevada (the “Cortez Complex”). We paid $525 million in cash consideration for the Cortez Royalty to Kennecott Royalty Company, a wholly owned subsidiary of Rio Tinto European Holdings Limited. The area within the Cortez Complex is owned or controlled by Nevada Gold Mines LLC (“NGM”), a joint venture between Barrick Gold Corporation (“Barrick”) (61.5% owner and operator) and Newmont Corporation (38.5% owner), with the exception of the Fourmile project which is 100% owned and operated by Barrick. Refer to Note 13 of our notes to consolidated financial statements for further discussion on the Cortez Royalty.
Agreement to Acquire Great Bear Royalties Corporation
On July 11, 2022, we announced that we had entered into a definitive agreement with Great Bear Royalties Corporation (“GBR”) to acquire all of the issued and outstanding common shares of GBR for cash consideration of C$6.65 per common share, which values GBR at approximately C$199.5 million (approximately US$155 million) on a fully diluted basis (the “Great Bear Acquisition”). GBR’s sole material asset is a 2.0% NSR royalty (the “Royalty”) that includes the entire 9,140 hectares of the Great Bear Project in the Red Lake district of Ontario, Canada, indirectly owned and operated by Kinross Gold Corporation.
The transaction is subject to approval by the shareholders of GBR, and regulatory and court approvals. Subject to the receipt of all necessary approvals, we expect the transaction to close during the quarter ending September 30, 2022. Refer to Note 13 of our notes to consolidated financial statements for further discussion on the Great Bear Acquisition.
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 owned by Thesis Gold, Inc. 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.
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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 June 30, 2022, up to $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
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. For the most part, our results of operations and financial condition have not been materially impacted by these measures to date. However, the effects of the pandemic will ultimately depend on many factors that are outside of our control, including the severity and duration of the pandemic, government and operator actions in response to the pandemic, and the development, availability, and public acceptance of effective treatments and vaccines. As a result, we are currently unable to predict the nature or extent of any future impact on our results of operations and financial condition. We continue to monitor the impact of developments associated with the pandemic on stream and royalty interests as part of our regular asset impairment analysis.
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2022
We generally receive annual production estimates from many of the operators of the producing mines in which we own a stream or royalty interest during the first quarter of each calendar year. In some instances, an operator may revise its original calendar year guidance throughout the year. The following table shows current production estimates for calendar 2022, as well as actual production through June 30, 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
Principal Producing Properties
Calendar Year 2022 Operator’s Production
Calendar Year 2022 Operator’s Production
Estimate (1)
Actual (2)
Gold
Silver
Base Metals
Gold
Silver
Base Metals
Stream/Royalty
(oz.)
(oz.)
(lbs.)
(oz.)
(oz.)
(lbs.)
Stream:
Andacollo (3)
36,000
12,200
Mount Milligan (4)
190,000 - 210,000
39,100
Copper
70 - 80 Million
20.6 Million
Pueblo Viejo (5)
400,000 - 440,000
N/A
209,000
N/A
Wassa (6)
155,000 - 170,000
77,400
Khoemac a u (7)
N/A
0.5 Million
Royalty:
Cortez (8)
280,000
154,000
Peñasquito (9)
475,000
29 Million
258,000
15.8 Million
Lead
150 Million
79 Million
Zinc
350 Million
208 Million
(1) Production estimates received from our operators are for calendar 2022. There can be no assurance that production estimates received from the operators will be achieved. 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 June 30, 2022, unless otherwise noted in footnotes to this table. Such amounts may differ from our reported revenue and production and are not reduced to show the production attributable to our interests.
(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. Actual figures reflect production through March 31, 2022.
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(5) The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent the 60% interest in Pueblo Viejo held by Barrick Gold Corporation (“Barrick”). The operator did not provide estimated or actual silver production.
(6) The estimated production figure shown for Wassa is payable gold in doré poured in the period.
(7) The estimated production figures for Khoemac a u are not available through the ramp-up period, which the operator expects to be completed by the fourth quarter of 2022.
(8) The estimated and actual production figures for Cortez represent the areas 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. The estimated and actual lead and zinc production figures shown are payable lead and zinc in concentrate.
Property Developments
This section provides recent updates for our principal properties as reported by the operators, either directly to us or in their publicly available documents.
Stream Interests
Andacollo
Gold stream deliveries from Andacollo were approximately 9,900 ounces for the three months ended June 30, 2022, compared to approximately 11,300 ounces for the three months ended June 30, 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 246,800 ounces for the three months ended June 30, 2022. First concentrate was shipped from Khoemac a u in mid-July 2021 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”), ramp-up of operations continued and average monthly underground production increased consistently during the quarter ended June 30, 2022, from approximately 6,300 tons per day (5,700 tonnes per day) in March to approximately 8,000 tons per day (7,300 tonnes per day) in June. KCM reported an accident in the underground mine and two fatalities on May 11, 2022, which resulted in short-term production disruptions immediately after the accident. Investigations into the cause of the accident remain ongoing.
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 (155,000 to 165,000 tonnes) of high-grade copper and silver concentrate a year, containing approximately 66,000 to 72,000 tons (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 from Zone 5.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 23,800 ounces for the three months ended June 30, 2022, compared to approximately 20,800 ounces for the three months ended June 30, 2021. Increased gold deliveries resulted from differences in the timing of shipments and settlements during the periods and gold grade variability in the concentrate shipments.
Copper stream deliveries from Mount Milligan were approximately 4.0 million pounds during the three months ended June 30, 2022, compared to approximately 5.1 million pounds during the three months ended June 30, 2021. Decreased copper deliveries resulted from differences in the timing of shipments and settlements during the periods.
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Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 8,600 ounces for the three months ended June 30, 2022, compared to approximately 9,800 ounces for the three months ended June 30, 2021. Decreased deliveries resulted from processing lower grade stockpile ore.
Silver stream deliveries were approximately 307,100 ounces for the three months ended June 30, 2022, compared to approximately 386,500 ounces for the three months ended June 30, 2021. During the second quarter an additional 45,000 ounces of silver deliveries were deferred. 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 June 30, 2022, approximately 484,000 ounces remain deferred, and the timing for the delivery of the entire deferred amount is uncertain.
On May 4, 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, 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, and that the final location and construction of the tailings storage facility 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.
Royalty Interests
Cortez
Gold production attributable to our existing royalty interest at Cortez was approximately 52,000 ounces for the three months ended June 30, 2022, compared to approximately 89,800 ounces for the three months ended June 30, 2021.
On July 14, 2022, Barrick reported lower production at Cortez for the quarter ended June 30, 2022 due to mine sequencing as it transitions from the end of open pit mining at Pipeline to a new phase at Crossroads, which is expected to underpin stronger performance for Cortez in the December quarter of 2022.
Peñasquito
Production attributable to our royalty interest at Peñasquito was approximately 130,600 ounces of gold, 8.07 million ounces of silver, 35.0 million pounds of lead and 84.9 million pounds of zinc for the three months ended June 30, 2022. This compares to approximately 179,800 ounces of gold, 7.61 million ounces of silver, 41.8 million pounds of lead and 101.7 million pounds of zinc for the three months ended June 30, 2021. Gold production was lower compared to the prior year quarter due to lower ore grade milled and lower mill recovery.
Results of Operations
Quarter Ended June 30, 2022, Compared to Quarter Ended June 30, 2021
For the quarter ended June 30, 2022, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $71.1 million, or $1.08 per basic and diluted share, as compared to net income of $81.7 million, or $1.24 per basic and diluted share, for the quarter ended June 30, 2021 . The decrease in net income was primarily attributable to a decrease in revenue, as discussed below.
For the quarter ended June 30, 2022, we recognized total revenue of $146.4 million, comprised of stream revenue of $104.9 million and royalty revenue of $41.6 million at an average gold price of $1,871 per ounce, an average silver price of $22.60 per ounce and an average copper price of $4.31 per pound. This is compared to total revenue of $168.0 million for the
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three months ended June 30, 2021, comprised of stream revenue of $114.4 million and royalty revenue of $53.6 million, at an average gold price of $1,816 per ounce, an average silver price of $26.69 per ounce and an average copper price of $4.40 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021, are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
(Amounts in thousands, except reported production oz. and lbs.)
Three Months Ended
Three Months Ended
June 30, 2022
June 30, 2021
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
45,627
$
43,802
Gold
15,500
oz.
16,100
oz.
Copper
4.0
Mlbs.
3.4
Mlbs.
Pueblo Viejo
$
19,812
$
26,585
Gold
7,100
oz.
11,100
oz.
Silver
274,500
oz.
247,500
oz.
Andacollo
Gold
$
11,721
6,300
oz.
$
27,868
15,400
oz.
Wassa
Gold
$
8,248
4,400
oz.
$
7,129
4,000
oz.
Khoemac a u
Silver
$
5,202
221,800
oz.
$
—
—
Other (3)
$
14,268
$
9,037
Gold
6,900
oz.
4,000
oz.
Silver
53,700
oz.
72,000
oz.
Total stream revenue
$
104,879
$
114,421
Royalty (2) :
Peñasquito
$
9,664
$
13,399
Gold
130,600
oz.
179,800
oz.
Silver
8.1
Moz.
7.6
Moz.
Lead
35.0
Mlbs.
41.8
Mlbs.
Zinc
84.9
Mlbs.
101.7
Mlbs.
Cortez
Gold
$
8,138
52,000
oz.
$
13,739
89,800
oz.
Other (3)
Various
$
23,760
N/A
$
26,468
N/A
Total royalty revenue
$
41,562
$
53,606
Total Revenue
$
146,441
$
168,027
(1) Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended June 30, 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 June 30, 2022 and 2021, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.
The decrease in our total revenue resulted primarily from lower gold sales at Andacollo and Pueblo Viejo and lower gold production at Cortez and Peñasquito. The decrease was offset by $9.4 million of new revenue from the NX Gold and Khoemac a u streams which were not in production during the prior year quarter.
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Gold and silver ounces and copper pounds purchased and sold during the three months ended June 30, 2022 and 2021, and gold and silver ounces and copper pounds in inventory as of June 30, 2022, and December 31, 2021, for our streaming interests were as follows:
Three Months Ended
Three Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
23,800
15,500
20,800
16,100
8,500
4,100
Andacollo
9,900
6,300
11,300
15,400
3,600
2,200
Pueblo Viejo
8,600
7,100
9,800
11,100
8,600
8,600
Wassa
3,500
4,400
3,600
4,000
1,400
1,600
Other
6,900
6,900
3,800
4,000
1,900
2,200
Total
52,700
40,200
49,300
50,600
24,000
18,700
Three Months Ended
Three Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
307,000
274,500
386,500
247,500
307,100
316,000
Khoemac a u
247,000
221,800
—
—
79,600
42,000
Other
55,200
53,700
98,600
72,000
16,400
34,300
Total
609,200
550,000
485,100
319,500
403,100
392,300
Three Months Ended
Three Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
4.0
4.0
4.2
3.4
—
0.9
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $23.8 million for the three months ended June 30, 2022, from $24.7 million for the three months ended June 30, 2021. The decrease, when compared to the prior period, was primarily due to a decrease in gold sales at Andacollo and Pueblo Viejo, offset by gold sales at NX Gold and silver sales at Khoemac a u. Stream deliveries from the NX Gold and Khoemac a u streams were not due to us during the prior year comparable quarter. 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 increased to $9.3 million for the three months ended June 30, 2022, from $7.2 million for the three months ended June 30, 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 decreased to $44.0 million for the three months ended June 30, 2022, from $48.0 million for the three months ended June 30, 2021. The decrease was primarily due to lower gold sales at Andacollo and Pueblo Viejo compared to the prior period. The decrease was partially offset by additional depletion from the newly producing Khoemac a u and the newly acquired NX Gold streams when compared to the prior year comparable quarter.
For the three months ended June 30, 2022, we recorded an income tax benefit of $5.9 million, compared with income tax expense of $5.5 million for the three months ended June 30, 2021. The income tax benefit resulted in an effective tax rate of (9.0%) in the current period, compared with 6.3% for the three months ended June 30, 2021. The three months ended June 30, 2022, included a discrete tax benefit attributable to a release of a valuation allowance while the three months ended June 30, 2021, included a discrete tax benefit attributable to the settlement of an uncertain tax position in a foreign jurisdiction.
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
For the six months ended June 30, 2022, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $136.8 million, or $2.08 per basic and diluted share, as compared to net income of $135.7 million, or $2.07 per basic and diluted share, for the six months ended June 30, 2021 .
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For the six months ended June 30, 2022, we recognized total revenue of $308.8 million, comprised of stream revenue of $210.1 million and royalty revenue of $98.7 million at an average gold price of $1,874 per ounce, an average silver price of $23.32 per ounce and an average copper price of $4.43 per pound. This is compared to total revenue of $310.6 million for the six months ended June 30, 2021, comprised of stream revenue of $209.8 million and royalty revenue of $100.8 million, at an average gold price of $1,805 per ounce, an average silver price of $26.47 per ounce and an average copper price of $4.12 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
(Amounts in thousands, except reported production oz. and lbs.)
Six Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
88,043
$
77,606
Gold
29,400
oz.
25,400
oz.
Copper
7.6
Mlbs.
7.8
Mlbs.
Pueblo Viejo
$
43,076
$
56,759
Gold
15,600
oz.
21,600
oz.
Silver
.6
Moz.
.7
Moz.
Andacollo
Gold
$
27,395
14,700
oz.
$
40,889
22,500
oz.
Wassa
Gold
$
15,451
8,300
oz.
$
15,902
8,700
oz.
Khoemac a u
Silver
$
7,592
221,800
oz.
$
—
—
Other (3)
$
28,573
$
18,611
Gold
13,700
oz.
8,200
oz.
Silver
226,900
oz.
138,300
oz.
Total stream revenue
$
210,130
$
209,767
Royalty (2) :
Cortez
Gold
$
24,852
154,000
oz.
$
22,348
141,700
oz.
Peñasquito
$
22,758
$
26,527
Gold
264,100
oz.
360,100
oz.
Silver
15.7
Moz.
15.7
Moz.
Lead
77.0
Mlbs.
91.9
Mlbs.
Zinc
205.0
Mlbs.
221.0
Mlbs.
Other (3)
Various
$
51,056
N/A
$
51,974
N/A
Total royalty revenue
$
98,666
$
100,849
Total revenue
$
308,796
$
310,616
(1)
Reported production relates to the amount of metal sales subject to our stream and royalty interests for the six months ended June 30, 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 six months ended June 30, 2022 and 2021, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.
The decrease in our total revenue resulted primarily from lower gold sales at Andacollo and Pueblo Viejo and lower gold production at Peñasquito. The decrease was offset by $15.8 million of new revenue from the NX Gold and Khoemac a u streams which were not in production during the prior year comparable period.
Gold and silver ounces and copper pounds purchased and sold during the six months ended June 30, 2022 and 2021, and gold and silver ounces and copper pounds in inventory as of June 30, 2022, and December 31, 2021, for our streaming interests were as follows:
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Revenue and Reported Production Subject to Our Stream and Royalty Interests
(Amounts in thousands, except reported production oz. and lbs.)
Six Months Ended
Six Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
33,800
29,400
33,000
25,400
8,500
4,100
Andacollo
16,000
14,700
22,000
22,500
3,500
2,200
Pueblo Viejo
15,700
15,600
20,900
21,600
8,700
8,600
Wassa
8,000
8,300
8,000
8,700
1,300
1,600
Other
13,500
13,700
8,300
8,200
2,000
2,200
Total
87,000
81,700
92,200
86,400
24,000
18,700
Six Months Ended
Six Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
581,600
590,500
634,000
665,600
307,100
316,000
Khoemac a u
362,100
221,800
—
—
79,600
42,000
Other
106,300
226,900
170,800
138,300
16,400
34,300
Total
1,050,000
1,039,200
804,800
803,900
403,100
392,300
Six Months Ended
Six Months Ended
As of
As of
June 30, 2022
June 30, 2021
June 30, 2022
December 31, 2021
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
6.7
7.6
8.6
7.8
—
0.9
General and administrative costs increased to $19.9 million for the six months ended June 30, 2022, from $14.1 million for the six months ended June 30, 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 ESG initiatives.
Depreciation, depletion and amortization increased to $92.0 million for the six months ended June 30, 2022, from $89.3 million for the six months ended June 30, 2021. The increase was primarily due to higher gold sales at 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 year period. The increase was partially offset by lower gold and silver sales at Pueblo Viejo and lower gold sales at Andacollo.
For the six months ended June 30, 2022, we recorded income tax expense totaling $9.4 million, compared with income tax expense of $23.2 million for the six months ended June 30, 2021. The income tax expense resulted in an effective tax rate of 6.4% in the current period, compared with 14.6% for the six months ended June 30, 2021. The six months ended June 30, 2022, included a discrete income tax benefit attributable to the release of a valuation allowance on certain deferred tax assets. The six months ended June 30, 2021, included a discrete tax benefit attributable to the settlement of an uncertain tax position with a foreign jurisdiction.
Liquidity and Capital Resources
Overview
At June 30, 2022, we had current assets of $340.3 million compared to current liabilities of $64.0 million, which resulted in working capital of $276.3 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.
During the six months ended June 30, 2022, liquidity needs were met from $221.3 million in net cash provided by operating activities and our available cash resources. As of June 30, 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 $1.3 billion of total liquidity at June 30, 2022. We were in compliance with each financial covenant under the revolving credit facility as of June 30, 2022. Refer to Note 13 of our notes to consolidated financial statements and below (“Recent Liquidity Developments”) for further discussion on our debt.
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We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and capital expenditures for the foreseeable future. Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests, including any conditional funding schedules. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. We currently, and generally at any time, have acquisition opportunities in various stages of active review. In the event of one or more substantial stream or royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary. We occasionally borrow and repay amounts under our revolving credit facility and may do so in the future.
Please refer to our risk factors included in Part 1, Item 1A of our Transition Report for a discussion of certain risks that may impact our liquidity and capital resources.
Recent Liquidity Developments
Revolving Credit Facility Draw
In July 2022, we borrowed $500 million under our revolving credit facility for business development activities and have $500 million available.
Business Development Activities
Refer to Note 13 of our notes to consolidated financial statements for further discussion on the liquidity needs for the proposed Great Bear Acquisition and the Cortez Royalty acquisition.
Cash Flows
Operating Activities
Net cash provided by operating activities totaled $221.3 million for the six months ended June 30, 2022, compared to $213.1 million for the six months ended June 30, 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 $20.2 million compared to the prior year period. This increase was partially offset by an increase in income taxes paid of $6.1 million compared to the prior year period.
Investing Activities
Net cash used in investing activities totaled $37.9 million for the six months ended June 30, 2022, compared to $128.8 million for the six months ended June 30, 2021. The decrease was primarily due to lower acquisitions of stream and royalty interests compared to the prior year period.
Financing Activities
Net cash used in financing activities totaled $46.4 million for the six months ended June 30, 2022, compared to net cash used in financing activities of $240.2 million for the six months ended June 30, 2021. The decrease was primarily due to a repayment of $200 million on our revolving credit facility during the prior year period.
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 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
This report and our other public communications include “forward-looking statements” within the meaning of U.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from these statements.
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Forward-looking statements are often identified by words like “will,” “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” or negatives of these words or similar expressions. Forward-looking statements include, among others, statement regarding the following: funding of the purchase price for the Great Bear Acquisition; timing of the receipt of approvals for and closing of the Great Bear Acquisition; our due diligence review process; volatility of metal prices and factors impacting same; 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, facilities, mineral resources and reserves, access to and adequacy of water sources, development, cash flows, capital expenditures, and permitting and environmental impact studies; effects of the pandemic; estimates of fair value and potential impairments; tax changes; timing for the delivery of deferred silver ounces from Pueblo Viejo; stronger performance at Cortez for the fourth quarter of 2022; adequacy of our current financial resources and funds from operations to cover anticipated expenditures for the foreseeable future; seeking additional debt or equity financing as necessary; borrowing and repaying amounts under our revolving credit facility; and disclosure controls and procedures and internal controls over financial reporting.
The risks and uncertainties that could cause actual results to differ materially from those in forward looking statements include, without limitation, a lower-price environment for gold, silver, copper, nickel or other metals; operating activities or financial performance of operators, including inaccuracies in the operator’s disclosures, variations between actual and forecasted performance, the operator’s ability to complete projects on schedule and as planned, the operator’s changes to mine plans and reserves and resources, the operator’s liquidity needs, mining hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our royalty agreement, or operational disruptions due to public health crises; environmental risks, including those caused by climate change; potential cyber-attacks, including ransomware; risks associated with doing business in foreign countries; increased competition for stream and royalty interests; adverse economic and market conditions; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; the ability to obtain, or delays in obtaining, stockholder and court approval of the Great Bear Acquisition; the risk that an event, change or other circumstance could give rise to the termination of the arrangement agreement with GBR; the risk that a condition to closing of the Great Bear Acquisition may not be satisfied; the risk that any announcement relating to an acquisition could have adverse effects on the market price of Royal Gold’s common stock; the risk of litigation related to acquisitions; and the diversion of management time from ongoing business operations due to acquisition-related issues; and other factors described in our reports filed with the Securities and Exchange Commission, including our Transition Report. Most of these factors are beyond our ability to predict or control. Other unpredictable or unknown factors not discussed in this presentation could also have material adverse effects on forward looking statements.
Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any
forward-looking statements, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.