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 the 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 Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on February 16, 2023 (“2022 10-K”).
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.
Unless the context otherwise requires, references to “Royal Gold,” the “Company,” “we,” “us,” and “our” refer to Royal Gold, Inc. and its consolidated subsidiaries.
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, 2023, we owned nine stream interests, which are on eight producing properties and one development stage property. Stream interests accounted for approximately 74% and 70% of our total revenue for the three and six months ended June 30, 2023, respectively, and 72% and 68% for the three and six months ended June 30, 2022, 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 June 30, 2023, we owned royalty interests on 32 producing properties, 19 development stage properties and 121 exploration stage properties, of which we consider 52 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 26% and 30% of our total revenue for the three and six months ended June 30, 2023, respectively, and 28% and 32% for the three and six months ended June 30, 2022, respectively.
We do not conduct mining operations on the properties in which we hold stream and royalty interests, and we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.
17
Table of Contents
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, environmental, social, governance and other confidential information regarding an opportunity; submission 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 six months ended June 30, 2023 and 2022, average metal prices and percentages of revenue by metal were as follows:
Three Months Ended
Six Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Metal
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Average
Price
Percentage
of Revenue
Gold ($/ounce) (1)
$
1,976
77%
$
1,871
71%
$
1,932
74%
$
1,874
71%
Silver ($/ounce) (1)
$
24.13
15%
$
22.60
10%
$
23.31
14%
$
23.32
10%
Copper ($/pound) (2)
$
3.84
6%
$
4.31
14%
$
3.95
10%
$
4.43
14%
Other
N/A
2%
N/A
5%
N/A
2%
N/A
5%
(1) Based on the average U.S. dollars London Bullion Market Association PM fixing price for gold and daily fixing price for silver, as applicable.
(2) Based on the average U.S. dollars London Metals Exchange settlement price for copper.
Agreement to Acquire Royalty Interests on the Producing Santa Rita and Serrote Mines
On June 12, 2023, we announced that we entered into a binding commitment letter with ACG Acquisition Company to acquire new royalty interests on the producing Serrote and Santa Rita mines in Brazil for total cash consideration of $250 million, subject to satisfaction of certain conditions, including negotiation and execution of definitive documentation.
Based on current metal prices, we expect to fund the $250 million purchase price with approximately $50 million of available cash resources and approximately $200 million from a draw on our revolving credit facility.
Gold/Platinum/Palladium Royalties
At closing, we expect to pay cash consideration of $215 million in return for:
● A gross smelter return royalty of 85% of the payable gold from the Serrote mine until the achievement of a royalty revenue threshold of $250 million from this royalty, and 45% thereafter; and,
● A gross smelter return royalty of 64 ounces of gold, 135 ounces of platinum and 100 ounces of palladium for each 1 million pounds of payable nickel produced from the Santa Rita mine until the achievement of a royalty revenue threshold of $100 million from this royalty, at which point the royalty on gold will continue and the royalty on platinum and palladium will terminate.
Royalty revenue will be determined using fixed payabilities of 93% for gold at the Serrote mine and 86% for nickel at the Santa Rita mine. The royalties will have an economic effective date of May 1, 2023, and there will be no deductions applicable to the royalty payments.
18
Table of Contents
Copper/Nickel Royalty
At closing, we expect to pay cash consideration of $35 million in return for a gross smelter return royalty on total payable copper and nickel production from the Serrote and Santa Rita mines at a rate of 0.50% during 2023 and 2024, 0.75% during 2025 and 1.10% thereafter until the achievement of a royalty revenue threshold of $90 million from this royalty, and 0.55% thereafter.
Royalty revenue will be determined using fixed payabilities of 97% for copper at the Serrote mine, and 86% for nickel and 72% for copper at the Santa Rita mine. The royalty will have an economic effective date of May 1, 2023, and there will be no deductions applicable to the royalty payments.
ESG Contribution
We will make a financial commitment of 0.25% of the annual royalty payments received to support programs benefiting the communities within the area of influence of each of the Serrote and Santa Rita mines.
Conditions to Closing
Closing of the proposed acquisition of the royalties will be conditional on the successful completion of the ACG transaction with Appian, a minimum working capital position for ACG at closing, and other closing conditions that are standard for transactions of this nature, including the negotiation and execution of definitive royalty and security agreements with ACG and an intercreditor agreement with the senior lenders.
Timing
Closing of the proposed acquisition of the royalties could occur within the coming weeks after completion of all conditions to closing.
Xavantina Exploration Payment
On April 20, 2023, we made a $2.4 million advance payment to a subsidiary of Ero Gold Corporation (“Ero”) as part of our commitment to support the achievement of success-based targets related to regional exploration and mineral resource additions. Advance payments of $4.4 million remain if Ero meets certain success-based targets related to regional exploration and mineral resource additions through calendar 2024. Refer to Note 3 of our 2022 10-K for further information on the Xavantina (formerly referred to as NX Gold) Gold Stream Acquisition.
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 2023
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 2023, as well as actual production through June 30, 2023 (except as otherwise noted), for our principal properties as reported to us by the operators.
19
Table of Contents
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2023
Principal Producing Properties
Calendar Year 2023 Operator’s Production
Calendar Year 2023 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)
22,000 - 27,000
12,100
Mount Milligan (4)
160,000 - 170,000
74,300
Copper
60 - 70 Million
27.1 Million
Pueblo Viejo (5)
470,000 - 520,000
N/A
166,000
N/A
Khoemac a u (6)
1.5 - 1.7 Million
0.8 Million
Royalty:
Cortez (7)
940,000 - 1,060,000
407,000
Peñasquito (8)
N/A
N/A
123,000
13.8 Million
Lead
N/A
86 Million
Zinc
N/A
180 Million
(1) Production estimates received from our operators are for calendar 2023. There can be no assurance that production estimates received from the operators will be achieved. Our stream interests can be affected by several factors that make it difficult to calculate our revenue for a period from the operator’s actual or estimated production for that same period. These factors include the timing of the operator’s concentrate shipments, the delivery of metal to us and the subsequent sale of the delivered metal. These factors do not typically affect our stream interests on operations that produce doré or our royalty interests. 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 2022 10-K 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, 2023, through June 30, 2023, 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 estimated and actual production figures shown for Andacollo are contained gold in concentrate. Deliveries to us are determined using a fixed gold payability factor of 89%.
(4) The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate.
(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”). Barrick did not provide estimated or actual silver production.
(6) The estimated and actual production figures for Khoemac a u are payable silver in concentrate. Deliveries to us are determined using a fixed silver payability factor of 90%.
(7) The estimated and actual production figures for Cortez include the entirety of the Cortez Complex. Barrick reports total production from the Cortez Complex and does not report production separately for the Legacy Zone and CC Zone. Production estimates for the Legacy Zone are provided to us by Barrick and production estimates for 100% of the Cortez Complex are publicly disclosed by Barrick.
(8) 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. Actual figures are for the period January 1, 2023 through June 30, 2023. Estimated production figures are not available as 2023 production guidance was withdrawn by Newmont Corporation (“Newmont”) on July 20, 2023.
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 3,700 ounces for the three months ended June 30, 2023, compared to approximately 9,900 ounces for the three months ended June 30, 2022. The decrease in deliveries resulted
20
Table of Contents
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.
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 Resources Limited (“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 398,700 ounces for the three months ended June 30, 2023, compared to approximately 246,800 ounces for the three months ended June 30, 2022. Increased stream deliveries resulted from operations running at full capacity in the current period compared to the prior year period. Deliveries in the prior year period were lower due to the ramp-up of mining and processing operations throughout 2022 after completion of project construction in 2021.
According to Khoemac a u Copper Mining (Pty.) Limited (“KCM”), operations at Khoemac a u continued at nameplate capacity through the quarter ended June 30, 2023, after the target production rate of 3.7 million tonnes per year (10,000 tonnes per day) was achieved in December 2022. As projected in the mine plan, KCM expects payable silver production in 2023 to range between 1.5 to 1.7 million ounces, which is slightly below the life of mine average due to lower silver grades in the upper portion of the Zone 5 deposit and the top-down mining sequence.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 17,300 ounces for the three months ended June 30, 2023, compared to approximately 23,800 ounces for the three months ended June 30, 2022. Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds during the three months ended June 30, 2023, compared to approximately 4.0 million pounds during the three months ended June 30, 2022. Gold and copper stream deliveries for the three months ended June 30, 2023, relate to mine production during the approximate period November 2022 to January 2023. During this period Centerra Gold Inc. (“Centerra”) reported negative variances to copper head grade, gold head grade and recovery, as compared to the previous year period.
On July 31, 2023, Centerra reported that gold and copper production for the three months ended June 30, 2023, was impacted by lower grades and recoveries due to mine sequencing, although process plant throughput for the period averaged 61,482 tonnes per day and record tonnes were processed in the months of May and June. Centerra also reported that Mount Milligan remains on track to access higher-grade copper and gold ore from phase 7 and phase 9 in the second half of the year.
Centerra continues to expect that full year 2023 production at Mount Milligan will be back-end weighted, with gold production at the low end of the guidance range of 160,000 to 170,000 ounces, and copper production tracking towards the mid-point of the guidance range of 60 to 70 million pounds. Centerra also expects to make four concentrate shipments in the third quarter and another four shipments in the fourth quarter, although the timing of shipments may be affected by logistical delays resulting from labor disruptions in the Port of Vancouver.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 6,800 ounces for the three months ended June 30, 2023, compared to approximately 8,600 ounces for the three months ended June 30, 2022. Decreased deliveries resulted from processing lower grade gold stockpile material.
Silver stream deliveries were approximately 150,700 ounces for the three months ended June 30, 2023, compared to approximately 307,100 ounces for the three months ended June 30, 2022. Decreased silver deliveries resulted from lower silver recovery during the current period, and an additional 89,300 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
21
Table of Contents
be deferred with deferred ounces to be delivered in future periods as silver recovery allows. As of June 30, 2023, approximately 607,700 ounces remain deferred. We expect that silver recoveries could remain highly variable until the plant expansion project is complete and is running at full production levels. We do not expect material deliveries of deferred silver ounces while the plant ramps up to full production levels during 2023, and timing for the delivery of the entire deferred amount is uncertain.
On May 3 and May 10, 2023, Barrick provided updates on the plant expansion and mine life extension project at Pueblo Viejo. With respect to the plant expansion, Barrick reported that construction was 93% complete as of March 31, 2023, and commissioning and operations handover of new equipment was underway. With respect to the mine life extension, Barrick further disclosed on July 27, 2023, that the engineering design for the El Naranjo tailings storage facility (“TSF”) project continues to advance and that the environmental license for the new TSF was recently received. Barrick has also reported that geotechnical drilling and site investigation are ongoing to support a feasibility study on the TSF, which is due for completion in the second quarter of 2024.
Royalty Interests
Cortez
Production attributable to our royalty interest at the Cortez Complex was approximately 179,900 ounces of gold for the three months ended June 30, 2023, compared to approximately 52,000 ounces of gold for the three months ended June 30, 2022. The increase was primarily due to the addition of new royalties in 2022 that increased royalty coverage over producing areas within the Cortez Complex.
On May 3, 2023, Barrick reported that the Record of Decision (“ROD”) on the Goldrush project, which is located within the CC Zone, is expected in the second half of 2023. Barrick also reported that mine development and test stoping in the Redhill zone is continuing and a minor permit modification has been approved that will allow underground development to continue until the ROD on the Goldrush Plan of Operations is received. According to Barrick, the extension to the permitting timeline is not expected to have a significant impact on the 2023 outlook and the potential impact, if any, on the outlook from 2024 onwards is currently being reviewed.
Peñasquito
Production attributable to our royalty interest at Peñasquito was approximately 48,100 ounces of gold, 6.0 million ounces of silver, 35.6 million pounds of lead and 89.7 million pounds of zinc for the three months ended June 30, 2023. This compares to approximately 130,600 ounces of gold, 8.1 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. Newmont reported that production was lower in the current period due to a labor strike, and gold production was further impacted by lower mill recovery and ore grade mined.
On June 8, 2023, Newmont reported that operations at Peñasquito were suspended on June 7, 2023, following a strike action by the National Union of Mine and Metal Workers of the Mexican Republic. The suspension remains in effect as of the filing of this report and on July 20, 2023, Newmont announced the withdrawal of its full-year 2023 guidance for Peñasquito. Newmont further stated that it cannot estimate when the strike will be resolved, and it will reassess Peñasquito’s full year 2023 guidance once a resolution has been reached.
Results of Operations
Quarter Ended June 30, 2023, Compared to Quarter Ended June 30, 2022
For the quarter ended June 30, 2023, we recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $63.4 million, or $0.97 per basic and diluted share, as compared to net income of $71.1 million, or $1.08 per basic and diluted share, for the quarter ended June 30, 2022. The decrease in net income was primarily attributable to higher debt-related interest expense and income tax expense, as discussed below.
For the quarter ended June 30, 2023, we recognized total revenue of $144.0 million, comprised of stream revenue of $106.0 million and royalty revenue of $38.0 million at an average gold price of $1,976 per ounce, an average silver price of $24.13 per ounce and an average copper price of $3.84 per pound. This is compared to total revenue of $146.4 million for the three months ended June 30, 2022, comprised of stream revenue of $104.9 million and royalty revenue of $41.6 million,
22
Table of Contents
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. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022, 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, 2023
June 30, 2022
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
41,208
$
45,627
Gold
17,500
oz.
15,500
oz.
Copper
1.7
Mlbs.
4.0
Mlbs.
Pueblo Viejo
$
23,540
$
19,812
Gold
7,400
oz.
7,100
oz.
Silver
362,200
oz.
274,500
oz.
Khoemac a u
Silver
$
8,881
373,000
oz.
$
5,202
221,800
oz.
Andacollo
Gold
$
7,823
4,000
oz.
$
11,721
6,300
oz.
Other (3)
$
24,563
$
22,517
Gold
11,600
oz.
11,300
oz.
Silver
65,700
oz.
53,700
oz.
Total stream revenue
$
106,015
$
104,879
.
Royalty (2) :
Cortez Legacy Zone
Gold
$
14,305
68,100
oz.
$
8,138
52,000
oz.
Cortez CC Zone
Gold
$
3,520
111,500
oz.
N/A
Peñasquito
$
6,105
$
9,664
Gold
48,100
oz.
130,600
oz.
Silver
6.0
Moz.
8.1
Moz.
Lead
35.6
Mlbs.
35.0
Mlbs.
Zinc
89.7
Mlbs.
84.9
Mlbs.
Other (3)
Various
$
14,097
N/A
$
23,760
N/A
Total royalty revenue
$
38,027
$
41,562
Total Revenue
$
144,042
$
146,441
(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 June 30, 2023, and 2022, and may differ from the operators’ public reporting due to a number of factors, including the timing of the operator’s concentrate shipments, the delivery of metal to us and our subsequent sale of the delivered metal. Refer to Note 5 to the notes to consolidated financial statements.
(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 7% of total revenue for the three months ended June 30, 2023, and 6% for the three months ended June 30, 2022, 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, lower copper sales at Mount Milligan and lower gold and silver production attributable to our interest at Peñasquito. The decrease was offset by higher gold production attributable to our interest at Cortez as a result of the newly acquired royalties and higher gold and silver prices when compared to the prior year period.
23
Table of Contents
Gold and silver ounces and copper pounds purchased and sold during the three months ended June 30, 2023 and 2022, and gold and silver ounces and copper pounds in inventory as of June 30, 2023, and December 31, 2022, for our streaming interests were as follows:
Three Months Ended
Three Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
17,300
17,500
23,800
15,500
3,800
5,200
Pueblo Viejo
6,800
7,400
8,600
7,100
6,800
7,900
Andacollo
3,700
4,000
9,900
6,300
1,800
3,800
Other
11,200
11,600
10,400
11,300
4,700
4,100
Total
39,000
40,500
52,700
40,200
17,100
21,000
Three Months Ended
Three Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Khoemac a u
398,700
373,000
247,000
221,800
155,100
105,900
Pueblo Viejo
150,700
362,200
307,000
274,500
150,700
337,800
Other
70,600
65,700
55,200
53,700
25,500
17,500
Total
620,000
800,900
609,200
550,000
331,300
461,200
Three Months Ended
Three Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
2.5
1.7
4.0
4.0
0.8
0.9
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $23.4 million for the three months ended June 30, 2023, from $23.8 million for the three months ended June 30, 2022. The decrease, when compared to the prior year quarter, was primarily due to a decrease in copper sales at Mount Milligan and lower gold sales at Andacollo, offset by higher silver sales at Khoemac a u. Cost of sales is specific to our stream agreements and is the result of our purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.
General and administrative costs decreased to $9.1 million for the three months ended June 30, 2023, from $9.3 million for the three months ended June 30, 2022. The decrease was primarily due to lower consulting costs and lower non-cash stock compensation expense during the current period.
Depreciation, depletion and amortization decreased to $38.4 million for the three months ended June 30, 2023, from $44.0 million for the three months ended June 30, 2022. The decrease was primarily due to lower depletion rates at Mount Milligan and Pueblo Viejo as a result of proven and probable mineral reserve increases when compared to the prior year quarter. The decrease was partially offset by higher depletion expense at Khoemac a u due to the ramp-up of production and additional depletion expense from the newly acquired royalties at Cortez when compared to the prior year quarter.
Interest and other expense increased to $8.4 million for the three months ended June 30, 2023, from $1.4 million for the three months ended June 30, 2022. The increase was primarily due to higher interest expense as a result of higher average amounts outstanding under our revolving credit facility compared to the prior year quarter. We had $400 million outstanding under our revolving credit facility as of June 30, 2023, compared to zero outstanding as of June 30, 2022. The current all-in borrowing rate under our revolving credit facility was 6.7% as of June 30, 2023.
For the three months ended June 30, 2023, we recorded income tax expense of $2.0 million, compared with income tax benefit of $5.9 million for the three months ended June 30, 2022. The income tax expense resulted in an effective tax rate of 3.1% in the current period, compared with (9.0%) for the three months ended June 30, 2022. The three months ended June 30, 2023 and 2022, both included discrete tax benefits attributable to the release of a valuation allowance on certain deferred tax assets.
Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022
For the six months ended June 30, 2023, we recorded net income of $127.3 million, or $1.94 per basic and $1.93 per diluted share, as compared to net income of $136.8 million, or $2.08 per basic and diluted share, for the six months ended
24
Table of Contents
June 30, 2022. The decrease in net income was primarily attributable to higher debt-related interest expense and income tax expense, as discussed below.
For the six months ended June 30, 2023, we recognized total revenue of $314.4 million, comprised of stream revenue of $221.0 million and royalty revenue of $93.4 million at an average gold price of $1,932 per ounce, an average silver price of $23.31 per ounce and an average copper price of $3.95 per pound. This is compared to total revenue of $308.8 million for the six months ended June 30, 2022, 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. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, 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, 2023
June 30, 2022
Reported
Reported
Stream/Royalty
Metal(s)
Revenue
Production (1)
Revenue
Production (1)
Stream (2) :
Mount Milligan
$
87,863
$
88,043
Gold
32,700
oz.
29,400
oz.
Copper
6.2
Mlbs.
7.6
Mlbs.
Pueblo Viejo
$
45,898
$
43,076
Gold
15,300
oz.
15,600
oz.
Silver
700,100
oz.
590,500
oz.
Andacollo
Gold
$
20,757
11,000
oz.
$
27,395
14,700
oz.
Khoemac a u
Silver
$
18,035
777,000
oz.
$
7,592
221,800
oz.
Other (3)
$
48,452
$
44,024
Gold
23,500
oz.
22,000
oz.
Silver
131,900
oz.
226,900
oz.
Total stream revenue
$
221,005
$
210,130
Royalty (2) :
Cortez Legacy Zone
Gold
$
37,393
185,300
oz.
$
24,852
154,000
oz.
Cortez CC Zone
Gold
$ 6,726
218,100
N/A
Peñasquito
$
13,538
$
22,758
Gold
103,700
oz.
264,100
oz.
Silver
12.0
Moz.
15.7
Moz.
Lead
72.1
Mlbs.
77.0
Mlbs.
Zinc
188.9
Mlbs.
205.0
Mlbs.
Other (3)
Various
$
35,772
N/A
$
51,056
N/A
Total royalty revenue
$
93,429
$
98,666
Total revenue
$
314,434
$
308,796
(1) Reported production relates to the amount of stream metal sales and the metal sales attributable to our royalty interests for the six
months ended June 30, 2023, and 2022, and may differ from the operators’ public reporting due to a number of factors, including the timing of the operator’s concentrate shipments, the delivery of metal to us and our subsequent sale of the delivered metal. Refer to Note 5 to the notes to consolidated financial statements.
(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, 2023 and June 30, 2022, respectively, no stream or royalty included within the “Other” category contributed greater than 5% of our total revenue for either period.
The increase in our total revenue resulted primarily from higher silver sales at Khoemac a u due to the ramp-up and higher gold production attributable to our interests at Cortez as a result of the newly acquired royalties. The increase was partially offset by lower gold sales at Andacollo and lower gold and silver production at Peñasquito when compared to the prior year period.
25
Table of Contents
Gold and silver ounces and copper pounds purchased and sold during the six months ended June 30, 2023, and 2022, and gold and silver ounces and copper pounds in inventory as of June 30, 2023, and December 31, 2022, for our streaming interests were as follows:
Six Months Ended
Six Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Gold Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Mount Milligan
31,200
32,700
33,800
29,400
3,800
5,200
Pueblo Viejo
14,200
15,300
15,700
15,600
6,800
7,900
Andacollo
9,000
11,000
16,000
14,700
1,800
3,800
Other
24,200
23,500
21,500
22,000
4,700
4,100
Total
78,600
82,500
87,000
81,700
17,100
21,000
Six Months Ended
Six Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Silver Stream
Purchases (oz.)
Sales (oz.)
Purchases (oz.)
Sales (oz.)
Inventory (oz.)
Inventory (oz.)
Khoemacau
826,200
777,000
362,100
221,800
155,100
105,900
Pueblo Viejo
513,000
700,100
581,600
590,500
150,700
337,800
Other
140,000
131,900
106,300
226,900
25,500
17,500
Total
1,479,200
1,609,000
1,050,000
1,039,200
331,300
461,200
Six Months Ended
Six Months Ended
As of
As of
June 30, 2023
June 30, 2022
June 30, 2023
December 31, 2022
Copper Stream
Purchases (Mlbs.)
Sales (Mlbs.)
Purchases (Mlbs.)
Sales (Mlbs.)
Inventory (Mlbs.)
Inventory (Mlbs.)
Mount Milligan
6.0
6.2
6.7
7.6
0.8
0.9
Cost of sales, which excludes depreciation, depletion and amortization, increased to $48.4 million for the six months ended June 30, 2023, from $46.5 million for the six months ended June 30, 2022. The increase, when compared to the prior year was primarily due to higher silver sales at Khoemac a u, offset by lower gold sales at Andacollo. 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 $20.1 million for the six months ended June 30, 2023, from $18.2 million for the six months ended June 30, 2022. The increase was primarily due to an increase in employee-related costs.
Depreciation, depletion and amortization decreased to $84.7 million for the six months ended June 30, 2023, from $92.0 million for the six months ended June 30, 2022. The decrease was primarily due to lower depletion rates at Mount Milligan and Pueblo Viejo as a result of proven and probable mineral reserve increases when compared to the prior year period. The decrease was partially offset by higher depletion expense at Khoemac a u due to the ramp-up of production and additional depletion from the newly acquired royalties at Cortez when compared to the prior year quarter.
Interest and other expense increased to $17.6 million for the six months ended June 30, 2023, from $2.3 million for the six months ended June 30, 2022. The increase was primarily due to higher interest expense as a result of higher average amounts outstanding under our revolving credit facility compared to the prior year period. We had $400 million outstanding under our revolving credit facility as of June 30, 2023, compared to zero outstanding as of June 30, 2022. The current all-in borrowing rate under our revolving credit facility was 6.7% as of June 30, 2023.
26
Table of Contents
For the six months ended June 30, 2023, we recorded income tax expense of $17.9 million, compared with income tax expense of $9.4 million for the six months ended June 30, 2022. The income tax expense resulted in an effective tax rate of 12.3% in the current period, compared with 6.4% for the six months ended June 30, 2022. The six months ended June 30, 2023 and June 30, 2022, included discrete tax benefits attributable to the release of a valuation allowance on certain deferred tax assets.
Liquidity and Capital Resources
Overview
At June 30, 2023, we had current assets of $165.3 million compared to current liabilities of $63.1 million, which resulted in working capital of $102.2 million and a current ratio of approximately 3 to 1. This compares to current assets of $185.8 million and current liabilities of $63.6 million at December 31, 2022, resulting in working capital of $122.2 million and a current ratio of approximately 3 to 1. The decrease in working capital was primarily due to a decrease in our available cash, which resulted from increased debt repayments during the current period.
During the six months ended June 30, 2023, liquidity needs were met from $216.6 million in net cash provided by operating activities and our available cash resources. As of June 30, 2023, we had $600 million available and $400 million outstanding under our revolving credit facility.
Working capital, combined with available capacity under our revolving credit facility, resulted in approximately $702 million of total liquidity at June 30, 2023. We were in compliance with each financial covenant under the revolving credit facility as of June 30, 2023. Refer to Note 4 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 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 2022 10-K for a discussion of certain risks that may impact our liquidity and capital resources.
Recent Liquidity Developments
Revolving Credit Facility Amendment
On June 28, 2023, we entered into a fifth amendment to our revolving credit facility dated as of June 2, 2017. The fifth amendment extended the scheduled maturity date from July 7, 2026 to June 28, 2028, replaced LIBOR with Secured Overnight Financing Rate (“Term SOFR”) as a benchmark interest rate and made certain other administrative changes to the existing revolving credit facility.
Revolving Credit Facility Repayment
On June 6, 2023, we made a $100 million principal payment towards the outstanding balance on the revolving credit facility leaving $600 million available as of June 30, 2023.
Cash Flows
Operating Activities
Net cash provided by operating activities totaled $216.6 million for the six months ended June 30, 2023, compared to $221.3 million for the six months ended June 30, 2022. The decrease was primarily due to higher interest payments on
27
Table of Contents
amounts outstanding under our revolving credit facility during the current period. The decrease was partially offset by an increase in cash proceeds received from our stream interests, net of cost of sales, when compared to the prior year period.
Investing Activities
Net cash used in investing activities totaled $2.8 million for the six months ended June 30, 2023, compared to $37.9 million for the six months ended June 30, 2022. The decrease was primarily due to fewer acquisitions of royalty and stream interests compared to the prior year period.
Financing Activities
Net cash used in financing activities totaled $226.2 million for the six months ended June 30, 2023, compared to $46.4 million for the six months ended June 30, 2022. The increase was primarily due to repayments of $175 million 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 2022 10-K 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.
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, statements regarding the following: the proposed acquisition of new royalty interests on the producing Serrote and Santa Rita mines in Brazil, including the details of the anticipated royalties thereon and funding of the purchase price; our expected financial performance and outlook, including sales volume, revenue, expenses, and tax rates; operators’ expected operating and financial performance, including production, deliveries, mine plans, estimates of mineral resources and mineral reserves, development, cash flows and liquidity, capital requirements, capital expenditures and completion of feasibility studies, permitting activities and resolution of labor strikes; receipt of metal deliveries; anticipated liquidity, capital resources, financing and stockholder returns; deliveries of deferred silver ounces from Pueblo Viejo; and prices for gold, silver, copper, nickel and other metals.
Factors that could cause actual results to differ materially from these forward-looking statements include, among others, the following: a lower-price environment for gold, silver, copper, nickel or other metals; operating activities or financial performance of properties on which we hold stream or royalty interests, including variations between actual and forecasted performance, operators’ ability to complete projects on schedule and as planned, operators’ changes to mine plans and mineral reserves and mineral resources (including updated mineral reserve and mineral resource information), liquidity needs, mining and environmental hazards, labor disputes, distribution and supply chain disruptions, permitting and licensing issues, contractual issues involving our stream or royalty agreements, or operational disruptions; the timing of deliveries of metals from operators; risks associated with doing business in foreign countries; the impact of inadequately assessing new acquisitions; increased competition for stream and royalty interests; environmental risks, included those caused by climate change; the risk that the conditions to closing for the potential acquisition of royalties on the Serrote and Santa Rita mines may not be satisfied; delays in the completion of the plant expansion at Pueblo Viejo; potential cyber-attacks, including ransomware; our ability to identify, finance, value and complete acquisitions; adverse economic and market conditions; impact of health epidemics and pandemics; changes in laws or regulations governing us, operators or operating properties; changes in management and key employees; and other risk factors described in our reports filed with the Securities and Exchange Commission, including our 2022 10-K. Most of these factors are beyond our ability to predict or control.
28
Table of Contents
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.
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.