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1.OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, metal 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. 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. We may 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. Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements. Operating results for the three months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. 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, 2014 filed with the Securities and Exchange Commission on August 7, 2014 (“Fiscal 2014 10-K”).
Asset Impairment
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable. The recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold, silver, copper, nickel and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future, thus affecting the future recoverability of our royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Our estimates of gold, silver, copper, nickel and other metal prices, operator’s estimates of proven and probable reserves related to our royalty or streaming properties, and operator’s estimates of operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty interests in mineral properties. Although we have made our best assessment of these factors based on current market conditions, it is possible that changes could occur, which could adversely affect the net cash flows expected to be generated from these royalty interests. As part of the Company’s regular asset impairment analysis, the Company determined that one production stage royalty interest and one exploration stage royalty interest should be written down to zero for a total impairment of $1.8 million as of September 30, 2014.
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2.ACQUISITION
Tetlin Royalty Acquisitions
On September 30, 2014, Royal Gold acquired a 2.0% net smelter return (“NSR”) royalty and a 3.0% NSR royalty held by private parties over areas comprising Contango ORE, Inc.’s Tetlin mining project located near Tok, Alaska, for total consideration of $6.0 million. The acquisition of the Tetlin royalties has been accounted for as an asset acquisition. The total purchase price of $6.0 million, plus direct transaction costs, has been recorded as an exploration stage royalty interest within Royalty and stream interests, net on our consolidated balance sheets.
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3.ROYALTY AND STREAM INTERESTS, NET
The following tables summarize the Company’s principal royalty and stream interests as of September 30, 2014 and June 30, 2014.
As of September 30, 2014 |
|
Cost |
|
Accumulated |
|
Net |
|
|||
Production stage royalty interests: |
|
|
|
|
|
|
|
|||
Andacollo |
|
$ |
272,998 |
|
$ |
(58,569 |
) |
$ |
214,429 |
|
Voisey’s Bay |
|
150,138 |
|
(70,012 |
) |
80,126 |
|
|||
Peñasquito |
|
99,172 |
|
(19,377 |
) |
79,795 |
|
|||
Mulatos |
|
48,092 |
|
(29,305 |
) |
18,787 |
|
|||
Holt |
|
34,612 |
|
(11,344 |
) |
23,268 |
|
|||
Robinson |
|
17,825 |
|
(12,119 |
) |
5,706 |
|
|||
Cortez |
|
10,630 |
|
(9,805 |
) |
825 |
|
|||
Other |
|
489,689 |
|
(240,505 |
) |
249,184 |
|
|||
Total production stage royalty interests |
|
1,123,156 |
|
(451,036 |
) |
672,120 |
|
|||
|
|
|
|
|
|
|
|
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|||
Mt. Milligan |
|
783,046 |
|
(13,427 |
) |
769,619 |
|
|||
Total production stage royalty and stream interests |
|
1,906,202 |
|
(464,463 |
) |
1,441,739 |
|
|||
|
|
|
|
|
|
|
|
|||
Development stage royalty interests: |
|
|
|
|
|
|
|
|||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
|
|||
Other |
|
69,489 |
|
— |
|
69,489 |
|
|||
Total development stage royalty interests |
|
441,594 |
|
— |
|
441,594 |
|
|||
Total development stage stream interests |
|
41,282 |
|
— |
|
41,282 |
|
|||
Total development stage royalty and stream interests |
|
482,876 |
|
— |
|
482,876 |
|
|||
|
|
|
|
|
|
|
|
|||
Exploration stage royalty interests |
|
166,708 |
|
— |
|
166,708 |
|
|||
Total royalty and stream interests |
|
$ |
2,555,786 |
|
$ |
(464,463 |
) |
$ |
2,091,323 |
|
As of June 30, 2014 (Amounts in thousands): |
|
Cost |
|
Accumulated |
|
Net |
|
|||
Production stage royalty interests: |
|
|
|
|
|
|
|
|||
Andacollo |
|
$ |
272,998 |
|
$ |
(56,147 |
) |
$ |
216,851 |
|
Voisey’s Bay |
|
150,138 |
|
(67,377 |
) |
82,761 |
|
|||
Peñasquito |
|
99,172 |
|
(17,801 |
) |
81,371 |
|
|||
Mulatos |
|
48,092 |
|
(28,548 |
) |
19,544 |
|
|||
Holt |
|
34,612 |
|
(10,474 |
) |
24,138 |
|
|||
Robinson |
|
17,825 |
|
(11,887 |
) |
5,938 |
|
|||
Cortez |
|
10,630 |
|
(9,772 |
) |
858 |
|
|||
Other |
|
488,309 |
|
(232,913 |
) |
255,396 |
|
|||
Total production stage royalty interests |
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1,121,776 |
|
(434,919 |
) |
686,857 |
|
|||
|
|
|
|
|
|
|
|
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Production stage stream interests: |
|
|
|
|
|
|
|
|||
Mt. Milligan |
|
783,046 |
|
(7,741 |
) |
775,305 |
|
|||
Total production stage royalty and stream interests |
|
1,904,822 |
|
(442,660 |
) |
1,462,162 |
|
|||
|
|
|
|
|
|
|
|
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Development stage royalty interests: |
|
|
|
|
|
|
|
|||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
|
|||
Other |
|
69,488 |
|
— |
|
69,488 |
|
|||
Total development stage royalty interests |
|
441,593 |
|
— |
|
441,593 |
|
|||
Total development stage stream interests |
|
41,103 |
|
— |
|
41,103 |
|
|||
Total development stage royalty and stream interests |
|
482,696 |
|
— |
|
482,696 |
|
|||
|
|
|
|
|
|
|
|
|||
Exploration stage royalty interests |
|
164,209 |
|
— |
|
164,209 |
|
|||
Total royalty and stream interests |
|
$ |
2,551,727 |
|
$ |
(442,660 |
) |
$ |
2,109,067 |
|
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4.AVAILABLE-FOR-SALE SECURITIES
The Company’s available-for-sale securities as of September 30, 2014 and June 30, 2014 consist of the following:
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|
As of September 30, 2014 |
|
||||||||||
|
|
|
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(Amounts in thousands) |
|
|
|
||||||
|
|
|
|
Unrealized |
|
|
|
||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
|
||||
Non-current: |
|
|
|
|
|
|
|
|
|
||||
Seabridge |
|
$ |
9,565 |
|
— |
|
(1,338 |
) |
$ |
8,227 |
|
||
Other |
|
203 |
|
— |
|
(162 |
) |
41 |
|
||||
|
|
$ |
9,768 |
|
$ |
— |
|
$ |
(1,500 |
) |
$ |
8,268 |
|
|
|
As of June 30, 2014 |
|
||||||||||
|
|
|
|
(Amounts in thousands) |
|
|
|
||||||
|
|
|
|
Unrealized |
|
|
|
||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
|
||||
Non-current: |
|
|
|
|
|
|
|
|
|
||||
Seabridge |
|
$ |
9,565 |
|
— |
|
— |
|
$ |
9,565 |
|
||
Other |
|
203 |
|
— |
|
(160 |
) |
43 |
|
||||
|
|
$ |
9,768 |
|
$ |
— |
|
$ |
(160 |
) |
$ |
9,608 |
|
The most significant available-for-sale security is the investment in Seabridge Gold, Inc. (“Seabridge”) common stock, acquired in June 2011 and discussed in greater detail in our Fiscal 2014 10-K. 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 quarterly 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 months ended September 30, 2014. The Company recognized a loss on available-for-sale securities of $4.5 million during the fourth quarter of our fiscal year ended June 30, 2014. The Company will continue to evaluate its investment in Seabridge common stock considering additional facts and circumstances as they arise, including, but not limited to, the progress of development of Seabridge’s KSM project.
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5.DEBT
The Company’s non-current debt as of September 30, 2014 and June 30, 2014 consists of the following:
|
|
As of |
|
As of |
|
||
|
|
September 30, 2014 |
|
June 30, 2014 |
|
||
|
|
Non-current |
|
Non-current |
|
||
|
|
(Amounts in thousands) |
|
||||
Convertible notes due 2019, net |
|
$ |
314,333 |
|
$ |
311,860 |
|
Total debt |
|
$ |
314,333 |
|
$ |
311,860 |
|
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. The 2019 Notes mature on June 15, 2019. Interest expense recognized on the 2019 Notes for the three months ended September 30, 2014 and 2013, was $5.4 million and $5.3 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 $450 million revolving credit facility. As of September 30, 2014, the Company had no amounts outstanding under the revolving credit facility. As discussed in Note 6 to the notes to consolidated financial statements in the Company’s Fiscal 2014 10-K, the Company has financial covenants associated with its revolving credit facility. At September 30, 2014, the Company was in compliance with each financial covenant.
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6.REVENUE
Revenue is comprised of the following:
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands) |
|
||||
Royalty interests |
|
$ |
49,369 |
|
$ |
56,487 |
|
Stream interests |
|
19,657 |
|
— |
|
||
Total revenue |
|
$ |
69,026 |
|
$ |
56,487 |
|
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7.STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands) |
|
||||
Stock options |
|
$ |
112 |
|
$ |
129 |
|
Stock appreciation rights |
|
355 |
|
306 |
|
||
Restricted stock |
|
1,170 |
|
1,267 |
|
||
Performance stock |
|
812 |
|
(89 |
) |
||
Total stock-based compensation expense |
|
$ |
2,449 |
|
$ |
1,613 |
|
Stock-based compensation expense is included within general and administrative in the consolidated statements of operations and comprehensive income.
There were 19,760 and 24,775 stock options granted during the three months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $0.9 million of unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.3 years.
There were 87,890 and 84,125 stock-settled stock appreciation rights (“SSARs”) granted during the three months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $3.3 million of unrecognized compensation expense related to non-vested SSARs, which is expected to be recognized over a weighted-average period of 2.4 years.
There were 55,589 and 66,150 shares of restricted stock granted during the three months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $7.9 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 46,800 and 71,700 shares of performance stock granted during the three months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, there was $4.0 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average vesting period of 2.0 years based on management’s current estimate of the performance award criteria being achieved.
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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:
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(in thousands, except per share data) |
|
||||
|
|
|
|
||||
Net income available to Royal Gold common stockholders |
|
$ |
18,680 |
|
$ |
15,195 |
|
Weighted-average shares for basic EPS |
|
64,962,883 |
|
64,858,354 |
|
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Effect of other dilutive securities |
|
144,598 |
|
122,245 |
|
||
Weighted-average shares for diluted EPS |
|
65,107,481 |
|
64,980,599 |
|
||
|
|
|
|
|
|
||
Basic earnings per share |
|
$ |
0.29 |
|
$ |
0.23 |
|
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
0.29 |
|
$ |
0.23 |
|
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.
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9.INCOME TAXES
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands, except rate) |
|
||||
|
|
|
|
|
|
||
Income tax expense |
|
$ |
3,959 |
|
$ |
4,842 |
|
Effective tax rate |
|
17.3 |
% |
24.1 |
% |
The decrease in the effective tax rate for the quarter ended September 30, 2014 is primarily related to (i) a favorable tax rate associated with certain operations in lower-tax jurisdictions, and (ii) a decrease in tax expense due to the Chilean tax legislation enacted in the quarter and the re-measurement of the Chilean long term deferred tax asset to the higher corporate income tax rate. The decrease in tax expense was partially offset by an increase in current year tax expense due to accrual for 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 2009. As a result of (i) statute of limitations that will begin to expire within the next 12 months in various jurisdictions, (ii) possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the issues are individually significant, and (iii) additional accrual of exposure and interest on existing items the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will not decrease in the next 12 months.
As of September 30, 2014 and June 30, 2014, the Company had $14.2 million and $13.7 million of total gross unrecognized tax benefits, respectively. If recognized, these unrecognized tax benefits would positively 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 September 30, 2014 and June 30, 2014, the amount of accrued income-tax-related interest and penalties was $5.9 million and $5.4 million, respectively.
|
10.SEGMENT INFORMATION
The Company manages its business under a single operating segment, consisting of the acquisition and management of royalty and stream interests. Royal Gold’s royalty revenue and long-lived assets (royalty and stream interests, net) are geographically distributed as shown in the following table.
|
|
Revenue |
|
Royalty and Stream Interests, net |
|
||||
|
|
Three Months Ended |
|
|
|
|
|
||
|
|
September 30, |
|
As of |
|
As of |
|
||
|
|
2014 |
|
2013 |
|
September 30, 2014 |
|
June 30, 2014 |
|
Canada |
|
45% |
|
26% |
|
53% |
|
53% |
|
Chile |
|
16% |
|
31% |
|
32% |
|
31% |
|
United States |
|
16% |
|
13% |
|
3% |
|
3% |
|
Mexico |
|
14% |
|
18% |
|
7% |
|
7% |
|
Australia |
|
3% |
|
4% |
|
3% |
|
3% |
|
Africa |
|
2% |
|
3% |
|
1% |
|
1% |
|
Other |
|
4% |
|
5% |
|
1% |
|
2% |
|
|
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 September 30, 2014 |
|
|||||||||||||
|
|
Carrying |
|
Fair Value |
|
|||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|||||
United States treasury bills(1) |
|
$ |
499,991 |
|
$ |
499,991 |
|
$ |
499,991 |
|
$ |
— |
|
$ |
— |
|
Marketable equity securities(2) |
|
$ |
8,268 |
|
$ |
8,268 |
|
$ |
8,268 |
|
$ |
— |
|
$ |
— |
|
Total assets |
|
|
|
$ |
508,259 |
|
$ |
508,259 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt(3) |
|
$ |
391,333 |
|
$ |
387,575 |
|
$ |
387,575 |
|
$ |
— |
|
$ |
— |
|
Total liabilities |
|
|
|
$ |
387,575 |
|
$ |
387,575 |
|
$ |
— |
|
$ |
— |
|
(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’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 September 30, 2014, 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 is applicable if any of these assets are determined to be impaired. As discussed in Note 1, two of these assets were written down to fair value (or $0) during the three months ended September 30, 2014. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
|
12.COMMITMENTS AND CONTINGENCIES
Phoenix Gold Project Stream Acquisition
As of September 30, 2014, the Company has a remaining commitment of $45 million as part of its Phoenix Gold Project stream acquisition in February 2014. The Company made a $17 million payment as part of this commitment on October 3, 2014.
Tulsequah Chief Gold and Silver Stream Acquisition
As of September 30, 2014, the Company has a remaining commitment of $45 million as part of its Tulsequah Chief gold and silver stream acquisition in December 2011, as amended in July 2014, payment of which is subject to satisfaction of certain conditions precedent.
Voisey’s Bay
The Company indirectly owns a royalty on the Voisey’s Bay mine in Newfoundland and Labrador owned by Vale Newfoundland & Labrador Limited (“VNL”). The royalty is directly 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.SUBSEQUENT EVENT
Acquisition of Gold Stream on Euromax’s Ilovitza Project
On October 20, 2014, RGLD Gold AG (“RGLD Gold”), a wholly owned subsidiary of the Company, entered into a $175.0 million gold stream transaction with Euromax Resources Ltd (“Euromax”) that will finance a definitive feasibility study, permitting work, early stage engineering and a significant portion of the construction at Euromax’s Ilovitza gold-copper project located in southeast Macedonia, approximately nine miles west of the Bulgarian border. RGLD Gold will make two advance deposit payments to Euromax totaling $15.0 million, which will be used for completion of the definitive feasibility study and permitting of the project, followed by payments aggregating $160 million towards project construction, in each case subject to certain conditions. Payment of the first $7.5 million deposit is conditioned upon Euromax raising an additional $5 million in equity. Royal Gold’s decision to proceed with the second $7.5 million deposit and the construction payments is conditioned upon, among other things, its satisfaction with the definitive feasibility study and environmental evaluations, demonstrated project viability, and sufficient project financing and permits to construct and operate the mine. The construction payments would be paid pro-rata with the balance of the project funding. In exchange, Euromax will deliver physical gold equal to 25% of gold produced from the Ilovitza project until 525,000 ounces have been delivered, and 12.5% thereafter (in each case subject to adjustment). RGLD Gold’s purchase price per ounce will be 25% of the spot price at time of delivery.
|
Asset Impairment
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable. The recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold, silver, copper, nickel and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur or may be reduced in the future, thus affecting the future recoverability of our royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Our estimates of gold, silver, copper, nickel and other metal prices, operator’s estimates of proven and probable reserves related to our royalty or streaming properties, and operator’s estimates of operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty interests in mineral properties. Although we have made our best assessment of these factors based on current market conditions, it is possible that changes could occur, which could adversely affect the net cash flows expected to be generated from these royalty interests. As part of the Company’s regular asset impairment analysis, the Company determined that one production stage royalty interest and one exploration stage royalty interest should be written down to zero for a total impairment of $1.8 million as of September 30, 2014.
|
As of September 30, 2014 |
|
Cost |
|
Accumulated |
|
Net |
|
|||
Production stage royalty interests: |
|
|
|
|
|
|
|
|||
Andacollo |
|
$ |
272,998 |
|
$ |
(58,569 |
) |
$ |
214,429 |
|
Voisey’s Bay |
|
150,138 |
|
(70,012 |
) |
80,126 |
|
|||
Peñasquito |
|
99,172 |
|
(19,377 |
) |
79,795 |
|
|||
Mulatos |
|
48,092 |
|
(29,305 |
) |
18,787 |
|
|||
Holt |
|
34,612 |
|
(11,344 |
) |
23,268 |
|
|||
Robinson |
|
17,825 |
|
(12,119 |
) |
5,706 |
|
|||
Cortez |
|
10,630 |
|
(9,805 |
) |
825 |
|
|||
Other |
|
489,689 |
|
(240,505 |
) |
249,184 |
|
|||
Total production stage royalty interests |
|
1,123,156 |
|
(451,036 |
) |
672,120 |
|
|||
|
|
|
|
|
|
|
|
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|||
Mt. Milligan |
|
783,046 |
|
(13,427 |
) |
769,619 |
|
|||
Total production stage royalty and stream interests |
|
1,906,202 |
|
(464,463 |
) |
1,441,739 |
|
|||
|
|
|
|
|
|
|
|
|||
Development stage royalty interests: |
|
|
|
|
|
|
|
|||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
|
|||
Other |
|
69,489 |
|
— |
|
69,489 |
|
|||
Total development stage royalty interests |
|
441,594 |
|
— |
|
441,594 |
|
|||
Total development stage stream interests |
|
41,282 |
|
— |
|
41,282 |
|
|||
Total development stage royalty and stream interests |
|
482,876 |
|
— |
|
482,876 |
|
|||
|
|
|
|
|
|
|
|
|||
Exploration stage royalty interests |
|
166,708 |
|
— |
|
166,708 |
|
|||
Total royalty and stream interests |
|
$ |
2,555,786 |
|
$ |
(464,463 |
) |
$ |
2,091,323 |
|
As of June 30, 2014 (Amounts in thousands): |
|
Cost |
|
Accumulated |
|
Net |
|
|||
Production stage royalty interests: |
|
|
|
|
|
|
|
|||
Andacollo |
|
$ |
272,998 |
|
$ |
(56,147 |
) |
$ |
216,851 |
|
Voisey’s Bay |
|
150,138 |
|
(67,377 |
) |
82,761 |
|
|||
Peñasquito |
|
99,172 |
|
(17,801 |
) |
81,371 |
|
|||
Mulatos |
|
48,092 |
|
(28,548 |
) |
19,544 |
|
|||
Holt |
|
34,612 |
|
(10,474 |
) |
24,138 |
|
|||
Robinson |
|
17,825 |
|
(11,887 |
) |
5,938 |
|
|||
Cortez |
|
10,630 |
|
(9,772 |
) |
858 |
|
|||
Other |
|
488,309 |
|
(232,913 |
) |
255,396 |
|
|||
Total production stage royalty interests |
|
1,121,776 |
|
(434,919 |
) |
686,857 |
|
|||
|
|
|
|
|
|
|
|
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|||
Mt. Milligan |
|
783,046 |
|
(7,741 |
) |
775,305 |
|
|||
Total production stage royalty and stream interests |
|
1,904,822 |
|
(442,660 |
) |
1,462,162 |
|
|||
|
|
|
|
|
|
|
|
|||
Development stage royalty interests: |
|
|
|
|
|
|
|
|||
Pascua-Lama |
|
372,105 |
|
— |
|
372,105 |
|
|||
Other |
|
69,488 |
|
— |
|
69,488 |
|
|||
Total development stage royalty interests |
|
441,593 |
|
— |
|
441,593 |
|
|||
Total development stage stream interests |
|
41,103 |
|
— |
|
41,103 |
|
|||
Total development stage royalty and stream interests |
|
482,696 |
|
— |
|
482,696 |
|
|||
|
|
|
|
|
|
|
|
|||
Exploration stage royalty interests |
|
164,209 |
|
— |
|
164,209 |
|
|||
Total royalty and stream interests |
|
$ |
2,551,727 |
|
$ |
(442,660 |
) |
$ |
2,109,067 |
|
|
|
|
As of September 30, 2014 |
|
||||||||||
|
|
|
|
(Amounts in thousands) |
|
|
|
||||||
|
|
|
|
Unrealized |
|
|
|
||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
|
||||
Non-current: |
|
|
|
|
|
|
|
|
|
||||
Seabridge |
|
$ |
9,565 |
|
— |
|
(1,338 |
) |
$ |
8,227 |
|
||
Other |
|
203 |
|
— |
|
(162 |
) |
41 |
|
||||
|
|
$ |
9,768 |
|
$ |
— |
|
$ |
(1,500 |
) |
$ |
8,268 |
|
|
|
As of June 30, 2014 |
|
||||||||||
|
|
|
|
(Amounts in thousands) |
|
|
|
||||||
|
|
|
|
Unrealized |
|
|
|
||||||
|
|
Cost Basis |
|
Gain |
|
Loss |
|
Fair Value |
|
||||
Non-current: |
|
|
|
|
|
|
|
|
|
||||
Seabridge |
|
$ |
9,565 |
|
— |
|
— |
|
$ |
9,565 |
|
||
Other |
|
203 |
|
— |
|
(160 |
) |
43 |
|
||||
|
|
$ |
9,768 |
|
$ |
— |
|
$ |
(160 |
) |
$ |
9,608 |
|
|
|
|
As of |
|
As of |
|
||
|
|
September 30, 2014 |
|
June 30, 2014 |
|
||
|
|
Non-current |
|
Non-current |
|
||
|
|
(Amounts in thousands) |
|
||||
Convertible notes due 2019, net |
|
$ |
314,333 |
|
$ |
311,860 |
|
Total debt |
|
$ |
314,333 |
|
$ |
311,860 |
|
|
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands) |
|
||||
Royalty interests |
|
$ |
49,369 |
|
$ |
56,487 |
|
Stream interests |
|
19,657 |
|
— |
|
||
Total revenue |
|
$ |
69,026 |
|
$ |
56,487 |
|
|
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands) |
|
||||
Stock options |
|
$ |
112 |
|
$ |
129 |
|
Stock appreciation rights |
|
355 |
|
306 |
|
||
Restricted stock |
|
1,170 |
|
1,267 |
|
||
Performance stock |
|
812 |
|
(89 |
) |
||
Total stock-based compensation expense |
|
$ |
2,449 |
|
$ |
1,613 |
|
|
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(in thousands, except per share data) |
|
||||
|
|
|
|
||||
Net income available to Royal Gold common stockholders |
|
$ |
18,680 |
|
$ |
15,195 |
|
Weighted-average shares for basic EPS |
|
64,962,883 |
|
64,858,354 |
|
||
Effect of other dilutive securities |
|
144,598 |
|
122,245 |
|
||
Weighted-average shares for diluted EPS |
|
65,107,481 |
|
64,980,599 |
|
||
|
|
|
|
|
|
||
Basic earnings per share |
|
$ |
0.29 |
|
$ |
0.23 |
|
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
0.29 |
|
$ |
0.23 |
|
|
|
|
For The Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2014 |
|
2013 |
|
||
|
|
(Amounts in thousands, except rate) |
|
||||
|
|
|
|
|
|
||
Income tax expense |
|
$ |
3,959 |
|
$ |
4,842 |
|
Effective tax rate |
|
17.3 |
% |
24.1 |
% |
|
|
|
Revenue |
|
Royalty and Stream Interests, net |
|
||||
|
|
Three Months Ended |
|
|
|
|
|
||
|
|
September 30, |
|
As of |
|
As of |
|
||
|
|
2014 |
|
2013 |
|
September 30, 2014 |
|
June 30, 2014 |
|
Canada |
|
45% |
|
26% |
|
53% |
|
53% |
|
Chile |
|
16% |
|
31% |
|
32% |
|
31% |
|
United States |
|
16% |
|
13% |
|
3% |
|
3% |
|
Mexico |
|
14% |
|
18% |
|
7% |
|
7% |
|
Australia |
|
3% |
|
4% |
|
3% |
|
3% |
|
Africa |
|
2% |
|
3% |
|
1% |
|
1% |
|
Other |
|
4% |
|
5% |
|
1% |
|
2% |
|
|
|
|
At September 30, 2014 |
|
|||||||||||||
|
|
Carrying |
|
Fair Value |
|
|||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|||||
United States treasury bills(1) |
|
$ |
499,991 |
|
$ |
499,991 |
|
$ |
499,991 |
|
$ |
— |
|
$ |
— |
|
Marketable equity securities(2) |
|
$ |
8,268 |
|
$ |
8,268 |
|
$ |
8,268 |
|
$ |
— |
|
$ |
— |
|
Total assets |
|
|
|
$ |
508,259 |
|
$ |
508,259 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt(3) |
|
$ |
391,333 |
|
$ |
387,575 |
|
$ |
387,575 |
|
$ |
— |
|
$ |
— |
|
Total liabilities |
|
|
|
$ |
387,575 |
|
$ |
387,575 |
|
$ |
— |
|
$ |
— |
|
(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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|