|
|
|
|
|
|
1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED AND RECENTLY ADOPTED ACCOUNTING STANDARDS
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 streams, royalties and similar interests. We seek to acquire existing stream and royalty interests or to finance projects that are in production or in the development stage in exchange for stream or royalty 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. 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.
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 months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018. 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, 2017 filed with the Securities and Exchange Commission on August 10, 2017 (“Fiscal 2017 10-K”).
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. Reclassified amounts were not material to the financial statements.
Recently Issued and Adopted Accounting Standards
Recently Issued
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) guidance for the recognition of revenue from contracts with customers. This ASU superseded virtually all of the existing revenue recognition guidance under U.S. GAAP. The core principle of the five–step model is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Entities can choose to apply the standard using either the full retrospective approach or a modified retrospective approach, and is effective for the Company’s fiscal year beginning July 1, 2018. Early adoption is permitted.
We plan to implement the new ASU revenue recognition guidance as of July 1, 2018, using the modified retrospective method with the cumulative effect, if any, of initial adoption to be recognized in Accumulated earnings at the date of initial application. We are in the initial stages of our evaluation of the impact of the new standard on our accounting policies, processes, and financial reporting. Based on the evaluation performed to-date, we expect to identify similar performance obligations as compared with deliverables and separate units of account previously identified. We will continue to assess the impact of adopting this ASU throughout the remainder of fiscal year 2018.
Recently Adopted
In March 2016, the FASB issued ASU guidance related to stock-based compensation. The new guidance simplifies the accounting for stock-based compensation transactions, including income tax consequences, statement of cash flows presentation, estimating forfeitures when calculating compensation expense, and classification of awards as either equity or liabilities.
The new standard requires all excess tax benefits and tax deficiencies to be recognized as income tax benefit (expense) in the income statement. The new guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than a financing activity and requires presentation of cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation as a financing activity. The new guidance also provides for an election to account for forfeitures of stock-based compensation.
The Company adopted the ASU guidance effective July 1, 2017. With respect to the forfeiture election, the Company will continue its current practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.
|
2. STREAM AND ROYALTY INTERESTS, NET
The following tables summarize the Company’s stream and royalty interests, net as of September 30, 2017 and June 30, 2017.
As of September 30, 2017 (Amounts in thousands): |
|
Cost |
|
Accumulated Depletion |
|
Net |
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
$ |
790,635 |
|
$ |
(123,427) |
|
$ |
667,208 |
Pueblo Viejo |
|
|
610,404 |
|
|
(79,801) |
|
|
530,603 |
Andacollo |
|
|
388,182 |
|
|
(43,722) |
|
|
344,460 |
Wassa and Prestea |
|
|
146,475 |
|
|
(28,695) |
|
|
117,780 |
Total production stage stream interests |
|
|
1,935,696 |
|
|
(275,645) |
|
|
1,660,051 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
|
205,724 |
|
|
(85,671) |
|
|
120,053 |
Peñasquito |
|
|
99,172 |
|
|
(35,882) |
|
|
63,290 |
Holt |
|
|
34,612 |
|
|
(20,103) |
|
|
14,509 |
Cortez |
|
|
20,878 |
|
|
(10,879) |
|
|
9,999 |
Other |
|
|
483,643 |
|
|
(343,722) |
|
|
139,921 |
Total production stage royalty interests |
|
|
844,029 |
|
|
(496,257) |
|
|
347,772 |
Total production stage stream and royalty interests |
|
|
2,779,725 |
|
|
(771,902) |
|
|
2,007,823 |
|
|
|
|
|
|
|
|
|
|
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Rainy River |
|
|
175,727 |
|
|
— |
|
|
175,727 |
Other |
|
|
12,031 |
|
|
— |
|
|
12,031 |
Total development stage stream interests |
|
|
187,758 |
|
|
— |
|
|
187,758 |
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
|
380,657 |
|
|
— |
|
|
380,657 |
Cortez |
|
|
59,803 |
|
|
— |
|
|
59,803 |
Other |
|
|
63,811 |
|
|
— |
|
|
63,811 |
Total development stage royalty interests |
|
|
504,271 |
|
|
— |
|
|
504,271 |
Total development stage stream and royalty interests |
|
|
692,029 |
|
|
— |
|
|
692,029 |
Total exploration stage royalty interests |
|
|
152,746 |
|
|
— |
|
|
152,746 |
Total stream and royalty interests |
|
$ |
3,624,500 |
|
$ |
(771,902) |
|
$ |
2,852,598 |
As of June 30, 2017 (Amounts in thousands): |
|
Cost |
|
Accumulated Depletion |
|
Net |
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
$ |
790,635 |
|
$ |
(114,327) |
|
$ |
676,308 |
Pueblo Viejo |
|
|
610,404 |
|
|
(67,149) |
|
|
543,255 |
Andacollo |
|
|
388,182 |
|
|
(39,404) |
|
|
348,778 |
Wassa and Prestea |
|
|
146,475 |
|
|
(22,715) |
|
|
123,760 |
Total production stage stream interests |
|
|
1,935,696 |
|
|
(243,595) |
|
|
1,692,101 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
|
205,724 |
|
|
(85,671) |
|
|
120,053 |
Peñasquito |
|
|
99,172 |
|
|
(34,713) |
|
|
64,459 |
Holt |
|
|
34,612 |
|
|
(19,669) |
|
|
14,943 |
Cortez |
|
|
20,873 |
|
|
(10,633) |
|
|
10,240 |
Other |
|
|
483,643 |
|
|
(337,958) |
|
|
145,685 |
Total production stage royalty interests |
|
|
844,024 |
|
|
(488,644) |
|
|
355,380 |
Total production stage stream and royalty interests |
|
|
2,779,720 |
|
|
(732,239) |
|
|
2,047,481 |
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Rainy River |
|
|
175,727 |
|
|
— |
|
|
175,727 |
Other |
|
|
12,031 |
|
|
— |
|
|
12,031 |
Total development stage stream interests |
|
|
187,758 |
|
|
— |
|
|
187,758 |
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
|
380,657 |
|
|
— |
|
|
380,657 |
Cortez |
|
|
59,803 |
|
|
— |
|
|
59,803 |
Other |
|
|
63,811 |
|
|
— |
|
|
63,811 |
Total development stage royalty interests |
|
|
504,271 |
|
|
— |
|
|
504,271 |
Total development stage stream and royalty interests |
|
|
692,029 |
|
|
— |
|
|
692,029 |
Total exploration stage royalty interests |
|
|
152,746 |
|
|
— |
|
|
152,746 |
Total stream and royalty interests |
|
$ |
3,624,495 |
|
$ |
(732,239) |
|
$ |
2,892,256 |
|
3. DEBT
The Company’s non-current debt as of September 30, 2017 and June 30, 2017 consists of the following:
|
|
As of September 30, 2017 |
|
As of June 30, 2017 |
||||||||||||||||||||
|
|
Principal |
|
Unamortized Discount |
|
Debt Issuance Costs |
|
Total |
|
Principal |
|
Unamortized Discount |
|
Debt Issuance Costs |
|
Total |
||||||||
|
|
|
(Amounts in thousands) |
|
|
(Amounts in thousands) |
||||||||||||||||||
Convertible notes due 2019 |
|
$ |
370,000 |
|
$ |
(22,206) |
|
$ |
(2,318) |
|
$ |
345,476 |
|
$ |
370,000 |
|
$ |
(25,251) |
|
$ |
(2,646) |
|
$ |
342,103 |
Revolving credit facility |
|
|
200,000 |
|
|
— |
|
|
(5,704) |
|
|
194,296 |
|
|
250,000 |
|
|
— |
|
|
(5,933) |
|
|
244,067 |
Total debt |
|
$ |
570,000 |
|
$ |
(22,206) |
|
$ |
(8,022) |
|
$ |
539,772 |
|
$ |
620,000 |
|
$ |
(25,251) |
|
$ |
(8,579) |
|
$ |
586,170 |
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 months ended September 30, 2017, was $6.0 million compared to $5.8 million for the three months ended September 30, 2016, 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 $1 billion revolving credit facility. As of September 30, 2017, the Company had $200 million outstanding and $800 million available under the revolving credit facility with an interest rate on borrowings of LIBOR plus 1.75% for an all-in rate of 3.07%. During the three months ended September 30, 2017, the Company repaid $50.0 million of the outstanding borrowings under the revolving credit facility. Royal Gold may repay borrowings under the revolving credit facility at any time without premium or penalty. Interest expense recognized on the revolving credit facility for the three months ended September 30, 2017, was $1.8 million and $1.9 million for the three months ended September 30, 2016, and included interest on the outstanding borrowings and the amortization of the debt issuance costs.
As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 2017 10-K, the Company has financial covenants associated with its revolving credit facility. As of September 30, 2017, the Company was in compliance with each financial covenant.
|
4. REVENUE
Revenue is comprised of the following:
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(Amounts in thousands) |
|||
Stream interests |
|
$ |
78,762 |
|
$ |
85,504 |
Royalty interests |
|
|
33,714 |
|
|
32,443 |
Total revenue |
|
$ |
112,476 |
|
$ |
117,947 |
|
5. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(Amounts in thousands) |
|||
Stock options |
|
$ |
91 |
|
$ |
108 |
Stock appreciation rights |
|
|
488 |
|
|
468 |
Restricted stock |
|
|
1,426 |
|
|
1,374 |
Performance stock |
|
|
368 |
|
|
2,194 |
Total stock-based compensation expense |
|
$ |
2,373 |
|
$ |
4,144 |
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
During the three months ended September 30, 2017 and 2016, the Company granted the following stock-based compensation awards:
|
|
|
Three Months Ended |
|||
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2017 |
|
|
2016 |
|
|
|
(Number of shares) |
|||
Stock options |
|
|
6,858 |
|
|
7,200 |
Stock appreciation rights |
|
|
71,262 |
|
|
63,340 |
Restricted stock |
|
|
50,380 |
|
|
44,890 |
Performance stock |
|
|
34,010 |
|
|
29,830 |
Total equity awards granted |
|
|
162,510 |
|
|
145,260 |
As of September 30, 2017, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:
|
|
Unrecognized |
|
Weighted- |
||
|
|
compensation |
|
average vesting |
||
|
|
expense |
|
period (years) |
||
Stock options |
|
$ |
473 |
|
|
2.0 |
Stock appreciation rights |
|
|
3,627 |
|
|
2.3 |
Restricted stock |
|
|
7,684 |
|
|
3.4 |
Performance stock |
|
|
2,790 |
|
|
2.1 |
|
6. 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 |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(in thousands, except per share data) |
|||
Net income available to Royal Gold common stockholders |
|
$ |
28,631 |
|
$ |
29,787 |
Weighted-average shares for basic EPS |
|
|
65,235,496 |
|
|
65,116,686 |
Effect of other dilutive securities |
|
|
169,184 |
|
|
164,218 |
Weighted-average shares for diluted EPS |
|
|
65,404,680 |
|
|
65,280,904 |
Basic earnings per share |
|
$ |
0.44 |
|
$ |
0.46 |
Diluted earnings per share |
|
$ |
0.44 |
|
$ |
0.46 |
The calculation of weighted average shares includes all of our outstanding 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 $102.91.
|
7. INCOME TAXES
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
(Amounts in thousands, except rate) |
||||
Income tax expense |
|
$ |
7,544 |
|
$ |
7,188 |
Effective tax rate |
|
|
22.1% |
|
|
21.1% |
The increase in the effective tax rate for the three months ended September 30, 2017 is primarily attributable to the re-measurement of Canadian dollar deferred tax liabilities to US dollars due to changes in the Canadian dollar to US dollar exchange rate.
|
8. SEGMENT INFORMATION
The Company manages its business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests. Royal Gold’s long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table:
|
|
As of September 30, 2017 |
|
As of June 30, 2017 |
||||||||||||||
|
|
Stream interest |
|
Royalty interest |
|
Total stream |
|
Stream interest |
|
Royalty |
|
Total stream |
||||||
Canada |
|
$ |
842,935 |
|
$ |
220,160 |
|
$ |
1,063,095 |
|
$ |
852,035 |
|
$ |
221,618 |
|
$ |
1,073,653 |
Dominican Republic |
|
|
530,603 |
|
|
— |
|
|
530,603 |
|
|
543,256 |
|
|
— |
|
|
543,256 |
Chile |
|
|
344,460 |
|
|
453,369 |
|
|
797,829 |
|
|
348,778 |
|
|
453,369 |
|
|
802,147 |
Africa |
|
|
117,780 |
|
|
553 |
|
|
118,333 |
|
|
123,760 |
|
|
572 |
|
|
124,332 |
Mexico |
|
|
— |
|
|
103,039 |
|
|
103,039 |
|
|
— |
|
|
105,889 |
|
|
105,889 |
United States |
|
|
— |
|
|
167,430 |
|
|
167,430 |
|
|
— |
|
|
168,378 |
|
|
168,378 |
Australia |
|
|
— |
|
|
36,563 |
|
|
36,563 |
|
|
— |
|
|
37,409 |
|
|
37,409 |
Other |
|
|
12,031 |
|
|
23,675 |
|
|
35,706 |
|
|
12,030 |
|
|
25,162 |
|
|
37,192 |
Total |
|
$ |
1,847,809 |
|
$ |
1,004,789 |
|
$ |
2,852,598 |
|
$ |
1,879,859 |
|
$ |
1,012,397 |
|
$ |
2,892,256 |
The Company’s revenue, cost of sales and net revenue by reportable segment for the three months ended September 30, 2017 and 2016, is geographically distributed as shown in the following table:
|
|
Three Months Ended September 30, 2017 |
|
Three Months Ended September 30, 2016 |
||||||||||||||
|
|
Revenue |
|
Cost of sales |
|
Net revenue |
|
Revenue |
|
Cost of sales |
|
Net revenue |
||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
31,952 |
|
$ |
9,223 |
|
$ |
22,729 |
|
$ |
38,386 |
|
$ |
12,578 |
|
$ |
25,808 |
Dominican Republic |
|
|
25,403 |
|
|
7,588 |
|
|
17,815 |
|
|
20,950 |
|
|
5,896 |
|
|
15,054 |
Chile |
|
|
12,337 |
|
|
1,812 |
|
|
10,525 |
|
|
20,169 |
|
|
2,998 |
|
|
17,171 |
Africa |
|
|
9,070 |
|
|
1,796 |
|
|
7,274 |
|
|
5,999 |
|
|
1,190 |
|
|
4,809 |
Total streams |
|
$ |
78,762 |
|
$ |
20,419 |
|
$ |
58,343 |
|
$ |
85,504 |
|
$ |
22,662 |
|
$ |
62,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
|
$ |
10,897 |
|
$ |
— |
|
$ |
10,897 |
|
$ |
9,596 |
|
$ |
— |
|
$ |
9,596 |
United States |
|
|
10,429 |
|
|
— |
|
|
10,429 |
|
|
9,706 |
|
|
— |
|
|
9,706 |
Canada |
|
|
6,092 |
|
|
— |
|
|
6,092 |
|
|
6,188 |
|
|
— |
|
|
6,188 |
Australia |
|
|
3,320 |
|
|
— |
|
|
3,320 |
|
|
3,462 |
|
|
— |
|
|
3,462 |
Africa |
|
|
462 |
|
|
— |
|
|
462 |
|
|
824 |
|
|
— |
|
|
824 |
Chile |
|
|
— |
|
|
— |
|
|
— |
|
|
489 |
|
|
— |
|
|
489 |
Other |
|
|
2,514 |
|
|
— |
|
|
2,514 |
|
|
2,178 |
|
|
— |
|
|
2,178 |
Total royalties |
|
$ |
33,714 |
|
$ |
— |
|
$ |
33,714 |
|
$ |
32,443 |
|
$ |
— |
|
$ |
32,443 |
Total streams and royalties |
|
$ |
112,476 |
|
$ |
20,419 |
|
$ |
92,057 |
|
$ |
117,947 |
|
$ |
22,662 |
|
$ |
95,285 |
|
9. 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.
|
|
As of September 30, 2017 |
|||||||||||||
|
|
Carrying |
|
Fair Value |
|||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities(1) |
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
— |
|
$ |
— |
Total assets |
|
|
|
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
— |
|
$ |
— |
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt(2) |
|
$ |
424,794 |
|
$ |
409,538 |
|
$ |
409,538 |
|
$ |
— |
|
$ |
— |
Total liabilities |
|
|
|
|
$ |
409,538 |
|
$ |
409,538 |
|
$ |
— |
|
$ |
— |
(1) |
Available-for-sale securities of $3.9 million included within Other assets and trading securities of $1.1 million included within Prepaid expenses and other on the Company’s consolidated balance sheets. |
(2) |
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 on the Company’s consolidated balance sheets. |
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 warrants that were part of the term loan funded to a subsidiary of Golden Star Resources Ltd. (“Golden Star”) in July 2015 were exercised during the quarter-ended September 30, 2017. The warrants had been classified within Level 2 of the fair value hierarchy as of June 30, 2017. The fair value of the Golden Star common shares received by the Company upon exercise of the warrants are classified within Level 1 of the fair value hierarchy as of September 30, 2017. The Company sold all of the common shares of Golden Star received upon exercise of the warrants in October 2017. The Company’s debt classified within Level 1 of the fair value hierarchy is valued using quoted prices in an active market. The carrying value of the Company’s revolving credit facility (Note 3) approximates fair value as of September 30, 2017.
As of September 30, 2017, 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 stream and royalty interests, 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. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
|
10.COMMITMENTS AND CONTINGENCIES
Ilovica Gold Stream Acquisition
As of September 30, 2017, the Company’s conditional funding schedule for $163.75 million related to its Ilovica gold stream acquisition made in October 2014 remains subject to certain conditions.
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, Voisey’s Bay Holding Corporation, is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by Altius Royalty Corporation, a company unrelated to Royal Gold.
On October 6, 2017, LNRLP filed a Fresh as Amended Statement of Claim, amending the original October 16, 2009 Statement of Claim and amendments thereto made in December 2014, in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited, now known as Vale Canada Limited, and its wholly-owned subsidiaries, Vale Inco Atlantic Sales Limited and VNL, related to calculation of the NSR on the sale of concentrates, including nickel concentrates, from the Voisey’s Bay mine. LNRLP asserts that the defendants have incorrectly calculated the NSR since production at Voisey’s Bay began in late 2005, and since defendants began processing Voisey’s Bay concentrates at the new Long Harbour processing facility, and that the defendants have breached their contractual duties of good faith in several ways. LNRLP requests an order in respect of the correct calculation of future payments, and unspecified damages for non-payment and underpayment of past royalties to the date of the claim, together with additional damages until the date of trial, interest, costs and other damages. The litigation is in the discovery phase, and trial is expected to commence in the second half of calendar 2018.
|
Recently Issued and Adopted Accounting Standards
Recently Issued
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) guidance for the recognition of revenue from contracts with customers. This ASU superseded virtually all of the existing revenue recognition guidance under U.S. GAAP. The core principle of the five–step model is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Entities can choose to apply the standard using either the full retrospective approach or a modified retrospective approach, and is effective for the Company’s fiscal year beginning July 1, 2018. Early adoption is permitted.
We plan to implement the new ASU revenue recognition guidance as of July 1, 2018, using the modified retrospective method with the cumulative effect, if any, of initial adoption to be recognized in Accumulated earnings at the date of initial application. We are in the initial stages of our evaluation of the impact of the new standard on our accounting policies, processes, and financial reporting. Based on the evaluation performed to-date, we expect to identify similar performance obligations as compared with deliverables and separate units of account previously identified. We will continue to assess the impact of adopting this ASU throughout the remainder of fiscal year 2018.
Recently Adopted
In March 2016, the FASB issued ASU guidance related to stock-based compensation. The new guidance simplifies the accounting for stock-based compensation transactions, including income tax consequences, statement of cash flows presentation, estimating forfeitures when calculating compensation expense, and classification of awards as either equity or liabilities.
The new standard requires all excess tax benefits and tax deficiencies to be recognized as income tax benefit (expense) in the income statement. The new guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than a financing activity and requires presentation of cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation as a financing activity. The new guidance also provides for an election to account for forfeitures of stock-based compensation.
The Company adopted the ASU guidance effective July 1, 2017. With respect to the forfeiture election, the Company will continue its current practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.
|
As of September 30, 2017 (Amounts in thousands): |
|
Cost |
|
Accumulated Depletion |
|
Net |
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
$ |
790,635 |
|
$ |
(123,427) |
|
$ |
667,208 |
Pueblo Viejo |
|
|
610,404 |
|
|
(79,801) |
|
|
530,603 |
Andacollo |
|
|
388,182 |
|
|
(43,722) |
|
|
344,460 |
Wassa and Prestea |
|
|
146,475 |
|
|
(28,695) |
|
|
117,780 |
Total production stage stream interests |
|
|
1,935,696 |
|
|
(275,645) |
|
|
1,660,051 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
|
205,724 |
|
|
(85,671) |
|
|
120,053 |
Peñasquito |
|
|
99,172 |
|
|
(35,882) |
|
|
63,290 |
Holt |
|
|
34,612 |
|
|
(20,103) |
|
|
14,509 |
Cortez |
|
|
20,878 |
|
|
(10,879) |
|
|
9,999 |
Other |
|
|
483,643 |
|
|
(343,722) |
|
|
139,921 |
Total production stage royalty interests |
|
|
844,029 |
|
|
(496,257) |
|
|
347,772 |
Total production stage stream and royalty interests |
|
|
2,779,725 |
|
|
(771,902) |
|
|
2,007,823 |
|
|
|
|
|
|
|
|
|
|
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Rainy River |
|
|
175,727 |
|
|
— |
|
|
175,727 |
Other |
|
|
12,031 |
|
|
— |
|
|
12,031 |
Total development stage stream interests |
|
|
187,758 |
|
|
— |
|
|
187,758 |
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
|
380,657 |
|
|
— |
|
|
380,657 |
Cortez |
|
|
59,803 |
|
|
— |
|
|
59,803 |
Other |
|
|
63,811 |
|
|
— |
|
|
63,811 |
Total development stage royalty interests |
|
|
504,271 |
|
|
— |
|
|
504,271 |
Total development stage stream and royalty interests |
|
|
692,029 |
|
|
— |
|
|
692,029 |
Total exploration stage royalty interests |
|
|
152,746 |
|
|
— |
|
|
152,746 |
Total stream and royalty interests |
|
$ |
3,624,500 |
|
$ |
(771,902) |
|
$ |
2,852,598 |
As of June 30, 2017 (Amounts in thousands): |
|
Cost |
|
Accumulated Depletion |
|
Net |
|||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
$ |
790,635 |
|
$ |
(114,327) |
|
$ |
676,308 |
Pueblo Viejo |
|
|
610,404 |
|
|
(67,149) |
|
|
543,255 |
Andacollo |
|
|
388,182 |
|
|
(39,404) |
|
|
348,778 |
Wassa and Prestea |
|
|
146,475 |
|
|
(22,715) |
|
|
123,760 |
Total production stage stream interests |
|
|
1,935,696 |
|
|
(243,595) |
|
|
1,692,101 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
|
205,724 |
|
|
(85,671) |
|
|
120,053 |
Peñasquito |
|
|
99,172 |
|
|
(34,713) |
|
|
64,459 |
Holt |
|
|
34,612 |
|
|
(19,669) |
|
|
14,943 |
Cortez |
|
|
20,873 |
|
|
(10,633) |
|
|
10,240 |
Other |
|
|
483,643 |
|
|
(337,958) |
|
|
145,685 |
Total production stage royalty interests |
|
|
844,024 |
|
|
(488,644) |
|
|
355,380 |
Total production stage stream and royalty interests |
|
|
2,779,720 |
|
|
(732,239) |
|
|
2,047,481 |
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Rainy River |
|
|
175,727 |
|
|
— |
|
|
175,727 |
Other |
|
|
12,031 |
|
|
— |
|
|
12,031 |
Total development stage stream interests |
|
|
187,758 |
|
|
— |
|
|
187,758 |
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
|
380,657 |
|
|
— |
|
|
380,657 |
Cortez |
|
|
59,803 |
|
|
— |
|
|
59,803 |
Other |
|
|
63,811 |
|
|
— |
|
|
63,811 |
Total development stage royalty interests |
|
|
504,271 |
|
|
— |
|
|
504,271 |
Total development stage stream and royalty interests |
|
|
692,029 |
|
|
— |
|
|
692,029 |
Total exploration stage royalty interests |
|
|
152,746 |
|
|
— |
|
|
152,746 |
Total stream and royalty interests |
|
$ |
3,624,495 |
|
$ |
(732,239) |
|
$ |
2,892,256 |
|
|
|
As of September 30, 2017 |
|
As of June 30, 2017 |
||||||||||||||||||||
|
|
Principal |
|
Unamortized Discount |
|
Debt Issuance Costs |
|
Total |
|
Principal |
|
Unamortized Discount |
|
Debt Issuance Costs |
|
Total |
||||||||
|
|
|
(Amounts in thousands) |
|
|
(Amounts in thousands) |
||||||||||||||||||
Convertible notes due 2019 |
|
$ |
370,000 |
|
$ |
(22,206) |
|
$ |
(2,318) |
|
$ |
345,476 |
|
$ |
370,000 |
|
$ |
(25,251) |
|
$ |
(2,646) |
|
$ |
342,103 |
Revolving credit facility |
|
|
200,000 |
|
|
— |
|
|
(5,704) |
|
|
194,296 |
|
|
250,000 |
|
|
— |
|
|
(5,933) |
|
|
244,067 |
Total debt |
|
$ |
570,000 |
|
$ |
(22,206) |
|
$ |
(8,022) |
|
$ |
539,772 |
|
$ |
620,000 |
|
$ |
(25,251) |
|
$ |
(8,579) |
|
$ |
586,170 |
|
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(Amounts in thousands) |
|||
Stream interests |
|
$ |
78,762 |
|
$ |
85,504 |
Royalty interests |
|
|
33,714 |
|
|
32,443 |
Total revenue |
|
$ |
112,476 |
|
$ |
117,947 |
|
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(Amounts in thousands) |
|||
Stock options |
|
$ |
91 |
|
$ |
108 |
Stock appreciation rights |
|
|
488 |
|
|
468 |
Restricted stock |
|
|
1,426 |
|
|
1,374 |
Performance stock |
|
|
368 |
|
|
2,194 |
Total stock-based compensation expense |
|
$ |
2,373 |
|
$ |
4,144 |
|
|
|
Three Months Ended |
|||
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2017 |
|
|
2016 |
|
|
|
(Number of shares) |
|||
Stock options |
|
|
6,858 |
|
|
7,200 |
Stock appreciation rights |
|
|
71,262 |
|
|
63,340 |
Restricted stock |
|
|
50,380 |
|
|
44,890 |
Performance stock |
|
|
34,010 |
|
|
29,830 |
Total equity awards granted |
|
|
162,510 |
|
|
145,260 |
As of September 30, 2017, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:
|
|
Unrecognized |
|
Weighted- |
||
|
|
compensation |
|
average vesting |
||
|
|
expense |
|
period (years) |
||
Stock options |
|
$ |
473 |
|
|
2.0 |
Stock appreciation rights |
|
|
3,627 |
|
|
2.3 |
Restricted stock |
|
|
7,684 |
|
|
3.4 |
Performance stock |
|
|
2,790 |
|
|
2.1 |
|
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
|
(in thousands, except per share data) |
|||
Net income available to Royal Gold common stockholders |
|
$ |
28,631 |
|
$ |
29,787 |
Weighted-average shares for basic EPS |
|
|
65,235,496 |
|
|
65,116,686 |
Effect of other dilutive securities |
|
|
169,184 |
|
|
164,218 |
Weighted-average shares for diluted EPS |
|
|
65,404,680 |
|
|
65,280,904 |
Basic earnings per share |
|
$ |
0.44 |
|
$ |
0.46 |
Diluted earnings per share |
|
$ |
0.44 |
|
$ |
0.46 |
|
|
|
Three Months Ended |
||||
|
|
September 30, |
|
September 30, |
||
|
|
2017 |
|
2016 |
||
|
|
(Amounts in thousands, except rate) |
||||
Income tax expense |
|
$ |
7,544 |
|
$ |
7,188 |
Effective tax rate |
|
|
22.1% |
|
|
21.1% |
|
|
|
As of September 30, 2017 |
|
As of June 30, 2017 |
||||||||||||||
|
|
Stream interest |
|
Royalty interest |
|
Total stream |
|
Stream interest |
|
Royalty |
|
Total stream |
||||||
Canada |
|
$ |
842,935 |
|
$ |
220,160 |
|
$ |
1,063,095 |
|
$ |
852,035 |
|
$ |
221,618 |
|
$ |
1,073,653 |
Dominican Republic |
|
|
530,603 |
|
|
— |
|
|
530,603 |
|
|
543,256 |
|
|
— |
|
|
543,256 |
Chile |
|
|
344,460 |
|
|
453,369 |
|
|
797,829 |
|
|
348,778 |
|
|
453,369 |
|
|
802,147 |
Africa |
|
|
117,780 |
|
|
553 |
|
|
118,333 |
|
|
123,760 |
|
|
572 |
|
|
124,332 |
Mexico |
|
|
— |
|
|
103,039 |
|
|
103,039 |
|
|
— |
|
|
105,889 |
|
|
105,889 |
United States |
|
|
— |
|
|
167,430 |
|
|
167,430 |
|
|
— |
|
|
168,378 |
|
|
168,378 |
Australia |
|
|
— |
|
|
36,563 |
|
|
36,563 |
|
|
— |
|
|
37,409 |
|
|
37,409 |
Other |
|
|
12,031 |
|
|
23,675 |
|
|
35,706 |
|
|
12,030 |
|
|
25,162 |
|
|
37,192 |
Total |
|
$ |
1,847,809 |
|
$ |
1,004,789 |
|
$ |
2,852,598 |
|
$ |
1,879,859 |
|
$ |
1,012,397 |
|
$ |
2,892,256 |
|
|
Three Months Ended September 30, 2017 |
|
Three Months Ended September 30, 2016 |
||||||||||||||
|
|
Revenue |
|
Cost of sales |
|
Net revenue |
|
Revenue |
|
Cost of sales |
|
Net revenue |
||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
31,952 |
|
$ |
9,223 |
|
$ |
22,729 |
|
$ |
38,386 |
|
$ |
12,578 |
|
$ |
25,808 |
Dominican Republic |
|
|
25,403 |
|
|
7,588 |
|
|
17,815 |
|
|
20,950 |
|
|
5,896 |
|
|
15,054 |
Chile |
|
|
12,337 |
|
|
1,812 |
|
|
10,525 |
|
|
20,169 |
|
|
2,998 |
|
|
17,171 |
Africa |
|
|
9,070 |
|
|
1,796 |
|
|
7,274 |
|
|
5,999 |
|
|
1,190 |
|
|
4,809 |
Total streams |
|
$ |
78,762 |
|
$ |
20,419 |
|
$ |
58,343 |
|
$ |
85,504 |
|
$ |
22,662 |
|
$ |
62,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
|
$ |
10,897 |
|
$ |
— |
|
$ |
10,897 |
|
$ |
9,596 |
|
$ |
— |
|
$ |
9,596 |
United States |
|
|
10,429 |
|
|
— |
|
|
10,429 |
|
|
9,706 |
|
|
— |
|
|
9,706 |
Canada |
|
|
6,092 |
|
|
— |
|
|
6,092 |
|
|
6,188 |
|
|
— |
|
|
6,188 |
Australia |
|
|
3,320 |
|
|
— |
|
|
3,320 |
|
|
3,462 |
|
|
— |
|
|
3,462 |
Africa |
|
|
462 |
|
|
— |
|
|
462 |
|
|
824 |
|
|
— |
|
|
824 |
Chile |
|
|
— |
|
|
— |
|
|
— |
|
|
489 |
|
|
— |
|
|
489 |
Other |
|
|
2,514 |
|
|
— |
|
|
2,514 |
|
|
2,178 |
|
|
— |
|
|
2,178 |
Total royalties |
|
$ |
33,714 |
|
$ |
— |
|
$ |
33,714 |
|
$ |
32,443 |
|
$ |
— |
|
$ |
32,443 |
Total streams and royalties |
|
$ |
112,476 |
|
$ |
20,419 |
|
$ |
92,057 |
|
$ |
117,947 |
|
$ |
22,662 |
|
$ |
95,285 |
|
|
|
As of September 30, 2017 |
|||||||||||||
|
|
Carrying |
|
Fair Value |
|||||||||||
|
|
Amount |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities(1) |
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
— |
|
$ |
— |
Total assets |
|
|
|
|
$ |
4,998 |
|
$ |
4,998 |
|
$ |
— |
|
$ |
— |
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt(2) |
|
$ |
424,794 |
|
$ |
409,538 |
|
$ |
409,538 |
|
$ |
— |
|
$ |
— |
Total liabilities |
|
|
|
|
$ |
409,538 |
|
$ |
409,538 |
|
$ |
— |
|
$ |
— |
(1) |
Available-for-sale securities of $3.9 million included within Other assets and trading securities of $1.1 million included within Prepaid expenses and other on the Company’s consolidated balance sheets. |
(2) |
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 on the Company’s consolidated balance sheets. |
|
|
|
|
|
|
|
|
|
|