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 the audited consolidated financial statements included in 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 resources and 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 September 30, 2022, we owned nine stream interests, which are on eight producing properties and one development stage property. Stream interests accounted for approximately 75% and 70% of our total revenue for the three and nine months ended September 30, 2022, respectively, and 66% for each of the three and nine months ended September 30, 2021, respectively. We expect stream interests to continue representing a significant portion of our total revenue.
● Acquisition and Management of Royalty Interests — Royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs, if any. As of September 30, 2022, we owned royalty interests on 33 producing properties, 19 development stage properties and 125 exploration stage properties, of which we consider 54 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 25% and 30% of our total revenue for the three and nine months ended September 30, 2022, respectively, and 34% for each of the three and nine months ended September 30, 2021, respectively.
We do not conduct mining operations on the properties in which we hold stream and royalty interests, and we generally are not required to contribute to capital costs, 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 regarding an opportunity; submission
18
Table of Contents
of indications of interest and term sheets; participation in preliminary discussions and negotiations; and involvement as a bidder in competitive processes.
Business Trends and Uncertainties
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 nine months ended September 30, 2022 and 2021, average metal prices and percentages of revenue by metal were as follows:
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 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)
$
1,729
76%
$
1,790
73%
$
1,824
73%
$
1,800
73%
Silver ($/ounce)
$
19.23
11%
$
24.36
10%
$
21.92
11%
$
25.75
10%
Copper ($/pound)
$
3.51
8%
$
4.25
14%
$
4.11
12%
$
4.17
13%
Other
N/A
5%
N/A
3%
N/A
4%
N/A
4%
Acquisition of Great Bear Royalties Corporation
On September 9, 2022 we completed the previously announced acquisition of all of the issued and outstanding shares of Great Bear Royalties Corporation (“GBR”) for cash consideration of approximately C$199.6 million (US$151.7 million) (the “Acquisition Price”). GBR’s sole material asset is a 2.0% net smelter return royalty (“Great Bear Royalty”) that covers the entirety of the Great Bear Project in the Red Lake district of Ontario, Canada, owned and operated by a subsidiary of Kinross Gold Corporation (“Kinross”). The Great Bear Royalty includes all metals produced from contiguous claims covering 9,140 hectares and will be registered on title to the relevant claims. Royalty payments will be made quarterly with applicable standard deductions. Refer to Note 2 of our notes to consolidated financial statements for further discussion on the GBR acquisition. The purchase price was funded with available cash on hand.
As part of the acquisition and in exchange for information and access to the project provided by Kinross, we granted an option to Kinross to purchase a 25% interest in the Great Bear Royalty (0.5% of the 2.0% royalty rate) for an amount equal to 25% of the Acquisition Price, adjusted for inflation, at any time from the transaction closing date until the earlier of a construction decision for the Great Bear Project and 10 years after the transaction closing date.
Acquisition of Additional Royalty Interest on Cortez Complex
On August 2, 2022, we acquired a sliding scale gross royalty (“Cortez Complex Royalty”) on production from an area within the Cortez Complex for cash consideration of $525 million. The area within the Cortez Complex is owned or controlled by Nevada Gold Mines LLC a joint venture between Barrick Gold Corporation (“Barrick”) and Newmont Corporation (“Newmont”), with the exception of the Fourmile development project which is 100% owned and operated by Barrick. The royalty is a life of mine sliding scale gross royalty payable at a rate of 0% at a gold price less than $400 per ounce, increasing to 3% at a gold price above $900 per ounce, and is payable on 40% of all production from the Cortez Complex except for the existing deposits within the Robertson property. The purchase price was funded with debt and available cash on hand. Refer to Note 2 and Note 5 of our notes to consolidated financial statements for further discussion on the Cortez complex royalty acquisition and funding.
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.
19
Table of Contents
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 September 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.
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 September 30, 2022 (except as otherwise noted), 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
17,800
Mount Milligan (4)
190,000 - 210,000
81,800
Copper
70 - 80 Million
37.9 Million
Pueblo Viejo (5)
400,000 - 440,000
N/A
330,000
N/A
Wassa (6)
155,000 - 170,000
125,600
Khoemac a u (7)
N/A
N/A
Royalty:
Cortez (8)
280,000
190,600
Peñasquito (9)
475,000
29 Million
440,000
23.3 Million
Lead
150 Million
112 Million
Zinc
350 Million
297 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 included herein, 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 September 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 June 30, 2022.
(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.
(8) The estimated and actual production figures for Cortez represent the areas subject to our royalty interests excluding the production from the Cortez Complex Royalty.
(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.
20
Table of Contents
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 3,200 ounces for the three months ended September 30, 2022, compared to approximately 6,400 ounces for the three months ended September 30, 2021. The decrease in deliveries resulted primarily from Andacollo experiencing lower gold grades and lower gold recoveries, as well as differences in the timing of shipments and settlements during the periods.
As reported by Teck Resources Limited (“Teck”), a significant rainfall event in July caused operations to shut down for five days. We expect the impact of this shutdown will affect stream deliveries in the first quarter of 2023.
Gold production at Andacollo has trended lower since the beginning of 2021 due to lower ore grades, as anticipated in the mine plan. According to Teck, the period of lower grades is expected to last through 2023, and the mine plan then anticipates a transition to higher grade ore as the next phase of mining is developed over the following years. Teck has reported that the current life of mine for Andacollo is expected to continue until 2035 and that 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 290,700 ounces for the three months ended September 30, 2022. First concentrate was shipped from Khoemac a u in mid-July 2021 and silver stream deliveries to us were approximately 105,800 ounces for the three months ended September 30, 2021.
According to Khoemac a u Copper Mining (Pty.) Limited (“KCM”), the operator of Khoemac a u, ramp-up of operations continued and average monthly underground production increased consistently during the quarter ended September 30, 2022, from approximately 7,300 tonnes per day (8,000 tons per day) in June to approximately 8,000 tonnes per day (8,800 tons per day) in September 2022. Production has reached the target mining rate of 10,000 tonnes per day (11,000 tons per day) for short periods during the ramp up period but has not yet been consistently sustained at this level. KCM expects to reach the target mining rate on a sustained basis toward the end of December 2022 and into the first quarter of 2023.
KCM continues to expect that at full production Khoemac a u will produce 155,000 to 165,000 tonnes (171,000 to 182,000 tons) of high-grade copper and silver concentrate a year, containing approximately 60,000 to 65,000 tonnes (66,000 to 72,000 tons) of payable copper and 1.8 to 2.0 million ounces of payable silver per year, over an approximate 20-year mine life from Zone 5.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 18,400 ounces for the three months ended September 30, 2022, compared to approximately 10,800 ounces for the three months ended September 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 4.5 million pounds during the three months ended September 30, 2022, compared to approximately 2.6 million pounds during the three months ended September 30, 2021. Increased deliveries resulted from differences in the timing of shipments and settlements during the periods.
Stream deliveries during the quarter from Mount Milligan provided for complete repayment of the $781.5 million advance deposit made by Royal Gold to Thompson Creek Metals Company, Inc. (“Thompson Creek”), a subsidiary of Centerra Gold Inc. (“Centerra”). Royal Gold contributed three advance payments prior to and during the development of the mine in 2010 through 2012, in return for the right to acquire 52.25% of the payable gold produced from Mount Milligan. Royal
21
Table of Contents
Gold and Centerra subsequently amended the stream interest in 2016 to a 35% gold stream and 18.75% copper stream. Mount Milligan began commercial production in early 2014 and was Royal Gold’s first stream acquisition.
Subsequent to the end of the quarter on October 4, 2022, Centerra published the highlights of an updated life of mine plan for Mount Milligan. According to Centerra, the mine life is expected to be extended by over four years to 2033. Centerra expects total payable gold and copper to increase more than 800,000 ounces and 191 million pounds, respectively, from 2022 onwards when compared to the previous plan, with average annual production of 175,000 ounces of gold and 68 million pounds of copper.
Centerra also indicated the potential for future resource growth due to exploration success in areas proximal to the open pit. Centerra expects to file a new technical report detailing the life of mine plan and updated reserve and resource information within 45 days of October 4, 2022. As a result of the increase in proven and probable reserves as announced by Centerra, the gold and copper depletion rates on our Mount Milligan stream decreased to $416 per ounce of gold and $1.06 per pound of copper as of September 30, 2022 from $703 per ounce of gold and $1.53 per pound of copper. Royal Gold will update its annual SK1300 disclosure for the Mount Milligan technical report update within its 2022 Annual Report on Form 10-K, which we expect to file in February 2023.
Centerra remains on track to meet 2022 production guidance of between 190,000 to 210,000 ounces of payable gold and between 70 to 80 million pounds of payable copper.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 8,900 ounces for the three months ended September 30, 2022, compared to approximately 9,200 ounces for the three months ended September 30, 2021.
During the current quarter, Barrick reported continued progress on the plant expansion and mine life extension project at Pueblo Viejo to increase throughput and allow the mine to maintain minimum average annual gold production of approximately 800,000 ounces after 2022 and beyond 2040 (100% basis).
With respect to the plant expansion, on August 8, 2022, Barrick reported that as of June 30, 2022, overall construction was 56% complete and it expects the expansion to be substantially completed by the end of 2022 with commissioning in the first quarter of 2023. 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 a preferred site for a tailings storage facility (“TSF”) had been put forward for further evaluation. Barrick reported that the final location and construction of the additional TSF would be subject to the completion of an Environmental and Social Impact Assessment (“ESIA”) in accordance with Dominican Republic legislation and international standards, which would then be submitted to the Government of the Dominican Republic for evaluation and final decision. Further according to Barrick, basic engineering of the additional TSF is expected to be completed in the fourth quarter of 2022.
Silver stream deliveries were approximately 319,100 ounces for the three months ended September 30, 2022, compared to 396,500 ounces for the three months ended September 30, 2021. During the third quarter an additional 47,000 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 September 30, 2022, approximately 530,000 ounces remain deferred. We expect that silver recoveries could remain highly variable until the plant expansion project is complete and bottlenecks associated with the silver circuit and silver recovery can be fully addressed, and we do not expect material deliveries of deferred silver this year.
Wassa
Gold stream deliveries from Wassa were approximately 4,800 ounces for the three months ended September 30, 2022, compared to approximately 4,300 ounces for the three months ended September 30, 2021.
22
Table of Contents
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez was approximately 36,600 ounces of gold for the three months ended September 30, 2022, compared to approximately 98,300 ounces of gold for the three months ended September 30, 2021. This production is attributable to the Company’s legacy royalty interests, including overlapping royalties at the Pipeline and Crossroads deposits (known as GSR1, GSR2, GSR 3, NVR1 and NVR1C). Refer to the Business Trends and Uncertainties section of this MD&A for information on the recent Cortez Complex Royalty acquisition.
On August 8, 2022, Barrick reported that mining of Phase 5 of Crossroads is expected to deliver oxide ore and underpin stronger performance for Cortez in the December quarter of 2022.
As a result of the acquisition of the Cortez Complex Royalty, there has been an increase of over 300% in gold mineral reserves and an increase of over 1200% in measured and indicated gold mineral resources attributable to our royalty interests at Cortez beyond the resources and reserves previously disclosed in detail in our Transition Report. Refer to the “Property Mineral Reserve and Mineral Resource Update for Cortez” section below.
Peñasquito
During the three months ended September 30, 2022, gold production at Peñasquito was approximately 144,300 ounces; silver production was approximately 6.80 million ounces; lead production was approximately 29.6 million pounds; and zinc production was approximately 84.6 million pounds. Gold production 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, 2021.
Results of Operations
Quarter Ended September 30, 2022, Compared to Quarter Ended September 30, 2021
For the quarter ended September 30, 2022, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $45.8 million, or $0.70 per basic and diluted share, as compared to net income of $70.2 million, or $1.07 per basic and diluted share, for the quarter ended September 30, 2021 . The decrease in net income was primarily attributable to a decrease in revenue, as discussed below.
For the quarter ended September 30, 2022, we recognized total revenue of $131.4 million, comprised of stream revenue of $98.7 million and royalty revenue of $32.7 million at an average gold price of $1,729 per ounce, an average silver price of $19.23 per ounce and an average copper price of $3.51 per pound. This is compared to total revenue of $174.4 million for the three months ended September 30, 2021, 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. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021, are as follows:
23
Table of Contents
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
September 30, 2022
September 30, 2021
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
41,553
$
53,455
Gold
18,200
oz.
19,300
oz.
Copper
2.7
Mlbs.
4.4
Mlbs.
Pueblo Viejo
$
21,156
$
27,198
Gold
8,600
oz.
9,800
oz.
Silver
307,100
oz.
386,500
oz.
Andacollo
Gold
$
12,170
6,800
oz.
$
11,601
6,500
oz.
Wassa
Gold
$
7,390
4,200
oz.
$
8,033
4,500
oz.
Khoemac a u
Silver
$
5,050
255,900
oz.
$
107
4,500
oz.
Other (3)
$
11,413
$
15,527
Gold
5,900
oz.
6,300
oz.
Silver
51,100
oz.
165,400
oz.
Total stream revenue
$
98,732
$
115,921
.
Royalty (2) :
Peñasquito
$
9,010
$
12,212
Gold
144,300
oz.
170,300
oz.
Silver
6.8
Moz.
7.8
Moz.
Lead
29.6
Mlbs.
42.0
Mlbs.
Zinc
84.6
Mlbs.
98.3
Mlbs.
Cortez
Gold
$
4,562
36,600
oz.
$
17,126
106,300
oz.
Other (3)
Various
$
19,125
N/A
$
29,172
N/A
Total royalty revenue
$
32,697
$
58,510
Total Revenue
$
131,429
$
174,431
(1) Reported production relates to the amount of stream metal sales and the metal sales attributable to our royalty interests for the three months ended September 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 September 30, 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 Mount Milligan and Pueblo Viejo, lower gold production at Cortez and Peñasquito, and lower average gold, silver and copper prices. The decrease was offset by higher silver sales at Khoemacau, which shipped its first concentrate during the prior year quarter.
24
Table of Contents
Gold and silver ounces and copper pounds purchased and sold during the three months ended September 30, 2022 and 2021, and gold and silver ounces and copper pounds in inventory as of September 30, 2022, and December 31, 2021, for our streaming interests were as follows:
Three Months Ended
Three Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
18,400
18,200
10,800
19,300
8,700
4,100
Pueblo Viejo
8,900
8,600
9,200
9,800
8,900
8,600
Wassa
4,800
4,200
4,300
4,500
2,000
1,600
Andacollo
3,200
6,800
6,400
6,500
—
2,200
Other
7,100
5,900
7,500
6,300
3,100
2,200
Total
42,400
43,700
38,200
46,400
22,700
18,700
Three Months Ended
Three Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
319,100
307,100
396,500
386,500
319,100
316,000
Khoemac a u
290,700
255,900
105,800
4,500
114,400
42,000
Other
64,300
51,100
109,700
165,400
29,600
34,300
Total
674,100
614,100
612,000
556,400
463,100
392,300
Three Months Ended
Three Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
4.5
2.7
2.6
4.4
1.8
0.9
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $23.2 million for the three months ended September 30, 2022, from $27.2 million for the three months ended September 30, 2021. The decrease, when compared to the prior period, was primarily due to a decrease in gold and silver sales at Pueblo Viejo and lower gold sales at Mount Milligan, offset by higher silver sales at Khoemac a u. Stream deliveries from Khoemac a u began in the prior year 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 $7.6 million for the three months ended September 30, 2022, from $7.1 million for the three months ended September 30, 2021. The increase was primarily due to an increase in employee-related costs including non-cash compensation expense.
Depreciation, depletion and amortization decreased to $37.8 million for the three months ended September 30, 2022, from $50.6 million for the three months ended September 30, 2021. The decrease was primarily due to lower gold production at Cortez and lower gold sales and at Mount Milligan. Lower depletion rates at Mount Milligan compared to the prior quarter also contributed to the decrease. Refer to Note 3 of our notes to consolidated financial statements for further discussion on the decrease in depletion rates at Mount Milligan. The decrease was partially offset by additional depletion from Khoemac a u which produced first deliveries in the prior year comparable quarter.
Interest and other expense increased to $8.8 million for the three months ended September 30, 2022, from $1.9 million for the three months ended September 30, 2021. The increase was primarily due to higher interest expense as a result of the $500 million draw on the revolving credit facility and foreign exchange losses related to the GBR acquisition.
For the three months ended September 30, 2022, we recorded an income tax expense of $11.0 million, compared with income tax expense of $16.0 million for the three months ended September 30, 2021. The income tax expense resulted in an effective tax rate of 19.3% in the current period, compared with 18.5% for the three months ended September 30, 2021.
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
For the nine months ended September 30, 2022, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $182.6 million, or $2.78 per basic and diluted share, as compared to net income of $205.9 million, or $3.14 per basic and diluted share, for the nine months ended September 30, 2021 .
25
Table of Contents
For the nine months ended September 30, 2022, we recognized total revenue of $440.2 million, comprised of stream revenue of $308.9 million and royalty revenue of $131.4 million at an average gold price of $1,824 per ounce, an average silver price of $21.92 per ounce and an average copper price of $4.11 per pound. This is compared to total revenue of $485.0 million for the nine months ended September 30, 2021, comprised of stream revenue of $325.7 million and royalty revenue of $159.4 million, at an average gold price of $1,800 per ounce, an average silver price of $25.75 per ounce and an average copper price of $4.17 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the nine months ended September 30, 2022, compared to the nine months ended September 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.)
Nine Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
129,596
$
131,061
Gold
47,600
oz.
44,700
oz.
Copper
10.3
Mlbs.
12.2
Mlbs.
Pueblo Viejo
$
64,232
$
83,957
Gold
24,300
oz.
31,400
oz.
Silver
.9
Moz.
1.1
Moz.
Andacollo
Gold
$
39,565
21,500
oz.
$
52,491
29,000
oz.
Khoemac a u
Silver
12,641
580,400
oz.
$
107
4,500
oz.
Wassa
Gold
$
22,840
12,500
oz.
$
23,935
13,200
oz.
Other (3)
$
39,989
$
34,137
Gold
19,600
oz.
14,500
oz.
Silver
175,300
oz.
303,700
oz.
Total stream revenue
$
308,863
$
325,688
Royalty (2) :
Peñasquito
$
31,768
$
38,739
Gold
408,300
oz.
530,500
oz.
Silver
22.6
Moz.
23.5
Moz.
Lead
106.6
Mlbs.
133.8
Mlbs.
Zinc
289.6
Mlbs.
319.3
Mlbs.
Cortez
Gold
$
29,413
190,600
oz.
$
39,475
241,300
oz.
Other (3)
Various
$
70,182
N/A
$
81,145
N/A
Total royalty revenue
$
131,363
$
159,359
Total revenue
$
440,226
$
485,047
(1)
Reported production relates to the amount of stream metal sales and the metal sales attributable to our royalty interests for the nine months ended September 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 nine months ended September 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 $26.1 million of new revenue from the NX Gold and Khoemac a u streams which were not in full production during the prior year comparable period.
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $69.7 million for the nine months ended September 30, 2022, from $73.4 million for the nine months ended September 30, 2021. The decrease, when compared to the prior period, was primarily due to a decrease in gold and silver sales at Pueblo Viejo and lower gold sales at Andacollo, offset by higher silver sales at Khoemac a u. Stream deliveries from Khoemac a u began in the prior year comparable period. Cost of sales is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing
26
Table of Contents
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.
Gold and silver ounces and copper pounds purchased and sold during the nine months ended September 30, 2022 and 2021, and gold and silver ounces and copper pounds in inventory as of September 30, 2022, and December 31, 2021, for our streaming interests were as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
(Amounts in thousands, except reported production oz. and lbs.)
Nine Months Ended
Nine Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
52,200
47,600
43,800
44,700
8,700
4,100
Pueblo Viejo
24,600
24,300
30,100
31,400
8,900
8,600
Andacollo
19,300
21,500
28,400
29,000
—
2,200
Wassa
12,800
12,500
12,300
13,200
2,000
1,600
Other
20,500
19,600
15,800
14,500
3,100
2,200
Total
129,400
125,500
130,400
132,800
22,700
18,700
Nine Months Ended
Nine Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Pueblo Viejo
900,700
897,600
1,030,500
1,052,100
319,100
316,000
Khoemaca u
652,800
580,400
105,800
4,500
114,400
42,000
Other
170,600
175,300
280,500
303,700
29,600
34,300
Total
1,724,100
1,653,300
1,416,800
1,360,300
463,100
392,300
Nine Months Ended
Nine Months Ended
As of
As of
September 30, 2022
September 30, 2021
September 30, 2022
December 31, 2021
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
11.2
10.3
11.2
12.2
1.8
0.9
General and administrative costs increased to $25.8 million for the nine months ended September 30, 2022, from $21.3 million for the nine months ended September 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 certain environmental, social and governance initiatives.
Depreciation, depletion and amortization decreased to $129.7 million for the nine months ended September 30, 2022, from $139.9 million for the nine months ended September 30, 2021. The decrease was primarily due to lower gold sales at Mount Milligan and Andacollo and lower gold and silver sales at Pueblo Viejo. Refer to Note 3 of our notes to consolidated financial statements for further discussion on the decrease in depletion rates at Mount Milligan. The decrease in depletion was partially offset by the additional depletion from the newly acquired Khoemac a u and NX Gold streams when compared to the prior year period.
Interest and other expense increased to $11.1 million for the nine months ended September 30, 2022, from $4.9 million for the nine months ended September 30, 2021. The increase was primarily due to higher interest expense as a result of the $500 million draw on the revolving credit facility in July 2022 as part of the Cortez Complex Royalty acquisition discussed earlier in this MD&A and foreign exchange losses related to the GBR acquisition.
For the nine months ended September 30, 2022, we recorded income tax expense totaling $20.3 million, compared with income tax expense of $39.2 million for the nine months ended September 30, 2021. The income tax expense resulted in an effective tax rate of 10.0% in the current period, compared with 16.0% for the nine months ended September 30, 2021. The nine months ended September 30, 2022, included a discrete income tax benefit attributable to the release of a valuation allowance on certain deferred tax assets. The nine months ended September 30, 2021, included a discrete tax benefit attributable to the settlement of an uncertain tax position with a foreign jurisdiction.
27
Table of Contents
Liquidity and Capital Resources
Overview
At September 30, 2022, we had current assets of $181.8 million compared to current liabilities of $64.5 million, which resulted in working capital of $117.3 million and a current ratio of 3 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 decrease in working capital was primarily due to a decrease in our available cash as a result of the Cortez Complex Royalty and GBR acquisitions.
During the nine months ended September 30, 2022, liquidity needs were met from $316.3 million in net cash provided by operating activities and our available cash resources. As of September 30, 2022, we had $550 million available and $450 million outstanding under our revolving credit facility. Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $667 million of total liquidity at September 30, 2022. We were in compliance with each financial covenant under the revolving credit facility as of September 30, 2022. Refer to Note 5 of our notes to consolidated financial statements and below under Recent Liquidity Developments 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. 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 to fund the acquisition of the Cortez Complex Royalty, and on September 6, 2022, we made a $50 million principal payment towards the outstanding balance leaving $550 million available as of September 30, 2022.
Cash Flows
Operating Activities
Net cash provided by operating activities totaled $316.3 million for the nine months ended September 30, 2022, compared to $343.0 million for the nine months ended September 30, 2021. The decrease was primarily due to a decrease in cash proceeds received from our stream interests, net of cost of sales, of approximately $16.9 million compared to the prior year period. Higher income taxes paid due to the change in year-end of $9.8 million compared to the prior year period also contributed to the decrease.
Investing Activities
Net cash used in investing activities totaled $716.5 million for the nine months ended September 30, 2022, compared to $401.6 million for the nine months ended September 30, 2021. The increase over the prior year period was primarily due to higher acquisitions of royalty interests due to the GBR and Cortez Complex Royalty acquisitions.
28
Table of Contents
Financing Activities
Net cash provided by financing activities totaled $378.9 million for the nine months ended September 30, 2022, compared to net cash used in financing activities of $163.1 million for the nine months ended September 30, 2021. The increase was primarily due to a $500 million draw on our revolving credit facility during the current 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.
Property Mineral Reserve and Mineral Resource Update for Cortez
Below is certain updated information regarding the estimates of mineral resources and mineral reserves (as such terms are defined in Subpart 1300 of Regulation S-K (“SK1300”)) previously reported by the operator of Cortez and included in our Transition Report on Form 10-KT (“Form 10-KT”) and our Current Report on Form 8-K dated April 12, 2022.
On August 1, 2022, we acquired an additional royalty at Cortez that we refer to as the Cortez Complex Royalty. The updated disclosures herein reflect the change in Royal Gold’s royalty position on the Cortez property as a result of that acquisition.
We own various royalty positions at Cortez, including: (1) overlapping royalties covering the Pipeline and Crossroads deposits (known as GSR1, GSR2, GSR 3, NVR1 and NVR1C); (2) a 1% NVR on a portion of the Goldrush development property (NVR2); and (3) the Cortez Complex Royalty. The Cortez Complex Royalty covers an area including the Cortez mine operational area (including the Fourmile development project owned by Barrick). Refer to footnote 3 in each of the tables below for further detail regarding our royalties at Cortez.
Deductions under the Cortez Complex Royalty are limited to third-party royalties that existed prior to the creation of the royalty in 2008, which include the royalties listed under (1) and (2) above. The Cortez Complex Royalty is not subject to any stepdowns or caps. Based on the information available to Royal Gold, the Cortez Complex Royalty does not cover the existing deposits in the Robertson property.
As a result of the acquisition of the Cortez Complex Royalty, there has been an increase of 380% in gold mineral reserves and an increase of 1230% in measured and indicated gold mineral resources attributable to our royalty interests at Cortez beyond the resources and reserves previously disclosed in detail in our Transition Report.
The disclosures below are derived from the Annual Information Form of Barrick, dated March 18, 2022, attached as Exhibit 99.1 to Barrick’s Annual Report on Form 40-F for the year ended December 31, 2021, which reports resources and reserves for Cortez pursuant to National Instrument 43-101 and CIM Standards, and nonpublic mineral resource and reserve updates provided by Barrick to us specific to the portions of the property to which our legacy royalty interests apply. Measurement units presented in this section are US standard units. There may be rounding differences due to unit conversions.
Table 1 Cortez – Summary of Gold Mineral Resources at December 31, 2021, Based on $1,500 Au (1)(2)(3)
Amount
Tons (M)
Au Grade
opt
Cut-Off Grade
Metallurgical Recovery
Measured Mineral Resources
0.8
0.203
(4)
(4)
Indicated Mineral Resources
28.1
0.099
(4)
(4)
Measured + Indicated Mineral Resources
28.9
0.102
(4)
(4)
Inferred Mineral Resources
47.5
0.159
(4)
(4)
29
Table of Contents
(1)
Mineral resources are estimated by Barrick as at December 31, 2021, and are shown exclusive of mineral reserves
(2)
Cortez mineral resources as reported by Barrick under its March 18, 2022, filing and separately to us are determined pursuant to CIM Standards.
(3)
We control various royalty positions at Cortez, including (i) the overlapping royalties covering the Pipeline and Crossroads deposits (known as GSR1, GSR2, GSR 3, NVR1 and NVR1C), which are equivalent to an approximate 8% gross smelter return royalty and cover 5.7 million tons of measured and indicated mineral resources at an average grade of 0.039 opt; (ii) NVR2 over a portion of the Goldrush property, which is a 1% NVR covering 1 million tons of indicated resource averaging 0.129 opt and 2.3 million tons of inferred resources grading 0.136 opt. and (iii) The Cortez Complex Royalty is an effective 1.2% gross royalty on the Cortez Complex at gold prices above $900 per ounce. Our resources for Cortez may vary from other information published by Barrick because we exclude any amounts for areas not covered by our royalties. Our royalties for Cortez cover all metals, but Barrick reports only gold resources for Cortez.
(4)
Specific cutoff grades and metallurgical recoveries used for resource estimates for Cortez have not been disclosed by Barrick.
Table 2 Cortez – Summary of Gold Mineral Reserves at December 31, 2021, Based on $1,200 Au and $16.50 Ag (1)(2)(3)
Amount
Tons (M)
Au Grade
opt
Cut-Off Grade
Metallurgical Recovery
Proven Mineral Reserves
4.0
0.126
(4)
(4)
Probable Mineral Reserves
113.8
0.122
(4)
(4)
Total Mineral Reserves
117.7
0.122
(4)
(4)
contr
(1)
Mineral reserves are estimated by Barrick as at December 31, 2021.
(2)
Cortez mineral reserves are reported by Barrick pursuant to CIM Standards.
(3)
We control various royalty positions at Cortez, including (i) the overlapping royalties covering the Pipeline and Crossroads deposits (known as GSR1, GSR2, GSR 3, NVR1 and NVR1C), which are equivalent to an approximate 8% gross smelter return royalty and cover 62.4 million tons of probable reserves at an average grade of 0.048 opt, (ii) (ii) NVR2 over a portion of the Goldrush property, which is a 1% NVR covering 5.4 million tons of probable reserves averaging 0.208 opt and (iii) The Cortez Complex Royalty is an effective 1.2% gross royalty on the Cortez Complex at gold prices above $900 per ounce. Our reserves for Cortez may vary from other information published by Barrick because we exclude any amounts for areas not covered by our royalties. Our royalties for Cortez cover all metals, but Barrick reports only gold reserves for the property.
(4)
Reserves have been estimated based on an assumed gold price of $1,200 per ounce and an assumed silver price of $16.50 per ounce. Specific cutoff grades and metallurgical recoveries used for mineral reserve estimates for Cortez have not been disclosed by Barrick.
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.
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: 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, mine lives, 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; deferral of silver ounces from Pueblo Viejo; impact on stream deliveries due to rainfall and the resulting temporary shutdown of operations at Andacollo; anticipated 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
30
Table of Contents
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; effects of global and regional economic and market conditions, including as a result of government policies, war, natural disasters, and public health issues; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; 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.
31
Table of Contents
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.