ROYAL GOLD INC, 10-Q filed on 2/7/2019
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Dec. 31, 2018
Jan. 31, 2019
Document and Entity Information    
Entity Registrant Name ROYAL GOLD INC  
Entity Central Index Key 0000085535  
Document Type 10-Q  
Document Period End Date Dec. 31, 2018  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shares Outstanding   65,516,940
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Jun. 30, 2018
ASSETS    
Cash and equivalents $ 156,536 $ 88,750
Royalty receivables 25,659 26,356
Income tax receivable 12,793 40
Stream inventory 7,954 9,311
Prepaid expenses and other 793 1,350
Total current assets 203,735 125,807
Stream and royalty interests, net (Note 2) 2,419,908 2,501,117
Other assets 51,463 55,092
Total assets 2,675,106 2,682,016
LIABILITIES    
Accounts payable 2,291 9,090
Dividends payable 17,359 16,375
Income tax payable 10,739 18,253
Withholding taxes payable 2,348 3,254
Other current liabilities 4,439 4,411
Total current liabilities 37,176 51,383
Debt (Note 3) 358,897 351,027
Deferred tax liabilities 90,700 91,147
Uncertain tax positions 35,590 33,394
Other long-term liabilities 5,773 13,796
Total liabilities 528,136 540,747
Commitments and contingencies (Note 10)
EQUITY    
Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,396,339 and 65,360,041 shares outstanding, respectively 654 654
Additional paid-in capital 2,197,254 2,192,612
Accumulated other comprehensive loss   (1,201)
Accumulated losses (86,238) (89,898)
Total Royal Gold stockholders’ equity 2,111,670 2,102,167
Non-controlling interests 35,300 39,102
Total equity 2,146,970 2,141,269
Total liabilities and equity $ 2,675,106 $ 2,682,016
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Jun. 30, 2018
Consolidated Balance Sheets    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares outstanding 65,396,339 65,360,041
v3.10.0.1
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Consolidated Statements of Operations and Comprehensive Income        
Revenue $ 97,592 $ 114,348 $ 197,585 $ 226,824
Costs and expenses        
Cost of sales 18,162 19,863 34,689 40,282
General and administrative 7,423 9,555 17,349 16,455
Production taxes 909 602 2,201 1,145
Exploration costs 842 1,358 5,204 4,561
Depreciation, depletion and amortization 38,807 42,008 81,358 81,701
Total costs and expenses 66,143 73,386 140,801 144,144
Operating income 31,449 40,962 56,784 82,680
Fair value changes in equity securities (3,631)   (5,099)  
Interest and other income 487 645 590 1,634
Interest and other expense (7,410) (9,034) (15,287) (17,651)
Income before income taxes 20,895 32,573 36,988 66,663
Income tax benefit (expense) 2,148 (48,360) (1,967) (55,904)
Net income (loss) 23,043 (15,787) 35,021 10,759
Net loss attributable to non-controlling interests 543 1,022 3,575 3,105
Net income (loss) attributable to Royal Gold common stockholders 23,586 (14,765) 38,596 13,864
Net income (loss) 23,043 (15,787) 35,021 10,759
Adjustments to comprehensive income (loss), net of tax        
Unrealized change in market value of available-for-sale securities   (390)   (193)
Comprehensive income (loss) 23,043 (16,177) 35,021 10,566
Comprehensive loss attributable to non-controlling interests 543 1,022 3,575 3,105
Comprehensive income (loss) attributable to Royal Gold stockholders $ 23,586 $ (15,155) $ 38,596 $ 13,671
Net income (loss) per share available to Royal Gold common stockholders:        
Basic earnings (loss) per share (in dollars per share) $ 0.36 $ (0.23) $ 0.59 $ 0.21
Basic weighted average shares outstanding (in shares) 65,395,457 65,306,766 65,385,161 65,271,131
Diluted earnings (loss) per share (in dollars per share) $ 0.36 $ (0.23) $ 0.59 $ 0.21
Diluted weighted average shares outstanding (in shares) 65,473,400 65,306,766 65,485,423 65,460,430
Cash dividends declared per common share (in dollars per share) $ 0.265 $ 0.25 $ 0.515 $ 0.49
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:    
Net income $ 35,021 $ 10,759
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation, depletion and amortization 81,358 81,701
Amortization of debt discount and issuance costs 7,864 7,413
Non-cash employee stock compensation expense 4,070 4,395
Fair value changes in equity securities 5,099  
Deferred tax (benefit) expense (307) 28,958
Other   (158)
Changes in assets and liabilities:    
Royalty receivables 697 (2,399)
Stream inventory 1,356 524
Income tax receivable (12,753) (5,197)
Prepaid expenses and other assets 2,305 (328)
Accounts payable (7,026) (1,658)
Income tax payable (7,514) 9,445
Withholding taxes payable (906) 26
Uncertain tax positions 2,197 4,560
Other liabilities (7,993) 9,193
Net cash provided by operating activities 103,468 147,234
Cash flows from investing activities:    
Acquisition of stream and royalty interests (55)  
Purchase of equity securities (3,569)  
Other (87) (94)
Net cash used in investing activities (3,711) (94)
Cash flows from financing activities:    
Repayment of revolving credit facility   (100,000)
Net payments from issuance of common stock (2,217) (3,541)
Common stock dividends (32,754) (31,391)
Contributions from non-controlling interest 2,790  
Other 210 77
Net cash used in financing activities (31,971) (134,855)
Net increase in cash and equivalents 67,786 12,285
Cash and equivalents at beginning of period 88,750 85,847
Cash and equivalents at end of period $ 156,536 $ 98,132
v3.10.0.1
OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
6 Months Ended
Dec. 31, 2018
OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS  
OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS

1.    OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED AND RECENTLY ISSUED 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 metal streams, royalties and similar interests.  We seek to acquire existing stream and royalty interests or to finance mining 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.  A royalty is a non-operating interest in a mining project that provides the right to revenue or metals produced from the project after deducting contractually 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 and six months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019.  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, 2018 filed with the Securities and Exchange Commission on August 9, 2018 (“Fiscal 2018 10-K”).

 

Recently Adopted Accounting Standards

 

Revenue Recognition

 

On July 1, 2018, we adopted Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method of transition.  Under this transition approach, we applied ASC 606 to all existing contracts for which all (or substantially all) of the revenue attributable to a contract had not been recognized under legacy revenue guidance.  The guidance of ASC 606 will also be applied to any new contracts entered into on or after July 1, 2018.

 

ASC 606 supersedes nearly all of the existing revenue recognition guidance under U.S. GAAP and sets out a five-step revenue recognition framework to recognize revenue upon the transfer of control of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

 

For the three and six months ended December  31, 2018, there was no impact to our reported revenue, operating costs and expenses or net income attributable to Royal Gold common stockholders as a result of adopting ASC 606, as compared to legacy revenue guidance under U.S. GAAP.  In addition, no cumulative catch-up adjustment to accumulated losses was required on July 1, 2018 as a result of adopting ASC 606.  Please refer to Note 4 for additional discussion.

 

Recognition and Measurement of Financial Instruments

 

On July 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 – Financial Instrument, which is guidance on the recognition and measurement of financial instruments.  The amended guidance requires, among other things, that equity securities previously classified as available-for-sale be measured at fair value with changes in fair value recognized in net income rather than other comprehensive income (loss) as required under previous guidance.  Upon adoption, the Company recorded a cumulative-effect adjustment in Accumulated losses of $1.2 million.  The decrease in fair value of our equity securities was approximately $3.6 million and $5.1 million for the three and six months ended December  31, 2018, respectively, and is included in Fair value change of marketable equity securities on our consolidated statements of operations and comprehensive income (loss).  The carrying value of the Company’s equity securities as of December 31, 2018 and June 30, 2018 was $17.7 million and $19.2 million, respectively, and is included in Other assets on the Company’s consolidated balance sheets. As of December 31, 2018, the Company owns 809,744 common shares of Contango Ore, Inc. (“CORE”) and 3,597,823 common shares of Rubicon Minerals Corporation.

 

Recently Issued Accounting Standards

 

Leases

 

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842) which requires recognition of right-of-use assets and lease payment liabilities on the balance sheet by lessees for virtually all leases currently classified as operating leasesUnder ASU 2016-02, companies are permitted to make a policy election to not recognize lease assets or liabilities when the term of the lease is less than twelve months.  The new guidance is effective for the Company’s fiscal year beginning July 1, 2019, and early adoption is permitted.  We are currently evaluating the transition effort and impact, if any, this guidance will have on our consolidated financial statements and footnote disclosures.

v3.10.0.1
STREAM AND ROYALTY INTERESTS, NET
6 Months Ended
Dec. 31, 2018
STREAM AND ROYALTY INTERESTS, NET  
STREAM AND ROYALTY INTERESTS, NET

2.    STREAM AND ROYALTY INTERESTS, NET

 

The following tables summarize the Company’s stream and royalty interests, net as of December 31, 2018 and June 30, 2018.

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018 (Amounts in thousands):

    

Cost

    

Accumulated Depletion

    

Net

Production stage stream interests:

 

 

 

 

 

 

 

 

 

Mount Milligan

 

$

790,635

 

$

(164,639)

 

$

625,996

Pueblo Viejo

 

 

610,404

 

 

(135,152)

 

 

475,252

Andacollo

 

 

388,182

 

 

(73,736)

 

 

314,446

Rainy River

 

 

175,727

 

 

(8,940)

 

 

166,787

Wassa and Prestea

 

 

146,475

 

 

(51,523)

 

 

94,952

Total production stage stream interests

 

 

2,111,423

 

 

(433,990)

 

 

1,677,433

Production stage royalty interests:

 

 

 

 

 

 

 

 

 

Voisey's Bay

 

 

205,724

 

 

(92,244)

 

 

113,480

Peñasquito

 

 

99,172

 

 

(39,827)

 

 

59,345

Holt

 

 

34,612

 

 

(21,946)

 

 

12,666

Cortez

 

 

20,878

 

 

(11,428)

 

 

9,450

Other

 

 

487,224

 

 

(377,655)

 

 

109,569

Total production stage royalty interests

 

 

847,610

 

 

(543,100)

 

 

304,510

Total production stage stream and royalty interests

 

 

2,959,033

 

 

(977,090)

 

 

1,981,943

 

 

 

 

 

 

 

 

 

 

Development stage stream interests:

 

 

 

 

 

 

 

 

 

Other

 

 

12,038

 

 

 —

 

 

12,038

 

 

 

 

 

 

 

 

 

 

Development stage royalty interests:

 

 

 

 

 

 

 

 

 

Cortez

 

 

59,803

 

 

 —

 

 

59,803

Other

 

 

70,952

 

 

 —

 

 

70,952

Total development stage royalty interests

 

 

130,755

 

 

 —

 

 

130,755

Total development stage stream and royalty interests

 

 

142,793

 

 

 —

 

 

142,793

 

 

 

 

 

 

 

 

 

 

Exploration stage royalty interests:

 

 

 

 

 

 

 

 

 

Pascua-Lama

 

 

177,690

 

 

 —

 

 

177,690

Other

 

 

117,482

 

 

 —

 

 

117,482

Total exploration stage royalty interests

 

 

295,172

 

 

 —

 

 

295,172

Total stream and royalty interests, net

 

$

3,396,998

 

$

(977,090)

 

$

2,419,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018 (Amounts in thousands):

    

Cost

    

Accumulated Depletion

    

Impairments

 

Net

Production stage stream interests:

 

 

 

 

 

 

 

 

 

 

 

 

Mount Milligan

 

$

790,635

 

$

(152,833)

 

$

 —

 

$

637,802

Pueblo Viejo

 

 

610,404

 

 

(114,944)

 

 

 —

 

 

495,460

Andacollo

 

 

388,182

 

 

(59,851)

 

 

 —

 

 

328,331

Wassa and Prestea

 

 

146,475

 

 

(41,601)

 

 

 —

 

 

104,874

Rainy River

 

 

175,727

 

 

(4,028)

 

 

 —

 

 

171,699

Total production stage stream interests

 

 

2,111,423

 

 

(373,257)

 

 

 —

 

 

1,738,166

Total production stage stream and royalty interests

 

 

 

 

 

 

 

 

 

 

 

 

Production stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Voisey's Bay

 

 

205,724

 

 

(86,933)

 

 

 —

 

 

118,791

Peñasquito

 

 

99,172

 

 

(38,426)

 

 

 —

 

 

60,746

Holt

 

 

34,612

 

 

(21,173)

 

 

 —

 

 

13,439

Cortez

 

 

20,878

 

 

(11,241)

 

 

 —

 

 

9,637

Other

 

 

483,795

 

 

(364,795)

 

 

 —

 

 

119,000

Total production stage royalty interests

 

 

844,181

 

 

(522,568)

 

 

 —

 

 

321,613

Total production stage stream and royalty interests

 

 

2,955,604

 

 

(895,825)

 

 

 —

 

 

2,059,779

Development stage stream interests:

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

12,038

 

 

 —

 

 

 —

 

 

12,038

 

 

 

 

 

 

 

 

 

 

 

 

 

Development stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Cortez

 

 

59,803

 

 

 —

 

 

 —

 

 

59,803

Other

 

 

74,610

 

 

 —

 

 

(284)

 

 

74,326

Total development stage royalty interests

 

 

134,413

 

 

 —

 

 

(284)

 

 

134,129

Total development stage stream and royalty interests

 

 

146,451

 

 

 —

 

 

(284)

 

 

146,167

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration stage royalty interests:

 

 

 

 

 

 

 

 

 

 

 

 

Pascua-Lama

 

 

416,770

 

 

 —

 

 

(239,080)

 

 

177,690

Other

 

 

117,481

 

 

 —

 

 

 —

 

 

117,481

Total exploration stage royalty interests

 

 

534,251

 

 

 —

 

 

(239,080)

 

 

295,171

Total stream and royalty interests, net

 

$

3,636,306

 

$

(895,825)

 

$

(239,364)

 

$

2,501,117

 

Voisey’s Bay

 

The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Minerals Corporation (“Altius”), a non-controlling interest.

 

On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle their long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine.  Refer to Note 14 of our Fiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.

 

The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant, which will be effective for all Voisey’s Bay mine production after April 1, 2018.  Under the terms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the concentrates at the nickel, copper and cobalt prices prevailing at the time of settlement.  As those metal prices rise or fall, the percentage of gross metal value in the concentrates applicable to the royalty would correspondingly increase or decrease.

During the three and six months ended December 31, 2018, the Company recognized approximately $2.5 million and $7.5 million (each period includes 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty.  Royalty revenue recognized on the Voisey’s Bay royalty for the quarter ended September 30, 2018 was attributable to metal production from the June 30 and September 30, 2018 quarters.  Royalty payments for each quarter are due 45 days after quarter-end.  Refer to Note 4 for further discussion on our revenue recognition.

v3.10.0.1
DEBT
6 Months Ended
Dec. 31, 2018
DEBT  
DEBT

3.    DEBT

 

The Company’s non-current debt as of December 31, 2018 and June 30, 2018 consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

As of June 30, 2018

 

   

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

 

$

(6,205)

 

$

(635)

 

$

363,160

 

$

370,000

 

$

(12,764)

 

$

(1,316)

 

$

355,920

Revolving credit facility

 

 

 —

 

 

 —

 

 

(4,263)

 

 

(4,263)

 

 

 —

 

 

 —

 

 

(4,893)

 

 

(4,893)

Total debt

 

$

370,000

 

$

(6,205)

 

$

(4,898)

 

$

358,897

 

$

370,000

 

$

(12,764)

 

$

(6,209)

 

$

351,027

 

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.  Generally, we classify debt that is maturing within one year as a current liability.  However, the Company has the intent and ability to settle the principal amount of the 2019 Notes in cash primarily from its available revolving credit facility, a non-current liability, as of December 31 and June 30, 2018.

 

Interest expense recognized on the 2019 Notes for the three and six months ended December 31, 2018 was $6.3 million and $12.6 million, respectively, compared to $6.1 million and $12.1 million, respectively, for the three and six months ended December 31, 2017, 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 December 31, 2018, the Company had no amounts outstanding and $1 billion available under the revolving credit facility.  Interest expense recognized on the revolving credit facility for the three and six months ended December 31, 2018 was $0.3 million and $0.6 million (amortization of debt issuance costs only), respectively, and $1.8 million and $3.6 million, respectively, for the three and six months ended December 31, 2017, which included interest on the outstanding borrowings and the amortization of the debt issuance costs.  Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.

 

As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 2018 10-K, the Company has financial covenants associated with its revolving credit facility.  As of December 31, 2018, the Company was in compliance with each financial covenant.

v3.10.0.1
REVENUE
6 Months Ended
Dec. 31, 2018
REVENUE  
REVENUE

4.    REVENUE

 

Revenue Recognition

 

Under current ASC 606 guidance, a performance obligation is a promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, a performance obligation is satisfied. In accordance with this guidance, revenue attributable to our stream interests and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers.  The amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement.  A more detailed summary of our revenue recognition policies for our stream and royalty interests is discussed below.

 

Stream Interests

 

A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more of the metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Gold, silver and copper received under our metal streaming agreements are taken into inventory, and then sold primarily using average spot rate gold, silver and copper forward contracts.  The sales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between ten days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time) commencing shortly after receipt and purchase of the metal. We settle our forward sales contracts via physical delivery of the metal to the purchaser (our customer) on the settlement date specified in the contract. Under our forward sales contracts, there is a single performance obligation to sell a contractually specified volume of metal to the purchaser, and we satisfy this obligation at the point in time of physical delivery. Accordingly, revenue from our metal sales is recognized on the date of settlement, which is the date that control, custody and title to the metal transfer to the purchaser.

 

Royalty Interests

 

Royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. We are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price (for example, a monthly or quarterly average spot price) for the period in which metal production occurred.  As a royalty holder, we act as a passive entity in the production and operations of the mining project, and the third-party operator of the mining project is responsible for all mining activities, including subsequent marketing and delivery of all metal production to their ultimate customer. In all of our material royalty interest arrangements, we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs, and thus, the operator is our customer.  We have further determined that the transfer of each unit of metal production, comprising our royalty interest, to the operator represents a separate performance obligation under the contract, and each performance obligation is satisfied at the point in time of metal production by the operator.  Accordingly, we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement, net of any contractually allowable offsite treatment, refining, transportation and, if applicable, mining costs.

 

Royalty Revenue Estimates

 

For a small number of our royalty interests, we may not receive, or be entitled to receive, payment information, including production information from the operator, for the period in which metal production occurred prior to issuance of our financial statements.  As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator.  If adequate information is not available from the operator or from other public sources before we issue our financial statements, the Company will recognize royalty revenue during the period in which the necessary payment information is received.  Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known.  Please also refer to our “Use of Estimates” accounting policy discussed in our Fiscal 2018 10-K.  For the quarter ended December 31, 2018, royalty revenue that was estimated or was attributable to metal production for a period prior to December 31, 2018, was not material. 

 

Disaggregation of Revenue

 

We have identified two material revenue sources in our business: stream interests and royalty interests. These identified revenue sources are consistent with our reportable segments as discussed in Note 8.

 

Revenue by metal type attributable to each of our revenue sources is disaggregated as follows:  

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

December 31, 2018

 

December 31, 2018

Stream revenue:

 

 

 

 

 

    Gold

$

53,179

 

$

112,293

    Silver

 

7,884

 

 

16,604

    Copper

 

6,616

 

 

8,819

         Total stream revenue

$

67,679

 

$

137,716

Royalty revenue:

 

 

 

 

 

    Gold

$

19,656

 

$

38,210

    Silver

 

1,567

 

 

2,919

    Copper

 

4,359

 

 

7,974

    Other

 

4,331

 

 

10,766

         Total royalty revenue

$

29,913

 

$

59,869

Total revenue

$

97,592

 

$

197,585

 

Revenue attributable to our principal stream and royalty interests is disaggregated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

Metal(s)

 

December 31, 2018

 

December 31, 2018

Stream revenue:

 

 

 

 

 

 

 

 

    Mount Milligan

 

Gold & Copper

 

$

28,169

 

$

37,015

    Pueblo Viejo

 

Gold & Silver

 

 

18,230

 

 

37,717

    Wassa and Prestea

 

Gold

 

 

9,550

 

 

17,611

    Andacollo

 

Gold

 

 

7,635

 

 

35,378

    Other

 

Gold & Silver

 

 

4,095

 

 

9,995

         Total stream revenue

 

 

 

$

67,679

 

$

137,716

Royalty revenue:

 

 

 

 

 

 

 

 

    Peñasquito

 

Gold, Silver, Lead & Zinc

 

$

4,660

 

$

8,297

    Cortez

 

Gold

 

 

2,335

 

 

2,939

    Other

 

Various

 

 

22,918

 

 

48,633

         Total royalty revenue

 

 

 

$

29,913

 

$

59,869

Total revenue

 

 

 

$

97,592

 

$

197,585

 

Please refer to Note 8 for the geographical distribution of our revenue by reportable segment.

 

Contract Receivables

 

Under our forward sales contracts related to our metal streaming arrangements, payment is due from the purchaser on the day of settlement. Accordingly, our metal stream sales contracts do not give rise to a receivable under ASC 606.

 

Under our royalty arrangements, payment is typically due by the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirty to sixty days after the respective quarter-end.  Revenue related to production that has occurred as of the reporting date but for which payment has not been received represents a receivable (rather than a contract asset) under ASC 606 as payment by the operator is unconditional upon the production of metal.  As of December 31, 2018, and June 30, 2018, our royalty receivables were $25.7 million and $26.4 million, respectively.

 

Practical Expedients Utilized

 

Our forward sales contracts related to our metal streaming arrangements are short-term in nature with a term of one year or less. For these contracts, we have utilized the practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) for contracts with an original expected term of one year or less.

 

Our royalty arrangements generally cover metal production over the life of a mine and, thus, have a contract term that is greater than one year.  Under these contracts, variability related to future production volumes and market pricing is allocated entirely to those future production volumes from the mining operation. Consequently, we have utilized an alternative practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) if the variable consideration in a contract is allocated entirely to a wholly unsatisfied performance obligation.

v3.10.0.1
STOCK-BASED COMPENSATION
6 Months Ended
Dec. 31, 2018
STOCK-BASED COMPENSATION  
STOCK-BASED COMPENSATION

5.    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, 

 

 

    

2018

    

2017

    

2018

    

2017

    

 

 

 

(Amounts in thousands)

 

 

(Amounts in thousands)

 

Stock options

 

$

33

 

$

79

 

$

154

 

$

170

 

Stock appreciation rights

 

 

408

 

 

486

 

 

1,175

 

 

974

 

Restricted stock

 

 

677

 

 

888

 

 

1,956

 

 

2,314

 

Performance stock

 

 

507

 

 

568

 

 

785

 

 

937

 

Total stock-based compensation expense

 

$

1,625

 

$

2,021

 

$

4,070

 

$

4,395

 

 

Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.

 

During the three and six months ended December 31, 2018, the Company granted the following stock-based compensation awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 

 

 

December 31, 

 

 

December 31, 

 

 

December 31, 

 

    

 

2018

    

 

2017

    

 

2018

    

 

2017

 

 

 

(Number of shares)

 

 

(Number of shares)

Stock options

 

 

 —

 

 

 —

 

 

6,430

 

 

6,858

Stock appreciation rights

 

 

 —

 

 

 —

 

 

69,360

 

 

71,262

Restricted stock

 

 

 —

 

 

 —

 

 

42,260

 

 

50,380

Performance stock (at maximum 200% attainment)

 

 

 —

 

 

 —

 

 

57,420

 

 

68,020

Total equity awards granted

 

 

 —

 

 

 —

 

 

175,470

 

 

196,520

 

As of December 31, 2018, 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

 

 

 

 

 

 

 

$

197

 

 

2.0

Stock appreciation rights

 

 

 

 

 

 

 

 

2,581

 

 

2.0

Restricted stock

 

 

 

 

 

 

 

 

5,744

 

 

3.2

Performance stock

 

 

 

 

 

 

 

 

1,307

 

 

1.7

 

v3.10.0.1
EARNINGS PER SHARE ("EPS")
6 Months Ended
Dec. 31, 2018
EARNINGS PER SHARE ("EPS")  
EARNINGS PER SHARE ("EPS")

6.    EARNINGS PER SHARE (“EPS”)

 

Basic earnings (loss) 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 (loss) 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 (loss) 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, 

 

 

    

2018

    

2017

    

2018

    

2017

    

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

Net income (loss) available to Royal Gold common stockholders

 

$

23,586

 

$

(14,765)

 

$

38,596

 

$

13,864

 

Weighted-average shares for basic EPS

 

 

65,395,457

 

 

65,306,766

 

 

65,385,161

 

 

65,271,131

 

Effect of other dilutive securities

 

 

77,943

 

 

 

 

100,262

 

 

189,299

 

Weighted-average shares for diluted EPS

 

 

65,473,400

 

 

65,306,766

 

 

65,485,423

 

 

65,460,430

 

Basic earnings (loss) per share

 

$

0.36

 

$

(0.23)

 

$

0.59

 

$

0.21

 

Diluted earnings (loss) per share

 

$

0.36

 

$

(0.23)

 

$

0.59

 

$

0.21

 

 

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 from amounts available under our revolving credit facility.  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 $102.29.

v3.10.0.1
INCOME TAXES
6 Months Ended
Dec. 31, 2018
INCOME TAXES  
INCOME TAXES

7.    INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(Amounts in thousands, except rate)

 

(Amounts in thousands, except rate)

Income tax benefit (expense)

 

$

2,148

 

$

(48,360)

 

$

 (1,967)

 

$

(55,904)

Effective tax rate

 

 

(10.3%)

 

 

148.5%

 

 

5.3%

 

 

83.9%

 

The decrease in the effective tax rate for the three and six months ended December 31, 2018 was primarily related to the Company’s refined analysis of the transition tax as part of H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”), and our ability to utilize additional foreign tax credits.  As of December 31, 2018, the Company completed its analysis of the Act within the measurement period provided by Staff Accounting Bulletin No. 118 and the amounts are no longer considered provisional.  Despite the completion of our analysis, many aspects of the law remain unclear and future guidance could impact the Company.  A material impact due to evolving guidance is not anticipated, however, the Company will continue to monitor any new developments.

v3.10.0.1
SEGMENT INFORMATION
6 Months Ended
Dec. 31, 2018
SEGMENT INFORMATION  
SEGMENT INFORMATION

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 December 31, 2018

 

As of June 30, 2018

 

 

 

 

 

 

 

 

Total stream

 

 

 

 

 

 

 

 

 

 

Total stream

 

 

Stream

 

Royalty

 

and royalty

 

Stream

 

Royalty

 

 

 

 

and royalty

 

  

interest

  

interest

  

interests, net

  

interest

  

interest

  

Impairments

  

interests, net

Canada

 

$

792,783

 

$

206,039

 

$

998,822

 

$

809,500

 

$

214,562

 

$

(284)

 

$

1,023,778

Dominican Republic

 

 

475,252

 

 

 —

 

 

475,252

 

 

495,460

 

 

 —

 

 

 —

 

 

495,460

Chile

 

 

314,446

 

 

214,226

 

 

528,672

 

 

328,331

 

 

453,306

 

 

(239,080)

 

 

542,557

Africa

 

 

94,952

 

 

321

 

 

95,273

 

 

104,874

 

 

502

 

 

 —

 

 

105,376

Mexico

 

 

 —

 

 

87,211

 

 

87,211

 

 

 —

 

 

93,277

 

 

 —

 

 

93,277

United States

 

 

 —

 

 

164,277

 

 

164,277

 

 

 —

 

 

165,543

 

 

 —

 

 

165,543

Australia

 

 

 —

 

 

33,061

 

 

33,061

 

 

 —

 

 

34,254

 

 

 —

 

 

34,254

Other

 

 

12,039