| DEBT
|
|
|
|
|
|
1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties, precious metals streams and similar 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. We use the term “royalty interest” in these notes to the consolidated financial statements to refer to royalties, gold, silver or other metal stream interests, and other similar interests.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and six months ended December 31, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2013. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission on August 9, 2012 (“Fiscal 2012 10-K”).
Recently Adopted Accounting Standards
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 addresses the presentation of comprehensive income and provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company has elected the single continuous statement of comprehensive income. Pursuant to ASU No. 2011-12, Comprehensive Income (Topic 220) — Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting for Standards Update No. 2011-05, the provisions of ASU 2011-05 became effective for the Company’s fiscal year beginning July 1, 2012. Since ASU 2011-05 addresses financial presentation only, its adoption did not impact the Company’s consolidated financial position or results of operations.
|
2. ACQUISITIONS
Mt. Milligan III Gold Stream Acquisition
On August 8, 2012, Royal Gold entered into an amendment to its purchase and sale agreement with Thompson Creek Metals Company Inc. (“Thompson Creek”) whereby Royal Gold, among other things, agreed to purchase an additional 12.25% of the payable gold from the Mt. Milligan copper-gold project in exchange for a total of $200 million, of which $75 million was paid shortly after closing, and, when production is reached, cash payments for each payable ounce of gold delivered to Royal Gold, as discussed further below (the “Milligan III Acquisition”). Thompson Creek intends to use the proceeds from the Milligan III Acquisition to finance a portion of the construction of the Mt. Milligan project and related costs. Under the Milligan III Acquisition, Royal Gold increased its aggregate pre-production commitment in the Mt. Milligan project from $581.5 million to $781.5 million and agreed to purchase a total of 52.25% of the payable ounces of gold produced from the Mt. Milligan project at a cash purchase price equal to the lesser of $435, with no inflation adjustment, or the prevailing market price for each payable ounce of gold (regardless of the number of payable ounces delivered to Royal Gold).
As of December 31, 2012, the Company has paid $669.6 million of the aggregate pre-production commitment of $781.5 million. The remaining scheduled quarterly payments include $62 million due March 1, 2013, $37 million due June 1, 2013 and $12.9 million due September 1, 2013. Royal Gold’s obligation to make these quarterly payments is subject to the satisfaction of certain conditions included in the Milligan III Acquisition (including that the aggregate amount of historical payments made by Royal Gold plus the applicable quarterly payment is less than the aggregate costs of developing the Mt. Milligan project incurred or accrued by Thompson Creek as of the date of the applicable quarterly payment). In the event that a quarterly payment is postponed as a result of the failure by Thompson Creek to satisfy a condition precedent, all subsequent quarterly payments will be adjusted forward one full calendar quarter until such time as all conditions precedent have been satisfied for the next scheduled quarterly payment.
The Milligan III Acquisition has been accounted for as an asset acquisition. The $75 million paid on August 15, 2012, and the scheduled payments of $45 million and $95 million paid on September 3, 2012, and December 3, 2012, respectively, plus direct transaction costs, have been recorded as a development stage royalty interest within Royalty interests in mineral properties, net on our consolidated balance sheets.
Acquisition of an Additional Royalty Option on the Kerr-Sulphurets-Mitchell Project
On December 13, 2012, Royal Gold purchased 1,004,491 common shares (the “Additional Seabridge Shares”) of Seabridge Gold Inc. (“Seabridge”) at a 15% premium to the volume weighted-average trading price of Seabridge common shares on the Toronto Stock Exchange for a five day trading period that ended December 11, 2012, for $18.3 million (C$18.0 million). Effective December 13, 2012, Royal Gold entered into an amendment (the “Seabridge Amendment”) to its option agreement with Seabridge (the “Seabridge Option Agreement”) to, among other things, remove the 270 day minimum holding period applicable to the Additional Seabridge Shares.
Upon Royal Gold’s purchase of the Additional Seabridge Shares, Royal Gold obtained the right, under the Seabridge Option Agreement, as amended by the Seabridge Amendment, to increase the net smelter return (“NSR”) royalty it may acquire on all of the gold and silver production from Seabridge’s Kerr-Sulphurets-Mitchell project (“KSM project”) in British Columbia by 0.75%. Royal Gold now holds the right to purchase either a 1.25% NSR royalty on such production for C$100 million, or a 2.0% NSR royalty for C$160 million. If Royal Gold exercises its purchase right, the purchase price will be payable in three equal installments over the 540-day period following exercise. Royal Gold sold the Additional Seabridge Shares in a private transaction to an unrelated party for $14.6 million (C$14.4 million) on December 13, 2012.
The 15% premium on the Additional Seabridge Shares, which represents the value of the option to acquire the additional 0.75% NSR royalty on the KSM project, plus direct acquisition costs, was approximately $2.4 million and has been recorded within Other assets on our consolidated balance sheets. The purchase and same day sale of the Additional Seabridge Shares resulted in a realized loss on trading securities of approximately $1.3 million, which is recorded within Interest and other expense on our consolidated statements of operations and comprehensive income.
|
3. ROYALTY INTERESTS IN MINERAL PROPERTIES
The following summarizes the Company’s royalty interests in mineral properties as of December 31, 2012 and June 30, 2012.
As of December 31, 2012 |
|
|
|
Accumulated |
|
|
| |||
(Amounts in thousands): |
|
Cost |
|
Depletion |
|
Net |
| |||
Production stage royalty interests: |
|
|
|
|
|
|
| |||
Andacollo |
|
$ |
272,998 |
|
$ |
(35,950 |
) |
$ |
237,048 |
|
Voisey’s Bay |
|
150,138 |
|
(42,669 |
) |
107,469 |
| |||
Peñasquito |
|
99,172 |
|
(10,975 |
) |
88,197 |
| |||
Las Cruces |
|
57,230 |
|
(9,453 |
) |
47,777 |
| |||
Mulatos |
|
48,092 |
|
(21,490 |
) |
26,602 |
| |||
Wolverine |
|
45,158 |
|
(4,335 |
) |
40,823 |
| |||
Dolores |
|
44,878 |
|
(7,003 |
) |
37,875 |
| |||
Canadian Malartic |
|
38,800 |
|
(4,905 |
) |
33,895 |
| |||
Gwalia Deeps |
|
31,070 |
|
(5,628 |
) |
25,442 |
| |||
Holt |
|
25,428 |
|
(4,699 |
) |
20,729 |
| |||
Inata |
|
24,871 |
|
(8,015 |
) |
16,856 |
| |||
Leeville |
|
18,322 |
|
(15,262 |
) |
3,060 |
| |||
Robinson |
|
17,825 |
|
(10,570 |
) |
7,255 |
| |||
Cortez |
|
10,630 |
|
(9,697 |
) |
933 |
| |||
Other |
|
210,242 |
|
(118,447 |
) |
91,795 |
| |||
|
|
1,094,854 |
|
(309,098 |
) |
785,756 |
| |||
|
|
|
|
|
|
|
| |||
Development stage royalty interests: |
|
|
|
|
|
|
| |||
Mt. Milligan |
|
671,090 |
|
— |
|
671,090 |
| |||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
| |||
Other |
|
38,694 |
|
— |
|
38,694 |
| |||
|
|
1,081,889 |
|
— |
|
1,081,889 |
| |||
|
|
|
|
|
|
|
| |||
Exploration stage royalty interests |
|
195,959 |
|
— |
|
195,959 |
| |||
Total royalty interests in mineral properties |
|
$ |
2,372,702 |
|
$ |
(309,098 |
) |
$ |
2,063,604 |
|
As of June 30, 2012 |
|
|
|
|
|
Accumulated |
|
|
| ||||
(Amounts in thousands): |
|
Cost |
|
Restructuring |
|
Depletion |
|
Net |
| ||||
Production stage royalty interests: |
|
|
|
|
|
|
|
|
| ||||
Andacollo |
|
$ |
272,998 |
|
$ |
— |
|
$ |
(27,345 |
) |
$ |
245,653 |
|
Voisey’s Bay |
|
150,138 |
|
— |
|
(33,192 |
) |
116,946 |
| ||||
Peñasquito |
|
99,172 |
|
— |
|
(9,075 |
) |
90,097 |
| ||||
Las Cruces |
|
57,230 |
|
— |
|
(6,499 |
) |
50,731 |
| ||||
Mulatos |
|
48,092 |
|
— |
|
(18,721 |
) |
29,371 |
| ||||
Wolverine |
|
45,158 |
|
— |
|
(1,625 |
) |
43,533 |
| ||||
Dolores |
|
44,878 |
|
— |
|
(6,021 |
) |
38,857 |
| ||||
Canadian Malartic |
|
38,800 |
|
— |
|
(3,292 |
) |
35,508 |
| ||||
Gwalia Deeps |
|
28,119 |
|
— |
|
(4,398 |
) |
23,721 |
| ||||
Holt |
|
25,428 |
|
— |
|
(2,980 |
) |
22,448 |
| ||||
Inata |
|
24,871 |
|
— |
|
(7,320 |
) |
17,551 |
| ||||
Leeville |
|
18,322 |
|
— |
|
(14,436 |
) |
3,886 |
| ||||
Robinson |
|
17,825 |
|
— |
|
(9,872 |
) |
7,953 |
| ||||
Cortez |
|
10,630 |
|
— |
|
(9,673 |
) |
957 |
| ||||
Other |
|
208,463 |
|
— |
|
(112,105 |
) |
96,358 |
| ||||
|
|
1,090,124 |
|
— |
|
(266,554 |
) |
823,570 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
| ||||
Mt. Milligan |
|
455,943 |
|
— |
|
— |
|
455,943 |
| ||||
Pascua-Lama |
|
372,105 |
|
— |
|
— |
|
372,105 |
| ||||
Other |
|
40,022 |
|
(1,328 |
) |
— |
|
38,694 |
| ||||
|
|
868,070 |
|
(1,328 |
) |
— |
|
866,742 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Exploration stage royalty interests |
|
200,676 |
|
— |
|
— |
|
200,676 |
| ||||
Total royalty interests in mineral properties |
|
$ |
2,158,870 |
|
$ |
(1,328 |
) |
$ |
(266,554 |
) |
$ |
1,890,988 |
|
|
4. AVAILABLE FOR SALE SECURITIES
The Company’s available for sale securities as of December 31, 2012 and June 30, 2012 consists of the following (amounts in thousands):
|
|
As of December 31, 2012 |
| ||||||||||
|
|
|
|
Unrealized |
|
|
| ||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
| ||||
Non-current: |
|
|
|
|
|
|
|
|
| ||||
Seabridge Gold, Inc. |
|
$ |
28,574 |
|
— |
|
(10,245 |
) |
$ |
18,329 |
| ||
Other |
|
203 |
|
— |
|
(43 |
) |
160 |
| ||||
|
|
$ |
28,777 |
|
$ |
— |
|
$ |
(10,288 |
) |
$ |
18,489 |
|
|
|
As of June 30, 2012 |
| ||||||||||
|
|
|
|
Unrealized |
|
|
| ||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
| ||||
Non-current: |
|
|
|
|
|
|
|
|
| ||||
Seabridge Gold, Inc. |
|
$ |
28,574 |
|
— |
|
(13,716 |
) |
$ |
14,858 |
| ||
Other |
|
203 |
|
— |
|
(46 |
) |
$ |
157 |
| |||
|
|
$ |
28,777 |
|
$ |
— |
|
$ |
(13,762 |
) |
$ |
15,015 |
|
The Company’s policy for determining whether declines in fair value of available-for-sale securities are other than temporary includes a quarterly analysis of the investments and a review by management of all investments for which the cost exceeds the fair value. Any temporary declines in fair value are recorded as a charge to other comprehensive income. If such impairment is determined by the Company to be other than temporary, the investment’s cost basis is written down to fair value and recorded in net income during the period the Company determines such impairment to be other than temporary. Based on the Company’s analysis of its investments and our ability and intent to hold these investments for a reasonable period of time, there were no write downs on our available-for-sale securities during the three or six months ended December 31, 2012 or the fiscal year ended June 30, 2012. The most significant available-for-sale security is the investment in Seabridge common stock, acquired in June 2011 and discussed in greater detail within our Fiscal 2012 10-K. The Company will continue to evaluate this investment considering additional facts and circumstances as they arise, including, but not limited to, the progress of development of Seabridge’s KSM project.
|
5. DEBT
The Company’s non-current debt as of December 31, 2012 and June 30, 2012 consists of the following:
|
|
As of |
|
As of |
| ||
|
|
December 31, 2012 |
|
June 30, 2012 |
| ||
|
|
Non-current |
|
Non-current |
| ||
|
|
(Amounts in thousands) |
| ||||
Convertible notes due 2019, net |
|
$ |
297,697 |
|
$ |
293,248 |
|
Total debt |
|
$ |
297,697 |
|
$ |
293,248 |
|
Convertible Senior Notes Due 2019
In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”). The 2019 Notes bear interest at the rate of 2.875% per annum, and the Company is required to make semi-annual interest payments on the outstanding principal balance of the 2019 Notes on June 15 and December 15 of each year, beginning December 15, 2012. The 2019 Notes mature on June 15, 2019. Interest expense recognized on the 2019 Notes for the three and six months ended December 31, 2012, was $5.2 million and $10.3 million, respectively, and included the contractual coupon interest, the accretion of the debt discount and amortization of the debt issuance costs.
Revolving credit facility
The Company maintains a $350 million revolving credit facility. As of December 31, 2012, the Company had no amounts outstanding under the revolving credit facility. As discussed in the Company’s Fiscal 2012 10-K, the Company has financial covenants associated with its revolving credit facility. At December 31, 2012, the Company was in compliance with each financial covenant.
|
6. STOCKHOLDERS’ EQUITY
Common Stock Offering
On October 15, 2012, we sold 5,250,000 shares of our common stock, at a price of $90.00 per share, resulting in proceeds of $472.5 million before expenses. The Company has invested the proceeds from this offering in United States treasury bills or cash bank accounts and intends to use the net proceeds from the offering for the acquisition of additional royalty interests and for general corporate purposes.
|
7. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(Amounts in thousands) |
|
(Amounts in thousands) |
| ||||||||
Stock options |
|
$ |
129 |
|
$ |
123 |
|
$ |
256 |
|
$ |
238 |
|
Stock appreciation rights |
|
427 |
|
329 |
|
819 |
|
624 |
| ||||
Restricted stock |
|
649 |
|
565 |
|
1,779 |
|
1,651 |
| ||||
Performance stock |
|
600 |
|
851 |
|
1,046 |
|
1,553 |
| ||||
Total stock-based compensation expense |
|
$ |
1,805 |
|
$ |
1,868 |
|
$ |
3,900 |
|
$ |
4,066 |
|
Stock-based compensation expense is included within general and administrative in the consolidated statements of operations and comprehensive income.
There were no stock options granted during the three months ended December 31, 2012 and 2011, and 17,925 and 18,796 stock options granted during the six months ended December 31, 2012 and 2011, respectively. As of December 31, 2012, there was $0.7 million of unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.0 years.
There were no stock-settled stock appreciation rights (“SSARs”) granted during the three months ended December 31, 2012 and 2011, and 54,400 and 42,804 SSARs granted during the six months ended December 31, 2012 and 2011, respectively. As of December 31, 2012, there was $2.0 million of unrecognized compensation expense related to non-vested SSARs, which is expected to be recognized over a weighted-average period of 1.8 years.
There were no shares of restricted stock granted during the three months ended December 31, 2012 and 2011, and 40,850 and 44,950 shares of restricted stock granted during the six months ended December 31, 2012 and 2011, respectively. The restricted stock awards granted to officers and certain employees during the six months ended December 31, 2012, vest over a three year period beginning after a two-year holding period from the date of grant, with one-third of the shares vesting after years three, four and five, respectively. As of December 31, 2012, there was $6.4 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average vesting period of 3.6 years.
There were no shares of performance stock granted during the three months ended December 31, 2012 and 2011, and 45,600 and 49,600 shares of performance stock granted during the six months ended December 31, 2012 and 2011, respectively. As of December 31, 2012, there was $4.3 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average vesting period of 1.8 years.
|
8. EARNINGS PER SHARE (“EPS”)
Basic earnings per common share were computed using the weighted average number of shares of common stock outstanding during the period, considering the effect of participating securities. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company’s unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. The Company’s unexercised stock options, unexercised SSARs and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic earnings per common share are reduced by an amount allocated to participating securities. Use of the two-class method has an immaterial impact on the calculation of basic and diluted earnings per common share.
The following tables summarize the effects of dilutive securities on diluted EPS for the period:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(in thousands, except share data) |
|
(in thousands, except share data) |
| ||||||||
Net income available to Royal Gold common stockholders |
|
$ |
27,217 |
|
$ |
23,411 |
|
$ |
51,987 |
|
$ |
45,906 |
|
Weighted-average shares for basic EPS |
|
63,941,686 |
|
55,329,463 |
|
61,688,776 |
|
55,259,009 |
| ||||
Effect of other dilutive securities |
|
195,551 |
|
245,351 |
|
216,773 |
|
274,239 |
| ||||
Weighted-average shares for diluted EPS |
|
64,137,237 |
|
55,574,814 |
|
61,905,549 |
|
55,533,248 |
| ||||
Basic earnings per share |
|
$ |
0.42 |
|
$ |
0.42 |
|
$ |
0.84 |
|
$ |
0.83 |
|
Diluted earnings per share |
|
$ |
0.42 |
|
$ |
0.42 |
|
$ |
0.84 |
|
$ |
0.82 |
|
The calculation of weighted average shares includes all of our outstanding stock: common stock and exchangeable shares. Exchangeable shares are the equivalent of common shares in that they have the same dividend rights and share equitably in undistributed earnings and are exchangeable on a one-for-one basis for shares of our common stock. The Company intends to settle the principal amount of the 2019 Notes in cash. As a result, there will be no impact to diluted earnings per share unless the share price of the Company’s common stock exceeds the conversion price of $105.31.
|
9. INCOME TAXES
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(Amounts in thousands, except rate) |
|
(Amounts in thousands, except rate) |
| ||||||||
Income tax expense |
|
$ |
16,315 |
|
$ |
14,051 |
|
$ |
32,776 |
|
$ |
26,433 |
|
Effective tax rate |
|
37.2 |
% |
36.7 |
% |
38.3 |
% |
34.4 |
% | ||||
The increase in the effective tax rate for the three months ended December 31, 2012, is primarily related to an increase in current year tax expense from changes in estimates of uncertain tax positions. The increase in the effective tax rate for the six months ended December 31, 2012, is primarily attributable to (i) an increase in tax expense recognized in certain foreign subsidiaries without a corresponding U.S. foreign tax credit benefit, (ii) an increase in current year tax expense from changes in estimates of uncertain tax positions, and (iii) the prior year decrease in tax expense from changes in estimates of uncertain tax positions.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal, state and local, and non-U.S. income tax examinations by tax authorities for fiscal years before 2008.
As of December 31, 2012 and June 30, 2012, the Company had $19.8 million and $19.5 million of total gross unrecognized tax benefits, respectively. The increase in gross unrecognized tax benefits was primarily related to tax positions of International Royalty Corporation entities taken prior to or upon the acquisition by the Company during fiscal year 2010. If recognized, these unrecognized tax benefits would impact the Company’s effective income tax rate.
The Company’s continuing practice is to recognize potential interest and/or penalties related to unrecognized tax benefits as part of its income tax expense. At December 31, 2012 and June 30, 2012, the amount of accrued income-tax-related interest and penalties was $3.3 million and $2.8 million, respectively.
During the quarter ended December 31, 2012, the Company made a foreign withholding tax payment of approximately $17.2 million. The Company expects to recover the amount of the payment within the next twelve months. The $17.2 million payment has been recorded within Prepaid expenses and other current assets on our consolidated balance sheets.
|
10. SEGMENT INFORMATION
The Company manages its business under a single operating segment, consisting of the acquisition and management of royalty interests. Royal Gold’s royalty revenue and long-lived assets (royalty interests in mineral properties, net) are geographically distributed as shown in the following table.
|
|
|
|
|
|
|
|
|
|
Royalty Interests in |
| ||
|
|
Royalty Revenue |
|
Mineral Property, net |
| ||||||||
|
|
Three Months Ended |
|
Six Months Ended |
|
As of |
|
As of |
| ||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
June 30, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2012 |
|
Chile |
|
30 |
% |
25 |
% |
28 |
% |
26 |
% |
31 |
% |
35 |
% |
Canada |
|
23 |
% |
28 |
% |
23 |
% |
24 |
% |
49 |
% |
43 |
% |
United States |
|
19 |
% |
16 |
% |
18 |
% |
20 |
% |
4 |
% |
5 |
% |
Mexico |
|
18 |
% |
19 |
% |
20 |
% |
18 |
% |
8 |
% |
9 |
% |
Australia |
|
3 |
% |
5 |
% |
3 |
% |
5 |
% |
3 |
% |
3 |
% |
Africa |
|
3 |
% |
4 |
% |
3 |
% |
4 |
% |
1 |
% |
1 |
% |
Other |
|
4 |
% |
3 |
% |
5 |
% |
3 |
% |
4 |
% |
4 |
% |
|
11. FAIR VALUE MEASUREMENTS
FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1: Quoted prices for identical instruments in active markets;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
|
|
At December 31, 2012 |
| |||||||||||||
|
|
Carrying |
|
Fair Value |
| |||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
| |||||
United States treasury bills(1) |
|
$ |
524,982 |
|
$ |
524,982 |
|
$ |
524,982 |
|
$ |
— |
|
$ |
— |
|
Money market investments(1) |
|
$ |
183 |
|
$ |
183 |
|
$ |
183 |
|
$ |
— |
|
$ |
— |
|
Marketable equity securities(2) |
|
$ |
18,489 |
|
$ |
18,489 |
|
$ |
18,489 |
|
$ |
— |
|
$ |
— |
|
Total assets |
|
|
|
$ |
543,654 |
|
$ |
543,654 |
|
$ |
— |
|
$ |
— |
| |
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
| |||||
Debt(3) |
|
$ |
370,000 |
|
$ |
411,625 |
|
$ |
411,625 |
|
$ |
— |
|
$ |
— |
|
Total liabilities |
|
|
|
$ |
411,625 |
|
$ |
411,625 |
|
$ |
— |
|
$ |
— |
|
(1) Included in Cash and equivalents in the Company’s consolidated balance sheets.
(2) Included in Available for sale securities in the Company’s consolidated balance sheets.
(3) Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital in the Company’s consolidated balance sheets.
The Company invests primarily in United States treasury bills with maturities of 90 days or less, which are classified within Level 1 of the fair value hierarchy. The Company also invests in money market funds, which are traded by dealers or brokers in active over-the-counter markets. The Company’s money market funds, which are invested in United States treasury bills or United States treasury backed securities, are also classified within Level 1 of the fair value hierarchy. The Company’s marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets. The fair value of the Level 1 marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company. The Company’s debt classified within Level 1 of the fair value hierarchy is valued using quoted prices in an active market.
As of December 31, 2012, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with royalty interests in mineral properties, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition are applicable if any of these assets are determined to be impaired; however, no triggering events have occurred relative to any of these assets during the six months ended December 31, 2012. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
|
12. COMMITMENTS AND CONTINGENCIES
Mt. Milligan Gold Stream Acquisition
Refer to Note 2 for discussion on the Company’s commitment to Thompson Creek as part of the Mt. Milligan gold stream acquisitions.
Tulsequah Chief Gold and Silver Stream Acquisition
As of December 31, 2012, the Company has a remaining commitment of $50 million as part of its Tulsequah Chief gold and silver stream acquisition in December 2011.
Voisey’s Bay
The Company owns a royalty on the Voisey’s Bay mine in Newfoundland and Labrador owned by Vale Newfoundland & Labrador Limited (“VNL”). The royalty is owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary, Canadian Minerals Partnership, is the general partner and 89.99% owner. The remaining interests in LNRLP are owned by Altius Investments Ltd. (10%), a company unrelated to Royal Gold, and the Company’s wholly-owned indirect subsidiary, Voisey’s Bay Holding Corporation (0.01%).
On October 16, 2009, LNRLP filed a claim in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited, now known as Vale Canada Limited (“Vale Canada”) and its wholly-owned subsidiaries, Vale Inco Atlantic Sales Limited and VNL, related to the calculation of the NSR on the sale of concentrates, including nickel concentrates, from the Voisey’s Bay mine to Vale Canada. The claim asserts that Vale Canada is incorrectly calculating the NSR and requests an order in respect of the correct calculation of future payments. The claim also requests specific damages for underpayment of past royalties to the date of the claim in an amount not less than $29 million, together with additional damages until the date of trial, interest, costs and other damages. The litigation is in the discovery phase.
|
13. RELATED PARTY
Crescent Valley Partners, L.P. (“CVP”) was formed as a limited partnership in April 1992. It owns a 1.25% net value royalty on production of minerals from a portion of Cortez. Denver Mining Finance Company, our wholly-owned subsidiary, is the general partner and holds a 2.0% interest in CVP. In addition, Royal Gold holds a 29.6% limited partner interest in the partnership, while our Chairman of the Board of Directors, the Chairman of our Audit Committee and one other member of our board of directors hold an aggregate 35.56% limited partner interest. The general partner performs administrative services for CVP in receiving and processing the royalty payments from the operator, including the disbursement of royalty payments and record keeping for in-kind distributions to the limited partners.
CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain other limited partners, sell their pro-rata shares of such gold immediately and receive distributions in cash, while CVP holds gold for certain other limited partners. Such gold inventories, which totaled 12,837 and 12,581 ounces of gold as of December 31, 2012 and June 30, 2012, respectively, are held by a third party refinery in Utah for the account of the limited partners of CVP. The inventories are carried at historical cost and are classified within Other assets on the Company’s consolidated balance sheets. The carrying value of the gold in inventory was approximately $7.9 million and $7.4 million as of December 31, 2012 and June 30, 2012, respectively, while the fair value of such ounces was approximately $21.3 million and $20.1 million as of December 31, 2012 and June 30, 2012, respectively. None of the gold currently held in inventory as of December 31, 2012 and June 30, 2012, is attributed to Royal Gold, as the gold allocated to Royal Gold’s CVP partnership interest is typically sold within five days of receipt.
|
14. SUBSEQUENT EVENT
On January 21, 2013, Royal Gold entered into Amendment No. 2 to Fifth Amended and Restated Revolving Credit Agreement (the “Amendment”), which amends the Company’s existing Fifth Amended and Restated Revolving Credit Agreement, dated May 30, 2012 (as amended from time to time, the “Revolving Credit Agreement”), among Royal Gold, as the borrower, certain subsidiaries of Royal Gold, as guarantors, HSBC Bank USA, National Association, as administrative agent and a lender, The Bank of Nova Scotia, as a lender, Goldman Sachs Bank USA, as a lender, and the other lenders from time to time party thereto, HSBC Securities (USA) Inc., as the sole lead arranger and joint bookrunner, and ScotiaBank, as syndication agent and joint bookrunner.
The Amendment revises the Revolving Credit Agreement to, among other things, (i) remove the current ratio, interest coverage ratio and debt service coverage ratio financial covenants, (ii) add a financial covenant requiring the Company to maintain a secured debt ratio below a certain level, (iii) increase the amount of unsecured indebtedness the Company is permitted to incur subject to its pro forma compliance with a leverage ratio test and to allow certain prepayments, refinancing and replacement of such unsecured indebtedness, (iv) increase the interest rate for borrowings under the Revolving Credit Agreement when the leverage ratio exceeds 3.0 to 1.0, and (v) take certain acquisitions into account in determining compliance with financial covenants. Except as set forth in the Amendment, all other terms and conditions of the Revolving Credit Agreement remain in full force and effect.
|
As of December 31, 2012 |
|
|
|
Accumulated |
|
|
| |||
(Amounts in thousands): |
|
Cost |
|
Depletion |
|
Net |
| |||
Production stage royalty interests: |
|
|
|
|
|
|
| |||
Andacollo |
|
$ |
272,998 |
|
$ |
(35,950 |
) |
$ |
237,048 |
|
Voisey’s Bay |
|
150,138 |
|
(42,669 |
) |
107,469 |
| |||
Peñasquito |
|
99,172 |
|
(10,975 |
) |
88,197 |
| |||
Las Cruces |
|
57,230 |
|
(9,453 |
) |
47,777 |
| |||
Mulatos |
|
48,092 |
|
(21,490 |
) |
26,602 |
| |||
Wolverine |
|
45,158 |
|
(4,335 |
) |
40,823 |
| |||
Dolores |
|
44,878 |
|
(7,003 |
) |
37,875 |
| |||
Canadian Malartic |
|
38,800 |
|
(4,905 |
) |
33,895 |
| |||
Gwalia Deeps |
|
31,070 |
|
(5,628 |
) |
25,442 |
| |||
Holt |
|
25,428 |
|
(4,699 |
) |
20,729 |
| |||
Inata |
|
24,871 |
|
(8,015 |
) |
16,856 |
| |||
Leeville |
|
18,322 |
|
(15,262 |
) |
3,060 |
| |||
Robinson |
|
17,825 |
|
(10,570 |
) |
7,255 |
| |||
Cortez |
|
10,630 |
|
(9,697 |
) |
933 |
| |||
Other |
|
210,242 |
|
(118,447 |
) |
91,795 |
| |||
|
|
1,094,854 |
|
(309,098 |
) |
785,756 |
| |||
|
|
|
|
|
|
|
| |||
Development stage royalty interests: |
|
|
|
|
|
|
| |||
Mt. Milligan |
|
671,090 |
|
— |
|
671,090 |
| |||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
| |||
Other |
|
38,694 |
|
— |
|
38,694 |
| |||
|
|
1,081,889 |
|
— |
|
1,081,889 |
| |||
|
|
|
|
|
|
|
| |||
Exploration stage royalty interests |
|
195,959 |
|
— |
|
195,959 |
| |||
Total royalty interests in mineral properties |
|
$ |
2,372,702 |
|
$ |
(309,098 |
) |
$ |
2,063,604 |
|
As of June 30, 2012 |
|
|
|
|
|
Accumulated |
|
|
| ||||
(Amounts in thousands): |
|
Cost |
|
Restructuring |
|
Depletion |
|
Net |
| ||||
Production stage royalty interests: |
|
|
|
|
|
|
|
|
| ||||
Andacollo |
|
$ |
272,998 |
|
$ |
— |
|
$ |
(27,345 |
) |
$ |
245,653 |
|
Voisey’s Bay |
|
150,138 |
|
— |
|
(33,192 |
) |
116,946 |
| ||||
Peñasquito |
|
99,172 |
|
— |
|
(9,075 |
) |
90,097 |
| ||||
Las Cruces |
|
57,230 |
|
— |
|
(6,499 |
) |
50,731 |
| ||||
Mulatos |
|
48,092 |
|
— |
|
(18,721 |
) |
29,371 |
| ||||
Wolverine |
|
45,158 |
|
— |
|
(1,625 |
) |
43,533 |
| ||||
Dolores |
|
44,878 |
|
— |
|
(6,021 |
) |
38,857 |
| ||||
Canadian Malartic |
|
38,800 |
|
— |
|
(3,292 |
) |
35,508 |
| ||||
Gwalia Deeps |
|
28,119 |
|
— |
|
(4,398 |
) |
23,721 |
| ||||
Holt |
|
25,428 |
|
— |
|
(2,980 |
) |
22,448 |
| ||||
Inata |
|
24,871 |
|
— |
|
(7,320 |
) |
17,551 |
| ||||
Leeville |
|
18,322 |
|
— |
|
(14,436 |
) |
3,886 |
| ||||
Robinson |
|
17,825 |
|
— |
|
(9,872 |
) |
7,953 |
| ||||
Cortez |
|
10,630 |
|
— |
|
(9,673 |
) |
957 |
| ||||
Other |
|
208,463 |
|
— |
|
(112,105 |
) |
96,358 |
| ||||
|
|
1,090,124 |
|
— |
|
(266,554 |
) |
823,570 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
| ||||
Mt. Milligan |
|
455,943 |
|
— |
|
— |
|
455,943 |
| ||||
Pascua-Lama |
|
372,105 |
|
— |
|
— |
|
372,105 |
| ||||
Other |
|
40,022 |
|
(1,328 |
) |
— |
|
38,694 |
| ||||
|
|
868,070 |
|
(1,328 |
) |
— |
|
866,742 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Exploration stage royalty interests |
|
200,676 |
|
— |
|
— |
|
200,676 |
| ||||
Total royalty interests in mineral properties |
|
$ |
2,158,870 |
|
$ |
(1,328 |
) |
$ |
(266,554 |
) |
$ |
1,890,988 |
|
|
The Company’s available for sale securities as of December 31, 2012 and June 30, 2012 consists of the following (amounts in thousands):
|
|
As of December 31, 2012 |
| ||||||||||
|
|
|
|
Unrealized |
|
|
| ||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
| ||||
Non-current: |
|
|
|
|
|
|
|
|
| ||||
Seabridge Gold, Inc. |
|
$ |
28,574 |
|
— |
|
(10,245 |
) |
$ |
18,329 |
| ||
Other |
|
203 |
|
— |
|
(43 |
) |
160 |
| ||||
|
|
$ |
28,777 |
|
$ |
— |
|
$ |
(10,288 |
) |
$ |
18,489 |
|
|
|
As of June 30, 2012 |
| ||||||||||
|
|
|
|
Unrealized |
|
|
| ||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
| ||||
Non-current: |
|
|
|
|
|
|
|
|
| ||||
Seabridge Gold, Inc. |
|
$ |
28,574 |
|
— |
|
(13,716 |
) |
$ |
14,858 |
| ||
Other |
|
203 |
|
— |
|
(46 |
) |
$ |
157 |
| |||
|
|
$ |
28,777 |
|
$ |
— |
|
$ |
(13,762 |
) |
$ |
15,015 |
|
|
|
|
As of |
|
As of |
| ||
|
|
December 31, 2012 |
|
June 30, 2012 |
| ||
|
|
Non-current |
|
Non-current |
| ||
|
|
(Amounts in thousands) |
| ||||
Convertible notes due 2019, net |
|
$ |
297,697 |
|
$ |
293,248 |
|
Total debt |
|
$ |
297,697 |
|
$ |
293,248 |
|
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(Amounts in thousands) |
|
(Amounts in thousands) |
| ||||||||
Stock options |
|
$ |
129 |
|
$ |
123 |
|
$ |
256 |
|
$ |
238 |
|
Stock appreciation rights |
|
427 |
|
329 |
|
819 |
|
624 |
| ||||
Restricted stock |
|
649 |
|
565 |
|
1,779 |
|
1,651 |
| ||||
Performance stock |
|
600 |
|
851 |
|
1,046 |
|
1,553 |
| ||||
Total stock-based compensation expense |
|
$ |
1,805 |
|
$ |
1,868 |
|
$ |
3,900 |
|
$ |
4,066 |
|
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(in thousands, except share data) |
|
(in thousands, except share data) |
| ||||||||
Net income available to Royal Gold common stockholders |
|
$ |
27,217 |
|
$ |
23,411 |
|
$ |
51,987 |
|
$ |
45,906 |
|
Weighted-average shares for basic EPS |
|
63,941,686 |
|
55,329,463 |
|
61,688,776 |
|
55,259,009 |
| ||||
Effect of other dilutive securities |
|
195,551 |
|
245,351 |
|
216,773 |
|
274,239 |
| ||||
Weighted-average shares for diluted EPS |
|
64,137,237 |
|
55,574,814 |
|
61,905,549 |
|
55,533,248 |
| ||||
Basic earnings per share |
|
$ |
0.42 |
|
$ |
0.42 |
|
$ |
0.84 |
|
$ |
0.83 |
|
Diluted earnings per share |
|
$ |
0.42 |
|
$ |
0.42 |
|
$ |
0.84 |
|
$ |
0.82 |
|
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(Amounts in thousands, except rate) |
|
(Amounts in thousands, except rate) |
| ||||||||
Income tax expense |
|
$ |
16,315 |
|
$ |
14,051 |
|
$ |
32,776 |
|
$ |
26,433 |
|
Effective tax rate |
|
37.2 |
% |
36.7 |
% |
38.3 |
% |
34.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Royalty Interests in |
| ||
|
|
Royalty Revenue |
|
Mineral Property, net |
| ||||||||
|
|
Three Months Ended |
|
Six Months Ended |
|
As of |
|
As of |
| ||||
|
|
December 31, |
|
December 31, |
|
December 31, |
|
June 30, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2012 |
|
Chile |
|
30 |
% |
25 |
% |
28 |
% |
26 |
% |
31 |
% |
35 |
% |
Canada |
|
23 |
% |
28 |
% |
23 |
% |
24 |
% |
49 |
% |
43 |
% |
United States |
|
19 |
% |
16 |
% |
18 |
% |
20 |
% |
4 |
% |
5 |
% |
Mexico |
|
18 |
% |
19 |
% |
20 |
% |
18 |
% |
8 |
% |
9 |
% |
Australia |
|
3 |
% |
5 |
% |
3 |
% |
5 |
% |
3 |
% |
3 |
% |
Africa |
|
3 |
% |
4 |
% |
3 |
% |
4 |
% |
1 |
% |
1 |
% |
Other |
|
4 |
% |
3 |
% |
5 |
% |
3 |
% |
4 |
% |
4 |
% |
|
|
|
At December 31, 2012 |
| |||||||||||||
|
|
Carrying |
|
Fair Value |
| |||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
| |||||
United States treasury bills(1) |
|
$ |
524,982 |
|
$ |
524,982 |
|
$ |
524,982 |
|
$ |
— |
|
$ |
— |
|
Money market investments(1) |
|
$ |
183 |
|
$ |
183 |
|
$ |
183 |
|
$ |
— |
|
$ |
— |
|
Marketable equity securities(2) |
|
$ |
18,489 |
|
$ |
18,489 |
|
$ |
18,489 |
|
$ |
— |
|
$ |
— |
|
Total assets |
|
|
|
$ |
543,654 |
|
$ |
543,654 |
|
$ |
— |
|
$ |
— |
| |
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
| |||||
Debt(3) |
|
$ |
370,000 |
|
$ |
411,625 |
|
$ |
411,625 |
|
$ |
— |
|
$ |
— |
|
Total liabilities |
|
|
|
$ |
411,625 |
|
$ |
411,625 |
|
$ |
— |
|
$ |
— |
|
(1) Included in Cash and equivalents in the Company’s consolidated balance sheets.
(2) Included in Available for sale securities in the Company’s consolidated balance sheets.
(3) Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital in the Company’s consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|