10-K 1 rgld-20190630x10k.htm 10-K rgld_Current_Folio_10K
Royal Gold, Inc.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

 

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended June 30, 2019

 

or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From                          to                        

 

Commission File Number 001‑13357

Royal Gold, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

84‑0835164
(I.R.S. Employer
Identification No.)

1660 Wynkoop Street, Suite 1000

 

Denver, Colorado
(Address of Principal Executive Offices)

80202
(Zip Code)

 

(303) 573-1660

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol

    

Name of the Exchange on which Registered

Common Stock, $0.01 par value

 

RGLD

 

Nasdaq Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐    No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer ☒

Accelerated filer 

Non-accelerated filer    (Do not check if a smaller reporting company)

Smaller reporting company 

Emerging growth company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

Aggregate market value of the voting common stock held by non‑affiliates of the registrant, based upon the closing sale price of Royal Gold common stock on December 31, 2018, as reported on the NASDAQ Global Select Market was $5,576,392,624. There were 65,559,787 shares of the Company’s common stock, par value $0.01 per share, outstanding as of July 31, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2019 Annual Meeting of Stockholders scheduled to be held on November 20, 2019, and to be filed within 120 days after June 30, 2019, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10‑K.

 

 

 

 

 

INDEX

 

 

 

 

 

 

    

 

    

PAGE

PART I. 

 

 

 

 

ITEM 1. 

 

Business

 

1

ITEM 1A. 

 

Risk Factors

 

7

ITEM 1B. 

 

Unresolved Staff Comments

 

20

ITEM 2. 

 

Properties

 

20

ITEM 3. 

 

Legal Proceedings

 

31

ITEM 4. 

 

Mine Safety Disclosure

 

31

PART II. 

 

 

 

 

ITEM 5. 

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

31

ITEM 6. 

 

Selected Financial Data

 

32

ITEM 7. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

ITEM 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

48

ITEM 8. 

 

Financial Statements and Supplementary Data

 

49

ITEM 9. 

 

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

80

ITEM 9A. 

 

Controls and Procedures

 

80

ITEM 9B. 

 

Other Information

 

82

PART III. 

 

 

 

 

ITEM 10. 

 

Directors, Executive Officers and Corporate Governance

 

82

ITEM 11. 

 

Executive Compensation

 

82

ITEM 12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

82

ITEM 13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

82

ITEM 14. 

 

Principal Accountant Fees and Services

 

82

PART IV. 

 

 

 

 

ITEM 15. 

 

Exhibits and Financial Statement Schedules

 

83

ITEM 16 

 

Form 10-K Summary

 

83

EXHIBIT INDEX 

 

84

SIGNATURES 

 

90

 

 

 

ii

 

This document (including information incorporated herein by reference) contains “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty due to various factors affecting Royal Gold, Inc. and its subsidiaries. For a discussion of some of these factors, see the discussion in Item 1A, Risk Factors, of this report. In addition, please see our note about forward‑looking statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), of this report.

Royal Gold does not own, develop, or mine the properties on which it holds stream or royalty interests, except for our interest in the Peak Gold, LLC joint venture (“Peak Gold JV”) as described further in this report. Certain information provided in this Annual Report on Form 10‑K, including, without limitation, all reserves, historical production and production estimates, descriptions of properties and developments at properties included herein, has been provided to us by the operators of those properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the Securities and Exchange Commission (the “SEC”). Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for the accuracy, completeness or fairness of, such third‑party information and refers the reader to the public reports filed by the operators for information regarding those properties.

PART I

ITEM 1.   BUSINESS

Overview

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 metal 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.

We manage our business under two segments:

Acquisition and Management of Stream Interests—A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement.  As of June 30, 2019, we owned seven stream interests, which are on six producing properties and two development stage properties.  Our stream interests accounted for approximately 72% and 71% of our total revenue for the fiscal years ended June 30, 2019 and 2018 respectively. We expect stream interests to continue representing a significant proportion of our total revenue.

Acquisition and Management of 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. As of June 30, 2019, we owned royalty interests on 35 producing properties, 14 development stage properties and 129 exploration stage properties, of which we consider 47 to be evaluation stage projects.  We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves.  Royalties accounted for approximately 28% and 29% of our total revenue for the fiscal years ended June 30, 2019 and 2018.

We do not conduct mining operations on the properties in which we hold stream and royalty interests, and except for our interest in the Peak Gold JV, we are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.

In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams on operating mines, to create new stream and royalty interests through the financing of mine development or exploration, or to acquire companies that hold stream and royalty interests.  We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial, legal and

1

other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.

As discussed in further detail throughout this report, some significant developments to our business during fiscal year 2019 were as follows:

(1)

We settled the long-standing litigation related to the calculation of our royalty at the Voisey’s Bay mine;

(2)

We entered into a silver stream on the Khoemacau Copper Project, a development stage project, located in Botswana;

(3)

We settled the $370 million aggregate principal amount of our 2.875% convertible senior notes due 2019 (“2019 Notes”) in cash; and

(4)

We increased our calendar year dividend to $1.06 per basic share, which is paid in quarterly installments throughout calendar year 2019.  This represents a 6.0% increase compared with the dividend paid during calendar year 2018.

Certain Definitions

Dollar or “$”:  Unless we have indicated otherwise, or the context otherwise requires, references in this Annual Report on Form 10‑K to “$” or “dollar” are to the currency of the United States.  We refer to Canadian dollars as C$.

Gold equivalent ounces (GEOs):  GEOs are calculated as Royal Gold’s revenue divided by the average gold price for the period.

Gross smelter return (GSR) royalty:  A defined percentage of the gross revenue from a resource extraction operation, less, if applicable, certain contract‑defined costs paid by or charged to the operator.

Metal stream:  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.

Mineralized material:  That part of a mineral system that has potential economic significance, but is not included in the proven and probable reserve estimates until further drilling and metallurgical work is completed, and until other economic and technical feasibility factors based on such work have been resolved.

Net smelter return (NSR) royalty:  A defined percentage of the gross revenue from a resource extraction operation less a proportionate share of incidental transportation, insurance, refining and smelting costs.

Net value royalty (NVR):  A defined percentage of the gross revenue from a resource extraction operation less certain contract‑defined costs.

Probable reserves:    Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

Proven reserves:    Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.

Payable metal:  Ounces or pounds of metal in concentrate after deduction of a percentage of metal in concentrate by a third‑party smelter pursuant to smelting contracts.

2

Reserve:  That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

Royalty:  The right to receive a percentage or other denomination of mineral production from a mining operation.

Ton:  A unit of weight equal to 2,000 pounds or 907.2 kilograms.

Tonne:  A unit of weight equal to 2,204.6 pounds or 1,000 kilograms.

Fiscal 2019 Business Developments

Please refer to Item 7, MD&A, for discussion on recent liquidity and capital resource developments.

Acquisition of Silver Stream on Khoemacau Copper Project

 

On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a majority-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”) for the purchase of silver produced from the Khoemacau copper-silver project (“Khoemacau” or the “Project”) located in Botswana and owned by KCM. Cupric Canyon Capital LP is a private company owned by management and funds advised by Global Natural Resource Investments (“GNRI”). 

 

Under the purchase and sale agreement, subject to the satisfaction of certain conditions, RGLD Gold will make advance payments totaling $212 million toward the purchase of 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Base Silver Stream”). At Cupric’s option and subject to various conditions, RGLD Gold will make up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced from Khoemacau (the “Option Silver Stream”).  The stream rate will drop to 40% of silver produced from Khoemacau following delivery to RGLD Gold of 32 million silver ounces under the Base Silver Stream, or to 50% of the silver produced from Khoemacau following delivery of 40 million silver ounces to RGLD Gold should Cupric exercise the entire Option Silver Stream.  RGLD Gold will pay a cash price equal to 20% of the spot silver price for each ounce delivered under the Base Silver Stream and Option Silver Stream; however, if Cupric achieves mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), RGLD Gold will pay a higher ongoing cash price under the Base Silver Stream and Option Silver Stream for silver ounces delivered in excess of specific annual thresholds.

 

RGLD Gold’s first advance payment under the Base Silver Stream is expected to occur after $100 million of net new debt and equity funding is spent on Khoemacau.  The $212 million in advance payments to be made under the Base Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule:  Aggregate $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020, and the balance in calendar 2021.  RGLD Gold will fund advance payments through cash on hand or cash advances from Royal Gold.  Royal Gold will fund any advances made to RGLD Gold largely out of cash flow from operations and amounts available under our revolving credit facility, as required.

 

Separate from the Base Silver Stream and Option Silver Stream, and subject to various conditions, RGLD Gold will make up to $25 million available to Cupric toward the end of development of Khoemacau under a subordinated debt facility.  Any amounts drawn by Cupric under the debt facility will carry interest at LIBOR + 11% and have a term of seven years.  RGLD Gold will have the right to force repayment of the debt facility upon certain events.

 

Background on Khoemacau

 

Khoemacau is a copper-silver project located in the Kalahari copper belt, in a sparsely populated region of northwestern Botswana in the Kalahari Desert.  Khoemacau is made up of over 4,040 square kilometers of mineral concessions from Cupric’s acquisition of Hana Mining Ltd. in 2013, as well as additional mineral concessions and a plant and associated infrastructure (the “Boseto Mill”) acquired by Cupric out of the receivership of Discovery Metals Inc. in 2015.  Cupric

3

consolidated the land position and infrastructure and has focused on exploration and development of the Zone 5 orebody within the land package. 

 

Cupric plans to develop Zone 5 as three separate underground mines, each planned to produce approximately 1.2 million tonnes of ore per year over the first five years.  Each of the mines is expected to have its own independent ramp access and operate over a strike length of approximately 1,000 meters, extracting ore using conventional sub-level open stoping.  Cupric’s plan provides for the ore to be trucked approximately 35 kilometers to the Boseto Mill, which is to be refurbished and enhanced to process approximately 10,000 tonnes of ore per day.  Processing will be conventional sulfide flotation via three stage crushing, ball milling and flotation, which Cupric expects will produce a high-quality copper concentrate grading approximately 40% copper for shipment to international smelters.  Cupric expects that power will be sourced from an expansion to the existing power grid currently under construction by Botswana Power Corporation, and that existing diesel generation capacity remaining from previous operations will be used as backup power.  Water is expected to be supplied from three borefields along with mine dewatering.

 

On July 18, 2019, Cupric announced financial closing for a total financing package of $650 million for Khoemacau, including a further $15 million equity investment from funds advised by GNRI, a new $70 million equity investment from Resource Capital Fund Investment VII LP, a new $275 million secured debt facility from Red Kite Mine Finance, and the RGLD Gold purchase and sale agreement and debt facility.

 

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.

 

On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine. 

 

The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant (“LHPP”), which became 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 fiscal year ended June 30, 2019, the Company recognized approximately $11.9 million (which includes the 10% non-controlling interest) in royalty revenue attributable to the Voisey’s Bay royalty.  Royalty payments for each quarter are due 45 days after quarter-end.  The Company anticipates recognizing revenue for the Voisey’s Bay royalty in the period in which metal production occurs, based on information provided by the operator.  If information is not received timely from the operator, the Company may estimate Voisey’s Bay royalty revenue based on available or historical information.  Refer to Note 6 of our notes to consolidated financial statements for further discussion on our revenue recognition.

 

Peak Gold JV

 

On September 24, 2018, the Company announced that the Peak Gold JV, of which our Royal Alaska, LLC subsidiary owns a 40% interest, completed a Preliminary Economic Assessment (“PEA”) on the Peak Gold Project located near Tok, Alaska.  The PEA contemplates on a preliminary basis an open pit mining operation with positive economics at base case gold and silver prices.  While the Company remains committed to advancing the Peak Gold Project, it will continue to review and evaluate strategic alternatives for its ownership in the project that more closely align with its core business.    

 

Royal Gold also owns two net smelter return royalties on the Peak Gold Project.

 

4

Acquisition of Contango Ore, Inc. Common Stock

 

On October 3, 2018, the Company purchased the final tranche of Contango Ore, Inc. (“CORE”) common stock (127,188 shares) for $26 per share.  As of June 30, 2019, the Company owns 809,744 shares of CORE common stock.

 

Our Operational Information

Reportable Segments and Financial 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 (amounts are in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

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

 

$

767,749

 

$

200,251

 

$

968,000

 

$

809,500

 

$

214,562

 

$

(284)

 

$

1,023,778

Dominican Republic

 

 

451,585

 

 

 —

 

 

451,585

 

 

495,460

 

 

 —

 

 

 —

 

 

495,460

Chile

 

 

301,507

 

 

214,226

 

 

515,733

 

 

328,331

 

 

453,306

 

 

(239,080)

 

 

542,557

Africa

 

 

89,556

 

 

321

 

 

89,877

 

 

104,874

 

 

502

 

 

 —

 

 

105,376

Mexico

 

 

 —

 

 

83,748

 

 

83,748

 

 

 —

 

 

93,277

 

 

 —

 

 

93,277

United States

 

 

 —

 

 

163,398

 

 

163,398

 

 

 —

 

 

165,543

 

 

 —

 

 

165,543

Australia

 

 

 —

 

 

31,944

 

 

31,944

 

 

 —

 

 

34,254

 

 

 —

 

 

34,254

Rest of world

 

 

12,038

 

 

22,993

 

 

35,031

 

 

12,039

 

 

28,833

 

 

 —

 

 

40,872

Total

 

$

1,622,435

 

$

716,881

 

$

2,339,316

 

$

1,750,204

 

$

990,277

 

$

 (239,364)

 

$

2,501,117

 

The Company’s reportable segments for purposes of assessing performance for our fiscal years ended June 30, 2019, 2018 and 2017 are shown below (amounts are in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended June 30, 2019

 

    

Revenue

    

Cost of sales(1)

    

Production taxes

    

Depletion(2)

    

Segment gross profit(3)

Stream interests

 

$

305,824

 

$

77,535

 

$

 —

 

$

127,770

 

$

100,519

Royalty interests

 

 

117,232

 

 

 —

 

 

4,112

 

 

35,086

 

 

78,034

Total

 

$

423,056

 

$

77,535

 

$

4,112

 

$

162,856

 

$

178,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended June 30, 2018

 

    

Revenue

    

Cost of sales(1)

    

Production taxes

    

Depletion(2)

    

Segment gross profit(3)

Stream interests

 

$

324,516

 

$

83,839

 

$

 —

 

$

129,662

 

$

111,015

Royalty interests

 

 

134,526

 

 

 —

 

 

2,268

 

 

33,924

 

 

98,334

Total

 

$

459,042

 

$

83,839

 

$

2,268

 

$

163,586

 

$

209,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended June 30, 2017

 

    

Revenue

    

Cost of sales(1)

    

Production taxes

    

Depletion(2)

    

Segment gross profit(3)

Stream interests

 

$

314,011

 

$

87,265

 

$

 —

 

$

121,530

 

$

105,216

Royalty interests

 

 

126,803

 

 

 —

 

 

1,760

 

 

38,023

 

 

87,020

Total

 

$

440,814

 

$

87,265

 

$

1,760

 

$

159,553

 

$

192,236


(1)

Excludes depreciation, depletion and amortization.

(2)

Depletion amounts are included within Depreciation, depletion and amortization on our consolidated statements of operations and comprehensive income (loss).

(3)

Refer to Note 13 of our notes to consolidated financial statements for a reconciliation of total segment gross profit to consolidated income (loss) before income taxes.

5

Please see “Operations in foreign countries or other sovereign jurisdictions are subject to many risks, which could decrease our revenues,” under Part I, Item 1A, Risk Factors, of this report for a description of the risks attendant to foreign operations.

Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver and copper, together with the amounts of production from our producing stage stream and royalty interests.  During the fiscal year ended June 30, 2019, Royal Gold derived approximately 87% of its revenue from precious metals (including 78% from gold and 9% from silver), 9% from copper and 4% from other minerals.  The price of gold, silver, copper and other metals have fluctuated widely in recent years.  The marketability and the price of metals are influenced by numerous factors beyond the control of the Company and significant declines in the price of gold, silver or copper could have a material and adverse effect on the Company’s results of operations and financial condition.

Competition

The mining industry in general and streaming and royalty segments in particular are very competitive.  We compete with other streaming and royalty companies, mine operators, and financial buyers in efforts to acquire existing streaming and royalty interests, and with the lenders, investors, and streaming and royalty companies providing financing to operators of mineral properties in our efforts to create new streaming and royalty interests.  Our competitors may be larger than we are and may have greater resources and access to capital than we have.  Key competitive factors in the stream and royalty acquisition and financing business include the ability to identify and evaluate potential opportunities, transaction structure and consideration, and access to capital.

Regulation

Operators of the mines that are subject to our stream and royalty interests must comply with numerous environmental, mine safety, land use, waste disposal, remediation and public health laws and regulations promulgated by federal, state, provincial and local governments in the United States, Canada, Chile, the Dominican Republic, Ghana, Mexico, and other countries where we hold interests. Although we are not responsible as a stream or royalty interest owner for ensuring compliance with these laws and regulations, failure by the operators of the mines on which we have stream and royalty interests to comply with applicable laws, regulations and permits can result in injunctive action, orders to suspend or cease operations, damages and civil and criminal penalties on the operators.

Corporate Information

We were incorporated under the laws of the State of Delaware on January 5, 1981. Our executive offices are located at 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202. Our telephone number is (303) 573‑1660.

Available Information

Royal Gold maintains a website at www.royalgold.com. Royal Gold makes available, free of charge, through the Investor Relations section of its website, its Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.  Our SEC filings are available from the SEC’s website at www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file electronically.  These reports, proxy statements and other information may also be inspected and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1‑800‑SEC‑0330 for further information on the operation of the Public Reference Room.  The charters of Royal Gold’s key committees of the Board of Directors and Royal Gold’s Code of Business Conduct and Ethics are also available on the Company’s website.  Any of the foregoing information is available in print to any stockholder who requests it by contacting our Investor Relations Department at (303) 573‑1660.  The information on the Company’s website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.

6

Company Personnel

We currently have 23 employees, 16 located in Denver, Colorado and the remainder located in our Zug, Switzerland, Vancouver, Canada, and Toronto, Canada offices.  Our employees are not subject to a labor contract or a collective bargaining agreement. We consider our overall employee relations to be good.

We also retain independent contractors to provide consulting services, relating primarily to geology and mineralization interpretations and also relating to such metallurgical, engineering, environmental, and other technical matters as may be deemed useful in the operation of our business.

 

ITEM 1A.   RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Our business, financial condition, results of operations, and cash flows could be materially adversely affected by any of these risks. The market or trading price of our securities could decline due to any of these risks. In addition, please see our note about forward-looking statements included in Part II, Item 7, MD&A of this Annual Report on Form 10-K. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business, operations and stock price.

Risks Related to our Business

Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our stream and royalty interests and may reduce our revenues. Certain contracts governing our stream and royalty interests have features that may amplify the negative effects of a decrease in metals prices.

The profitability of our stream and royalty interests is directly related to the market price of gold, silver, copper, nickel and other metals. Our revenue is particularly sensitive to changes in the price of gold, as we derive a majority of our revenue from gold stream and royalty interests. Market prices may fluctuate widely and are affected by numerous factors beyond the control of Royal Gold or any mining company, including metal supply, industrial and jewelry fabrication, investment demand, central banking economic policy, expectations with respect to the rate of inflation, the relative strength of the dollar and other currencies, interest rates, gold purchases, sales and loans by central banks, forward sales by metal producers, global or regional political, trade, economic or banking conditions, and a number of other factors.

Volatility in gold, silver, copper and nickel prices is demonstrated by the annual high and low prices for those metals over the past decade as reported by, in the case of gold and silver, the London Bullion Market Association, and in the case of copper and nickel, the London Metal Exchange:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

Silver

 

Copper

 

Nickel

 

 

($/ounce)

 

($/ounce)

 

($/pound)

 

($/pound)

Calendar Year

    

 

High

    

 

Low

    

 

High

    

 

Low

    

 

High

    

 

Low

    

 

High

    

 

Low

2010 - 2011

 

$

1,895

 

$

1,058

 

$

48.70

 

$

15.14

 

$

4.60

 

$

2.76

 

$

13.17

 

$

7.68

2012 - 2013

 

$

1,792

 

$

1,192

 

$

37.23

 

$

18.61

 

$

3.93

 

$

3.01

 

$

9.90

 

$

5.97

2014 - 2015

 

$

1,385

 

$

1,049

 

$

22.05

 

$

13.71

 

$

3.37

 

$

2.05

 

$

9.62

 

$

3.70

2016 - 2017

 

$

1,366

 

$

1,077

 

$

20.71

 

$

13.58

 

$

3.27

 

$

1.96

 

$

5.82

 

$

3.50

2018 - 2019

 

$

1,355

 

$

1,178

 

$

17.52

 

$

13.97

 

$

3.29

 

$

2.64

 

$

7.14

 

$

4.81

2019 to-date (July 31, 2019)

 

$

1,440

 

$

1,270

 

$

16.54

 

$

14.38

 

$

2.98

 

$

2.61

 

$

6.66

 

$

4.74

Declines in market prices could cause an operator to reduce, suspend or terminate production from an operating project or construction work at a development project, which may result in a temporary or permanent reduction or cessation of revenue from those projects, may prevent us from being able to recover the initial investment in our stream and royalty interests, or may otherwise impact our stream and royalty revenue. Under our stream agreements, we purchase metals either at a fixed price per ounce or a specified percentage of the spot price. Our margin between the price at which we can purchase metals pursuant to streaming agreements and the price at which we sell metals in the market will vary as metal prices vary; in the event of metal price declines, we would generate lower cash flow or earnings, or possibly losses. Further,

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our sliding‑scale royalties, such as Cortez, Holt, and other properties, amplify the effect of declines in market prices for metals because when prices fall below price thresholds specified in a sliding‑scale royalty, a lower royalty rate will apply. A price decline may result in a material and adverse effect on our business, results of operations and financial condition.

Metal price fluctuations between the time that decisions about development and construction of a mine are made and the commencement of production can have a material adverse effect on the mine operator’s ability to bring the mine into production according to feasibility studies, technical or reserve reports or mine and other plans, or at all, and can have a material adverse impact on the value of stream and royalty interests on the property.

Where gold and silver are produced as co-products or by‑products at the properties where we hold stream and royalty interests, an operator’s production decisions and the economic cut‑off applied to its reporting of gold and silver reserves and resources may be influenced by changes in the commodity prices of the principal metals produced at the mines. 

Moreover, certain agreements governing our royalty interests, such as those relating to our royalty interests in the Robinson and Peñasquito properties, are based on the operator’s concentrate sales to smelters, which include price adjustments between the operator and the smelter based on metals prices determined at a later date, typically three to five months after shipment of concentrate to the smelter. In such cases, our payments from the operator include a component of these later price adjustments, which can result in decreased revenue in later periods if metals prices decline following shipment.

 

We own passive interests in mining properties, and it is difficult or impossible for us to ensure properties are developed or operated in our best interest.

All of our current revenue is derived from stream and royalty interests on properties owned and operated by third parties. Holders of stream or royalty interests typically have no authority regarding the development or operation of the mineral properties to which their interests relate. Therefore, we typically are not in control of decisions regarding development or operation of any of the properties on which we hold a stream or royalty interest, and we have limited legal rights to influence those decisions.

Our strategy of acquiring and holding stream and royalty interests on properties operated by third parties puts us generally at risk for the decisions of others regarding all development and operating matters, including permitting, feasibility analysis, mine design and operation, processing, plant and equipment matters and temporary or permanent suspension of operations, among others. As a result, our revenue is dependent upon the activities of third parties, which creates the risk that at any time those third parties may: (i) have business interests that are inconsistent with ours, (ii) take action contrary to our interests, policies or objectives, or (iii) be unable or unwilling to fulfill their obligations under their agreements with us. At any time, any of the operators of our mining properties may decide to suspend or discontinue operations. Except in limited circumstances, we will not be entitled to material compensation if operations are shut down, suspended or discontinued on a temporary or permanent basis. Although we attempt to secure contractual rights when we create new stream or royalty interests, such as audit or access rights, that will permit us to monitor operators’ compliance with their obligations to us, there can be no assurance that such rights will always be sufficient to ensure such compliance or to affect operations at our stream or royalty properties in ways that would be beneficial to our stockholders.

Our revenues are subject to operational and other risks faced by operators of the properties in which we hold stream or royalty interests.

Although we generally are not required to pay capital costs on projects on which we hold stream or royalty interests (except for transactions where we finance mine development or actively fund or participate in exploration), our financial results are indirectly subject to hazards and risks normally associated with developing and operating mining properties where we hold stream and royalty interests. Some of these risks include:

·

insufficient ore reserves;

·

increases in capital or operating costs incurred by operators or third parties that may impact the amount of reserves available to be mined, cause an operator to delay or curtail mining development and operations, or render mining of ore uneconomical and cause an operator to suspend or close operations;

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·

declines in the price of gold, silver, copper, nickel and other metals;

·

mine operating and ore processing facility problems;

·

significant permitting, environmental and other regulatory requirements and restrictions and any changes in those regulations or their enforcement;

·

challenges by non‑mining interests, including by local communities, indigenous populations and non‑governmental organizations, to existing permits and mining rights, and to applications for permits and mining rights;

·

community or civil unrest, including protests and blockades;

·

labor shortage of miners, geologists and mining experts, changes in labor laws, increased labor costs, and labor disputes, strikes or work stoppages at mines;

·

unavailability of mining, drilling and related equipment;

·

unanticipated geological conditions or metallurgical characteristics;

·

unanticipated ground or water conditions, including lack of access to sufficient quantities of water for operations;

·

pit wall or tailings dam failures or any underground stability issues;

·

fires, explosions and other industrial accidents;

·

environmental hazards and natural catastrophes such as earthquakes, droughts, floods, forest fires, hurricanes or other weather- or climate-related events;

·

injury to persons, property or the environment;

·

the ability of operators to maintain or increase production or to replace reserves as properties are mined;

·

potential increased operating costs arising from climate change initiatives and their impact on energy and other costs in the United States and foreign jurisdictions;

·

uncertain domestic and foreign political and economic environments;

·

economic downturns and operators’ insufficient financing;

·

default by an operator on its obligations to us or its other creditors;

·

insolvency, bankruptcy or other financial difficulty of the operator; and

·

changes in laws or regulations, including changes implemented by new political administrations.

The occurrence of any of the above-mentioned risks or hazards, among others, could result in an interruption, suspension or termination of work at any of the properties in which we hold a stream or royalty interest and have a material adverse effect on our business, results of operations, cash flows and financial condition.    

Many of our stream and royalty interests are important to us and any adverse development related to these properties could adversely affect our revenues and financial condition.

Our investments in the Mount Milligan, Andacollo, Pueblo Viejo, Wassa, Rainy River, Peñasquito and Cortez properties generated approximately $322.6 million in revenue in fiscal year 2019, or 76% of our revenue for the period. We expect these properties and others to be important to us in fiscal year 2020 and beyond. Any adverse development affecting the operation of or production from any of these properties could have a material adverse effect on our business, results of operations, cash flows and financial condition. Any adverse decision made by the operators, such as changes to mine plans, production schedules, metallurgical processes or royalty calculation methodologies, may materially and adversely impact the timing and amount of revenue that we receive.

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Problems concerning the existence, validity, enforceability, terms or geographic extent of our stream and royalty interests could adversely affect our business and revenues, and our interests may similarly be materially and adversely impacted by change of control, bankruptcy or the insolvency of operators.

Defects in or disputes relating to the stream and royalty interests we hold or acquire may prevent us from realizing the anticipated benefits from these interests and could have a material adverse effect on our business, results of operations, cash flows and financial condition. Material changes could also occur that may adversely affect management’s estimate of the carrying value of our stream and royalty interests and could result in impairment charges. While we seek to confirm the existence, validity, enforceability, terms and geographic extent of the stream and royalty interests we acquire, there can be no assurance that disputes or other problems concerning these and other matters or other problems will not arise. Confirming these matters is complex and is subject to the application of the laws of each jurisdiction to the particular circumstances of each parcel of mining property and to the agreement reflecting the stream or royalty interest. Similarly, stream interests and, in many jurisdictions, royalty interests are contractual in nature, rather than interests in land, and therefore may be subject to risks resulting from change of control, bankruptcy or insolvency of operators, and our stream or royalty interests could be materially restricted or set aside through judicial or administrative proceedings. We often do not have the protection of security interests that could help us recover all or part of our investment in a stream or royalty interest in the event of an operator’s bankruptcy or insolvency.

We have limited access to data and information regarding the operation of the properties on which we have stream and royalty interests, which may limit our ability to assess the performance of a stream or royalty interest.

Although certain agreements governing our stream and royalty interests require the operators to provide us with production, operating and other data and information, we do not have the contractual right to receive such data and information for all of our interests. As a result, we may have limited access to data and information about the operations and the properties themselves, which could affect our ability to assess the performance of a stream or royalty interest. This could result in delays in, or reductions of, our cash flow from the amounts that we anticipate based on the stage of development of or production from the properties which could have an adverse impact on our business, results of operations, cash flows and financial condition.

Stream and royalty interests we acquire, particularly on development stage properties, are subject to the risk that they may not produce anticipated revenues.

The stream and royalty interests we acquire may not produce anticipated revenues. The success of our stream and royalty interest acquisitions is based on our ability to make accurate assumptions regarding, among other things, the valuation, timing and amount of revenues to be derived from our stream and royalty interests, the geological, metallurgical and other technical aspects of the project, and, for development projects, the costs, timing and conduct of development. If an operator does not bring a property into production and operate in accordance with feasibility studies, technical or reserve reports or mine and other plans due to lack of capital, inexperience, unexpected problems, delays, or other factors, then our stream or royalty interest may not yield sufficient revenues to be profitable for us. Furthermore, operators of properties at all stages must obtain and maintain all necessary environmental permits and access to adequate supplies of water, power and other raw materials, as well as financing, necessary to begin or sustain development or production, and there can be no assurance that operators will be able to do so.

The failure of any of our principal properties to produce anticipated revenues on schedule or at all would have a material adverse effect on our asset carrying values or the other benefits we expect to realize from the acquisition of stream and royalty interests, and potentially our business, results of operations, cash flows and financial condition.

For example, we experienced an impairment charge of $239.1 million for the Pascua-Lama mining project during our third quarter of fiscal 2018 after Barrick Gold Corporation (“Barrick”), the owner of the project, reclassified the proven and probable reserves for the Chilean portion of the project, to which our royalty interest relates, and, ultimately, suspended further development of the project, in response to sanctions by the Chilean government.  See Note 4 of the notes to consolidated financial statements for more information.

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Operators may interpret our stream and royalty interests in a manner adverse to us or otherwise may not abide by their contractual obligations, and we could be forced to take legal action to enforce our contractual rights.

Our stream and royalty interests generally are subject to uncertainties and complexities arising from the application of contract and property laws in the jurisdictions where the mining projects are located. Operators and other parties to the agreements governing our stream and royalty interests may interpret our interests in a manner adverse to us or otherwise may not abide by their contractual obligations, and we could be forced to take legal action to enforce our contractual rights. We may or may not be successful in enforcing our contractual rights, and our revenues relating to any challenged stream or royalty interests may be delayed, curtailed or eliminated during the pendency of any such dispute or in the event our position is not upheld, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. Disputes could arise challenging, among other things, methods for calculating the stream or royalty interest, various rights of the operator or third parties in or to the stream or royalty interest or the underlying property, the obligations of a current or former operator to make payments on stream and royalty interests, and various defects or ambiguities in the agreement governing a stream or royalty interest.

Potential litigation affecting the properties that we have stream and royalty interests in could have a material adverse effect on us.

Potential litigation may arise between the operators of properties on which we have stream and royalty interests and third parties. For example, Barrick’s Pascua‑Lama mining project has been the subject of litigation by local farmers and indigenous communities alleging that the project’s water management system is not in compliance with environmental permits and that the project has damaged glaciers located in the Pascua‑Lama project area. As a holder of stream and royalty interests, we generally will not have any influence on litigation such as this and generally will not have access to non‑public information concerning such litigation. Any such litigation that results in the reduction, suspension or termination of a project or production from a property, whether temporary or permanent, could have a material adverse effect on our business, results of operations, cash flows and financial condition.

We may enter into acquisitions or other material transactions at any time.

In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams and royalties on operating mines, to create new stream and royalty interests through financing mine development or exploration, or to acquire companies that hold stream and royalty interests. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial, legal and other confidential information, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes. We consider obtaining debt commitments for acquisition financing. In the event that we choose to raise debt capital to finance any acquisition, our leverage may be increased. We also could issue common stock to fund our acquisitions. Issuances of common stock could dilute existing stockholders and may reduce some or all of our per share financial measures.

Any such acquisition could be material to us. All transactions include risks associated with our ability to negotiate acceptable terms with counter-parties.  In addition, any such acquisition or other transaction may have other transaction specific risks associated with it, including risks related to the completion of the transaction, the project, its operators, or the jurisdictions in which the project is located, and other risks discussed in this Annual Report on Form 10-K. There can be no assurance that any acquisitions completed will ultimately benefit the Company.

In addition, we may consider opportunities to restructure our existing stream or royalty interests where we believe such restructuring would provide a long‑term benefit to the Company, though such restructuring may reduce near‑term revenues or result in the incurrence of transaction‑related costs. We could enter into one or more acquisition or restructuring transactions at any time.

11

We may be unable to successfully acquire additional stream or royalty interests at appropriate valuations.

Our future success largely depends upon our ability to continue acquiring stream and royalty interests at appropriate valuations, including through stream, royalty, and corporate acquisitions and other financing transactions. There can be no assurance that we will be able to identify and complete the acquisition of such stream and royalty interests or businesses that own desirable interests, at reasonable prices or on favorable terms, or, if necessary, that we will have or be able to obtain sufficient financing on reasonable terms to complete such acquisitions. Economic volatility, credit crises, or severe declines in market prices for gold, silver, copper, nickel and other metals, could adversely affect our ability to obtain debt or equity financing for acquisitions. In addition, changes to tax rules, accounting policies, or the treatment of stream interests by ratings agencies could make streams, royalties or other investments by the Company less attractive to counterparties. Such changes could adversely affect our ability to acquire new stream or royalty interests.

We have competitors that are engaged in the acquisition of stream and royalty interests and companies holding such interests, including competitors with greater financial resources, and we may not be able to compete successfully against these companies in new acquisitions. We also may experience negative reactions from the financial markets or operators of properties on which we seek stream and royalty interests if we are unable to successfully complete acquisitions of such interests or complete them at satisfactory rates of return. Each of these factors could have a material adverse effect on our business, results of operations, cash flows and financial condition.

We depend on our operators for the calculation of deliveries under our stream interests and payment of our royalty interests. We may not be able to detect errors and later payment calculations may call for retroactive adjustments.

The deliveries and payments under our stream and royalty interests are calculated by the operators of the properties on which we have stream and royalty interests based on their reported production. Each operator’s calculation of deliveries and payments is subject to and dependent upon the adequacy and accuracy of its production and accounting functions, and, given the complex nature of mining and ownership of mining interests, errors may occur from time to time in the allocation of production and the various other calculations made by an operator. Any of these errors may render such calculations inaccurate. Certain agreements governing our stream and royalty interests require the operators to provide us with production and operating information that may, depending on the completeness and accuracy of such information, enable us to detect errors in stream deliveries and the calculation of royalty payments. Certain of our royalty interests, however, do not provide us the contractual right to receive production or other information.  As a result, our ability to detect payment errors through our stream and royalty monitoring program and its associated internal controls and procedures is limited, and the possibility exists that we will need to make retroactive revenue adjustments. Some contracts governing our stream and royalty interests provide us the right to audit the operational calculations and production data for the associated stream deliveries and royalty payments; however, such audits may occur many months following our recognition of revenue and we may be required to adjust our revenue in later periods, which could require us to restate our financial statements.

Development and operation of mines is very capital intensive and any inability of the operators of properties where we hold stream and royalty interests to meet liquidity needs, obtain financing or operate profitably could have material adverse effects on the value of and revenue from our stream and royalty interests.

If operators of properties where we hold stream and royalty interests do not have the financial strength or sufficient credit or other financing capability to cover the costs of developing or operating a mine, they may curtail, delay or cease development or operations at a mine site, or enter into bankruptcy proceedings.  An operator’s ability to raise and service sufficient capital may be affected by, among other things, macroeconomic conditions, future commodity prices of metals to be mined, or further economic volatility in the United States and global financial markets. If certain of the operators of the properties on which we have stream and royalty interests suffer these material adverse effects, then our stream and royalty interests, including the value of and revenue from them, and the ability of operators to obtain debt or equity financing for the exploration, development and operation of their properties may be materially adversely affected.

12

Certain of the agreements governing our stream and royalty interests contain terms that reduce or cap the revenues generated from those interests.

Revenue from some of our stream and royalty interests will stop or decrease after threshold production, delivery or payment milestones are achieved.  For example, our gold stream at Pueblo Viejo decreases from 7.5% to 3.75% of Barrick’s interest in gold produced at Pueblo Viejo after 990,000 ounces of gold have been delivered. Similarly, our silver stream at Pueblo Viejo decreases from 75% to 37.50% of Barrick’s interest in silver produced at Pueblo Viejo after 50,000,000 ounces of silver have been delivered.  Our stream interests at Andacollo, Wassa, Rainy River and Khoemacau, and certain of our royalty interests at other properties, are subject to similar limitations, and therefore current production and revenue results from our interests may not be indicative of future results.

Estimates of mineral reserves and other mineralized material by the operators of mines in which we have stream and royalty interests are subject to significant revision.

There are numerous uncertainties inherent in estimating proven and probable mineral reserves and mineralized material, including many factors beyond our control and the control of the operators of properties in which we have stream and royalty interests. Reserve estimates for our stream and royalty interests are prepared by the operators. We do not participate in the preparation or verification of such reports and have not independently assessed or verified the accuracy of such information.

The estimation of reserves and of other mineralized material is a subjective process, and the accuracy of any such estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, metallurgical testing and production, and the evaluation of mine plans subsequent to the date of any estimate, may result in revisions to such estimates. The volume and grade of reserves actually recovered and rates of production actually achieved may be less than anticipated. Assumptions about gold and other precious metal prices used to calculate reserve estimates are subject to great uncertainty, and such prices have fluctuated widely in the past. Declines in the market price of gold, silver, copper, nickel or other metals also may make recovery of ores previously included in reserves containing relatively lower grades uneconomic. Changes in operating costs and other factors including short‑term operating factors, the processing of new or different ore grades, geotechnical characteristics and metallurgical recovery, may materially and adversely affect reserves.

Mineral resources as reported by some operators do not constitute reserves and do not have demonstrated economic viability. Due to the uncertainty of mineral resources, there can be no assurance that such resources will be upgraded to reserves as a result of continued exploration and study. It should not be assumed that any part or all of mineral resources on properties where we hold stream and royalty interests will be converted into reserves.

The mineral reserves at producing properties subject to our stream and royalty interests may decline if the operators of those properties are unable to replace the mineral reserves consumed through mining.

An operator’s current mineral reserves may decline as they are consumed in the ordinary course of mining. If current mineral reserves are not replaced as they are mined by the operators of properties where we hold stream and royalty interests, whether through expansion of known deposits, discovery of new mineralized material through exploration, conversion of mineralized material to mineral reserves, or otherwise, the mineral reserves subject to our stream and royalty interests on those properties may decline or be consumed altogether.

Expansion of known deposits of mineralized material and exploration for new mineralized material are highly speculative activities typically requiring extensive programs of drilling and study, at substantial expense, over many years. There can be no assurance that operators of the properties on which we hold stream and royalty interests will make such expenditures, or that such expenditures will result in expansion of existing deposits or discovery of new mineralized material. Further, where mineralized material is discovered, there can be no assurance that such mineralized material can be economically and legally extracted, and, therefore, converted to mineral reserves in sufficient quantities to maintain or increase the operators’ current mineral reserves.

13

Failure of operators of properties on which we hold stream and royalty interests to maintain or increase mineral reserves as their current reserves are mined may have a material adverse impact on our asset carrying values and potentially our business, results of operations, cash flows and financial condition.

Estimates of production by the operators of mines in which we have stream and royalty interests are subject to change, and actual production may vary materially from such estimates.

Production estimates are prepared by the operators of the mining properties to which our stream and royalty interests relate. There are numerous uncertainties inherent in estimating anticipated production attributable to our stream and royalty interests, including many factors beyond our control and the control of the operators. The estimation of anticipated production is a subjective process and the accuracy of any such estimates is a function of the quality of available data, reliability of production history, variability in grade encountered, mechanical or other problems encountered, engineering and geological interpretation, and operator judgment. Results of drilling, metallurgical testing and production, changes in commodity prices, and the evaluation of mine plans subsequent to the date of any estimate may cause actual production to vary materially from such estimates. Actual rates of production may be more or less than estimated by the operators, and deliveries under stream agreements may be received earlier or later than expected, each of which may result in variances from expected revenue from period to period. We do not participate in the preparation or verification of production estimates by our operators and do not independently assess or verify the accuracy of such information.

If title to mining claims, concessions, licenses, leases or other forms of tenure is not properly maintained by the operators, or is successfully challenged by third parties, our stream and royalty interests could be found to be invalid.

Our business is subject to the risk that operators of mining projects and holders of exploration or mining claims, tenements, concessions, licenses or other interests in land and minerals may lose their exploration or mining rights or have their rights to explore and mine properties contested by private parties or the government. Internationally, exploration and mining tenures are subject to loss for many reasons, including expiration, failure of the holder to meet specific legal qualifications, failure to establish a deposit capable of economic extraction, failure to pay maintenance fees or meet expenditure or work requirements, reduction in geographic extent upon passage of time or upon conversion from an exploration tenure to a mining tenure, failure of title, expropriation and similar risks. If title to exploration or mining tenures subject to our stream and royalty interests has not been properly established or is not properly maintained, or is successfully contested, our stream and royalty interests could be adversely affected.

Operations in foreign countries or other sovereign jurisdictions are subject to many risks, which could decrease our revenues.

We derived approximately 92% of our revenues from non-United States sources during fiscal year 2019, compared to approximately 91% in fiscal year 2018 and approximately 92% in fiscal year 2017.  Our principal producing stream and royalty interests on properties outside of the United States are located in Canada, Chile, the Dominican Republic, Ghana and Mexico. We currently have stream and royalty interests in mines and projects in other countries, including Argentina, Australia, Bolivia, Botswana, Brazil, Burkina Faso, Guatemala, Honduras, Macedonia, Nicaragua, Peru, Spain and Tunisia. Various indigenous peoples may be recognized as sovereign entities and may enforce their own laws and regulations within the United States, Canada and other countries. In addition, future acquisitions may expose us to new jurisdictions.  Our activities and those of the operators of properties on which we hold stream and royalty interests are subject to the risks normally associated with conducting business in foreign countries or within the jurisdiction of indigenous peoples that may be recognized as sovereign entities in the United States and elsewhere. These risks may impact or our operators, depending on the jurisdiction, and include such things as:

·

expropriation or nationalization of mining property;

·

seizure of mineral production;

·

exchange and currency controls and fluctuations;

·

limitations on foreign exchange and repatriation of earnings;

·

restrictions on mineral production and price controls;

14

·

import and export regulations, including trade sanctions and restrictions on the export of gold, silver, copper, nickel or other metals;

·

changes in legislation and government policies, including changes related to taxation, government royalties, tariffs, imports, exports, duties, currency, foreign ownership, foreign trade, foreign investment and other forms of government take, including any such changes as may be made in response to United States laws or foreign policies;

·

challenges to mining, processing and related permits and licenses, or to applications for permits and licenses, by or on behalf of regulatory authorities, indigenous populations, non‑governmental organizations or other third parties;

·

changes in economic, trade, diplomatic and other relationships between countries, and the effect on global and economic conditions, the stability of global financial markets, and the ability of key market participants to operate in certain financial markets;

·

high rates of inflation;

·

labor practices and disputes;

·

enforcement of unfamiliar or uncertain foreign real estate, mineral tenure, contract, water use, mine safety and environmental laws and policies;

·

renegotiation, nullification or forced modification of existing contracts, licenses, permits, approvals, concessions or the like;

·

war, crime, terrorism, sabotage, blockades and other forms of civil unrest, and uncertain political and economic environments;

·

corruption;

·

exposure to liabilities under anti‑corruption and anti‑money laundering laws, including the United States Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions to which we, but not necessarily our competitors, may be subject;

·

suspension of the enforcement of creditors’ rights and stockholders’ rights; and

·

loss of access to government-controlled infrastructure, such as roads, bridges, rails, ports, power sources and water supply.

In addition, many of our operators are organized outside of the United States. Our stream and royalty interests may be subject to the application of foreign laws to our operators, and their stockholders, including laws relating to foreign ownership structures, corporate transactions, creditors’ rights, bankruptcy and liquidation. Foreign operations also could be adversely impacted by laws and policies of the United States affecting foreign trade, investment and taxation.

These risks may limit or disrupt operating mines or projects on which we hold stream and royalty interests, restrict the movement of funds, or result in the deprivation of contract rights or the taking of property by nationalization or expropriation without fair compensation, and could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Our business and the mining projects in which we have stream and royalty interest are subject to extraterritorial and domestic anti-bribery laws and labor laws, a breach or violation of which could lead to civil and criminal fines and penalties and other collateral consequences such as reputational harm.

We invest in mining operations in certain jurisdictions that have experienced governmental and private sector corruption and exploitation to some degree. In certain circumstances, compliance with labor and anti-bribery laws and heightened expectations of enforcement authorities from within and outside of these jurisdictions may be in tension with certain local customs and practices. For example, the United States Foreign Corrupt Practices Act and other laws with extraterritorial reach, including the U.K. Bribery Act, generally prohibit companies and their agents and intermediaries from making

15

improper payments for the purpose of obtaining or retaining business or other commercial advantage. Because our assets are made up of passive interests in mining operations owned and operated by third parties, we cannot ensure that these operators’ internal control policies and procedures will prevent noncompliance with applicable laws and internal policies, recklessness, exploitation, fraudulent behavior, dishonesty or other inappropriate acts for which they may be deemed responsible. In addition, although we are passive investors in these third party operations, we cannot ensure that enforcement authorities will not deem us to have some culpability as associates to these operations should these circumstances arise.

Opposition from indigenous people may delay or suspend development or operations at the properties where we hold stream and royalty interests, which could decrease our revenues.

Various international and national, state and provincial laws, rules, regulations and other practices relate to the rights of indigenous peoples. Some of the properties where we hold stream and royalty interests are located in areas presently or previously inhabited or used by indigenous peoples. Many of these laws impose obligations on governments to respect the rights of indigenous people. Some mandate that governments consult with indigenous people regarding government actions which may affect them, including actions to approve or grant mining rights or permits. One or more groups of indigenous people may oppose continued operation, further development, or new development of the properties where we hold stream and royalty interests. Such opposition may be directed through legal or administrative proceedings or protests, roadblocks or other forms of public expression, and claims and protests of indigenous peoples may disrupt or delay activities of the operators of the properties. For example, the Pascua‑Lama project has been challenged by Chilean indigenous groups and other third parties. During the fourth calendar quarter of 2013, Barrick suspended construction activities at the Pascua‑Lama project, except for those activities required for environmental and regulatory compliance.  Subsequently, in the first calendar quarter of 2018, Barrick reclassified the proven and probable reserves for the Chilean portion of the project, to which our royalty interest relates, and, ultimately, suspended further development of the project, in response to sanctions by the Chilean government.

Changes in mining taxes and royalties payable to governments could decrease our revenues.

Changes in mining and tax laws in any of the United States, Canada, Chile, the Dominican Republic, Ghana, Mexico or any other country in which we have stream and royalty interests in mines or projects could affect mine development and expansion, significantly increase regulatory obligations and compliance costs with respect to mine development and mine operations, increase the cost of holding mining tenures or impose additional taxes on mining operations, all of which could adversely affect our revenue from such properties. A number of properties where we hold royalty interests are located on United States public lands that are subject to federal mining and other public land laws. In recent years, the United States Congress has considered a number of proposed major revisions to the General Mining Law of 1872, and other laws, which govern the creation, maintenance and possession of mining claims and related activities on public lands in the United States. The United States Congress also has recently considered bills, which if enacted, would impose a royalty payable to the government on hardrock production, increase land holding fees, impose federal reclamation fees and financial assurances, impose additional environmental operating standards and afford greater public involvement and regulatory discretion in the mine permitting process. Such legislation, if enacted, or similar legislation in other countries, could adversely affect the development of new mines and the expansion of existing mines, as well as increase the cost of all mining operations, and could materially and adversely affect mine operators and our revenue.

The mining industry is subject to environmental risks in the United States and in the foreign jurisdictions where mines subject to our interests are located, including risk associated with climate change.

Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Laws and regulations in the United States and abroad intended to ensure the protection of the environment are constantly changing and evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability, and potentially increased capital expenditures and operating costs. Furthermore, mining may be subject to significant environmental and other permitting requirements regarding the use of raw materials needed for operations, particularly water and power. Concerns regarding climate change have resulted in international, national and local treaties, legislation and initiatives that affect mineral exploration and production, including those intended to reduce industrial emissions and increase energy efficiency. Compliance with all such laws and

16

regulations, treaties and initiatives (“Laws”) could increase permitting requirements, result in stricter standards and enforcement, and require significant increases in capital expenditures and operating costs by operators of properties subject to our interests. Further, breach of a Law may result in the imposition of fines and penalties or other adverse impacts on operators and their properties, which may be material. If an operator is forced to incur significant costs to comply with Laws or becomes subject to related restrictions that limit its ability to continue or expand operations, or if an operator were to lose its right to use or access power, water or other raw materials necessary to operate a mine, or if the costs to comply with Laws materially increased the capital or operating costs on the properties where we hold streams and royalties, our revenues could be reduced, delayed or eliminated. These risks are also salient with regard to our development stage properties where permitting may not be complete and/or where new legislation and regulation could lead to delays, interruptions and significant unexpected cost burdens for mine developers and operators.

For example, Argentina passed a federal glacier protection law that could restrict mining activities in areas on or near the country’s glaciers. We have royalties on the Chilean side of the Pascua‑Lama project, which straddles the border between Chile and Argentina and the glacier law could impact some aspects of the design, development and operation of the project. Further, to the extent that we become subject to environmental liabilities for any historic period during which we owned or operated properties, or relative to our current ownership interests in the lease and underlying unpatented mining claims acquired at Cortez or the lease, unpatented mining claims and exploration activities associated with the Peak Gold JV, the satisfaction of any liabilities would reduce funds otherwise available to us and could have a material adverse effect on our business, results of operations, cash flows and financial condition.

We are dependent upon information technology systems, which are subject to cyber threats, disruption, damage and failure.

Information systems and other technologies, including those related to our financial and operational management, are an integral part of our business activities. Network and information systems‑related events, such as computer hackings, cyberattacks, ransomware, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing, or power outages, natural disasters, terrorist attacks or other similar events, could result in damage to our property, equipment and data, affect our ability to maintain ongoing operations, and result in significant expenditures to repair or replace the damaged property or information systems, reacquire access to networks and information systems, or to protect them from similar events in the future. In addition, any security breaches, such as misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained in our information technology systems (or those of our third party service providers), including information about our company or our employees, third party information in our possession, and other data, could damage our reputation, expose us to legal liability and require us to expend significant capital and other resources to remedy any such security breach.  Despite security measures we have implemented and other measures we may implement in the future, and despite the fact that, to date, we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that these events and security breaches will not occur in the future or not have an adverse effect on our business.  Furthermore, new and evolving requirements relating to cybersecurity are applicable or may in the future apply to our business, including requirements relating to protection of personally identifiable information.  Compliance with such requirements could result in additional or increased compliance costs and exposure to legal liability.

We depend on the services of our President and Chief Executive Officer, management and other key employees.

We believe that our success depends on the continued service of our key executive management personnel. Tony Jensen has served as our President and Chief Executive Officer since July 2006; however, in May 2019, the Company announced that Mr. Jensen will retire by the end of the first calendar quarter of 2020.  Mr. Jensen’s extensive commercial experience, mine operations background and industry contacts have given us an important competitive advantage. The loss of Mr. Jensen’s services, and the loss of services of other key members of management or other key employees could disrupt the conduct of our business and jeopardize our ability to maintain our competitive position in the industry. From time to time, we may also need to identify and retain additional skilled management and specialized technical personnel to efficiently operate our business. The number of persons skilled in the acquisition, exploration and development of stream and royalty interests is limited and there is competition for such persons. Recruiting and retaining qualified executive management and other key employees is critical to our success and there can be no assurance of such success. If we are not successful

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in attracting and retaining qualified personnel, our ability to execute our business model and growth strategy could be affected, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. We currently do not have key person life insurance for any of our officers or directors.

Our disclosure controls and internal control over our financial reporting are subject to inherent limitations.

Management has concluded that as of June 30, 2019, our disclosure controls and procedures and our internal control over financial reporting were effective. Such controls and procedures, however, may not be adequate to prevent or identify existing or future internal control weaknesses due to inherent limitations therein, which may be beyond our control, including, but not limited to, our dependence on operators for the calculation of royalty payments and deliveries under metal streams that translate to our revenues as discussed above in “We depend on our operators for the calculation of deliveries under our stream interests and payment of our royalty interests. We may not be able to detect errors and later payment calculations may call for retroactive adjustments” Given our dependence on third party calculations, there is a risk that material misstatements in our results of operations and financial condition may not be prevented or detected on a timely basis by our internal controls over financial reporting and may require us to restate our financial statements.

We have incurred indebtedness in connection with our business and may in the future incur additional indebtedness that could limit cash flow available for our operations, limit our ability to borrow additional funds and, if we were unable to repay our debt when due, would have a material adverse effect on our business, results of operations, cash flows and financial condition.

As of June 30, 2019, there was $780 million available and $220 million outstanding under our revolving credit facility. We are subject to the risks normally associated with debt obligations, including the risk that our cash flows may be insufficient to meet required principal and interest payments and the risk that we will be unable to refinance our indebtedness when it becomes due, or that the terms of such refinancing will not be as favorable as the terms of our indebtedness. We may seek additional debt or equity financing in the future in connection with financing for acquisitions, strategic transactions and for other purposes.

Indebtedness could have a material adverse effect on our business, results of operations, cash flows and financial condition. For example, it could:

·

require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions of stream and royalty interests, working capital, pay dividends and other general corporate purposes;

·

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·

restrict us from exploiting business opportunities;

·

place us at a competitive disadvantage compared to our competitors that have less indebtedness;

·

require the consent of our existing lenders to incur additional indebtedness; and

·

limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

In addition, the agreement governing our revolving credit facility contains, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long‑term best interests. Among other restrictions, the agreement governing our revolving credit facility contains covenants limiting our ability to make certain investments, consummate certain mergers, incur certain debt or liens and dispose of certain assets.

If we are unable to maintain cash reserves or generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various covenants and requirements of our revolving credit facility or any indebtedness which we may incur in the future, an event of default could occur that, if not cured or waived, could

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result in the acceleration of all of our debt. Any default under our revolving credit facility or any indebtedness which we may incur in the future could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Risks Related to our Common Stock

Our stock price may continue to be volatile and could decline.

The market price of our common stock has fluctuated and may decline in the future. The high and low sale prices of our common stock on the Nasdaq Global Select Market were $87.74 and $60.21 for the fiscal year ended June 30, 2017, $94.39 and $76.15 for the fiscal year ended June 30, 2018 and $102.62 and $70.16 for the fiscal year ended June 30, 2019. The fluctuation of the market price of our common stock has been affected by many factors that are beyond our control, including:

·

market prices of gold, silver, copper, nickel and other metals;

·

Central bank interest rates;

·

expectations regarding inflation;

·

ability of operators to service their financial obligations, advance development projects, produce precious metals and develop new reserves;

·

currency values;

·

credit market conditions;

·

general stock market conditions; and

·

global and regional political, trade and economic conditions.

Additional issuances of equity securities by us could dilute our existing stockholders, reduce some or all of our per share financial measures, reduce the trading price of our common stock or impede our ability to raise future capital. Substantial sales of shares may negatively impact the market price of our common stock.

We may issue additional equity in the future in connection with acquisitions, strategic transactions or for other purposes. To the extent we issue additional equity securities, our existing stockholders could be diluted and some or all of our per share financial measures could be reduced. In addition, the shares of common stock that we issue in connection with an acquisition may not be subject to resale restrictions. The market price of our common stock could decline if our stockholders sell substantial amounts of our common stock or are perceived by the market as intending to sell these shares other than in an orderly manner.

We may change our practice of paying dividends.

We have paid a cash dividend on our common stock for each fiscal year beginning in fiscal year 2000. Our board of directors has discretion in determining whether to declare a dividend based on a number of factors, including prevailing gold and other metal prices, economic market conditions, future earnings, cash flows, financial condition, and funding requirements for future opportunities or operations. In addition, there may be corporate law limitations or future contractual restrictions on our ability to pay dividends. If our board of directors declines or is unable to declare dividends in the future or reduces the current dividend level, our stock price could fall, and the success of an investment in our common stock would depend largely upon any future stock price appreciation. We have increased our dividends in prior years. There can be no assurance, however, that we will continue to do so or that we will pay any dividends at all.

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Certain provisions of Delaware law and, our organizational documents could impede, delay or prevent an otherwise beneficial takeover or takeover attempt of us.

Certain provisions of Delaware law and our organizational documents could make it more difficult or more expensive for a third party to acquire us, even if a change of control would be beneficial to our stockholders. By default, Delaware law prohibits, subject to certain exceptions, a Delaware corporation from engaging in any business combination with any “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock, for a period of three years following the date that the stockholder became an interested stockholder. Additionally, our certificate of incorporation and bylaws contain provisions that could similarly delay, defer or discourage a change in control of us or our management. These provisions could also discourage a proxy contest and make it more difficult for stockholders to elect directors and take other corporate actions. Such provisions provide for the following, among other things: (i) the ability of our board of directors to issue shares of common stock and preferred stock without stockholder approval, (ii) the ability of our board of directors to establish the rights and preferences of authorized and unissued preferred stock, (iii) a board of directors divided into three classes of directors serving staggered three year terms, (iv) permitting only the chairman of the board of directors, chief executive officer, president or board of directors to call a stockholders’ meeting and (v) requiring advance notice of stockholder proposals and related information. These provisions could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, which may cause the market price of our common stock to decline.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

We do not own or operate the properties on which we hold stream or royalty interests, except for our interest in the Peak Gold JV, and therefore much of the information disclosed in this Form 10‑K regarding these properties is provided to us by the operators.  For example, the operators of certain properties provide us information regarding metals production, estimates of mineral reserves and additional mineralized material and production estimates.  A list of our producing and development stage streams and royalties, as well their respective reserves, are summarized in Table 1 “Operators’ Estimated Proven and Probable Gold Reserves” below within this Item 2.  More information is available to the public regarding certain properties in which we have stream or royalty interests, including reports filed with the SEC or with the Canadian securities regulatory agencies available at www.sec.gov or www.sedar.com, respectively.

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.  The description of our principal streams and royalties set forth below includes the location, operator, stream or royalty rate, access and any material current developments at the property.  For any reported production amounts discussed below, the Company considers reported production to relate to the amount of metal sales subject to our stream and royalty interests.  Please refer to Item 7, MD&A, for discussion on production estimates, historical production and revenue for our principal properties. The map below illustrates the location of our principal producing stage properties.

Principal Producing Properties

The Company considers both historical and future potential revenues to determine which stream and royalty interests in our portfolio are principal to our business.  Estimated future potential revenues from producing properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, technical reports, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause the Company to conclude that one or more of such stream and royalty interests are no longer principal to our business.  Currently, the Company considers the properties discussed below (listed alphabetically by stream and royalty interest) to be principal to our business.

 

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Picture 2

 

Stream Interests

Andacollo (Region IV, Chile)

RGLD Gold owns the right to purchase 100% of the gold produced from the Andacollo copper‑gold mine until 900,000 ounces of payable gold have been delivered, and 50% thereafter.  The cash purchase price equals 15% of the monthly average gold price for the month preceding the delivery date for all gold purchased.  As of June 30, 2019, approximately 193,000 ounces of payable gold have been delivered to RGLD Gold. 

Andacollo is an open‑pit mine and milling operation located in central Chile, Region IV in the Coquimbo Province and is operated by Compañía Minera Teck Carmen de Andacollo (“CMCA”), a 90% owned subsidiary of Teck Resources Limited (“Teck”). The Andacollo mine is located in the foothills of the Andes Mountains approximately 1.5 miles southwest of the town of Andacollo. The regional capital of La Serena and the coastal city of Coquimbo are approximately 34 miles northwest of the Andacollo mine by road, and Santiago is approximately 215 miles south by air. Access to the mine is provided by Route 43 (R‑43) south from La Serena to El Peñon. From El Peñon, D‑51 is followed east and eventually curves to the south to Andacollo. Both R‑43 and D‑51 are paved roads.

Stream deliveries from Andacollo were approximately 51,900 ounces of gold during the fiscal year ended June 30, 2019, compared to approximately 51,700 ounces of gold during the fiscal year ended June 30, 2018.  Teck indicated that they expect grades to continue to gradually decline towards reserve grades in calendar 2019 and future years. Teck continues to study and implement projects that could increase production, including the installation of a sizer to better manage harder ores at depth and increase mill throughput.

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Mount Milligan (British Columbia, Canada)

RGLD Gold owns the right to purchase 35% of the payable gold and 18.75% of the payable copper produced from the Mount Milligan copper‑gold mine in British Columbia, Canada, which is operated by an indirect subsidiary of Centerra Gold Inc. (“Centerra”). The cash purchase price for gold is equal to the lesser of $435 per ounce, with no inflation adjustment, or the prevailing market price when purchased.  The cash purchase price for copper is 15% of the spot price. 

Mount Milligan is an open‑pit mine and is located within the Omenica Mining Division in North Central British Columbia, approximately 96 miles northwest of Prince George, 53 miles north of Fort St. James, and 59 miles west of Mackenzie. The Mount Milligan project is accessible by commercial air carrier to Prince George, British Columbia, then by vehicle from the east via Mackenzie on the Finlay Philip Forest Service Road and the North Philip Forest Service Road, and from the west via Fort St. James on the North Road and Rainbow Forest Service Road. Road travel to the Mount Milligan property site is 482 miles from Prince Rupert and 158 miles from Prince George.

 

Gold stream deliveries from Mount Milligan were approximately 68,500 ounces of gold during the fiscal year ended June 30, 2019, compared to approximately 78,000 ounces of gold during the fiscal year ended June 30, 2018. Copper stream deliveries from Mount Milligan were approximately 9.1 million pounds of copper during the fiscal year ended June 30, 2019, compared to approximately 10.4 million pounds during the fiscal year ended June 30, 2018.  The decrease during the current period reflects the shutdown and lower mill production at Mount Milligan in the March 2018 quarter, which was the result of lower than expected fresh reclaim water volumes in the tailings storage facility that Mount Milligan uses for mill processing operations.  Due to the timing of shipments and deliveries of gold and copper, the impact of the shutdown was reflected in our first quarter of fiscal year 2019. 

 

Centerra reported that weather conditions around the Mount Milligan mine, and elsewhere in British Columbia, continue to be exceptionally hot and dry, which has affected precipitation levels as well as water flows, and that water captured from the calendar 2019 spring melt runoff was less than anticipated.  Centerra reported that it continues to explore for additional groundwater sources but estimates that if additional sources are not available, and/or dry weather conditions persist in the second half of calendar 2019, it may need to take steps to manage production in the first calendar quarter of 2020 to conserve water resources until the calendar 2020 spring melt.   

 

Despite the dry conditions, Centerra reaffirmed Mount Milligan’s production guidance for the full 2019 calendar year, consisting of 155,000 to 175,000 ounces of payable gold production and 65 to 75 million pounds of payable copper production, and reported that it is continuing to work on a long-term plan to supply water to Mount Milligan after November 2021 and for the remaining mine life.

 

Pueblo Viejo (Sanchez Ramirez, Dominican Republic)

RGLD Gold owns the right to purchase 7.5% of Barrick’s interest in the gold produced from the Pueblo Viejo mine until 990,000 ounces of gold have been delivered, and 3.75% thereafter.  The cash purchase price for gold is 30% of the spot price of gold per ounce delivered until 550,000 ounces of gold have been delivered, and 60% thereafter. RGLD Gold also owns the right to purchase 75% of Barrick’s interest in the silver produced from the Pueblo Viejo mine, subject to a fixed silver recovery of 70%, until 50 million ounces of silver have been delivered, and 37.5% thereafter.  The cash purchase price for silver is 30% of the spot price of silver per ounce delivered until 23.1 million ounces of silver have been delivered, and 60% thereafter.  As of June 30, 2019, approximately 181,000 gold ounces and 6.2 million silver ounces have been delivered to RGLD Gold.

The Pueblo Viejo mine is located in the province of Sanchez Ramirez, Dominican Republic, approximately 60 miles northwest of Santo Domingo, and is owned by a joint venture in which Barrick holds a 60% interest and is responsible for operations, and in which Newmont Goldcorp Corporation (“Newmont Goldcorp”) holds a 40% interest.  Pueblo Viejo is accessed from Santo Domingo by traveling northwest on Autopista Duarte, Highway #1, approximately 48 miles to Piedra Blanca and proceeding east for approximately 14 miles on Highway #17 to the gatehouse for Pueblo Viejo. Both Highway #1 and Highway #17 are paved.

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Gold stream deliveries from Pueblo Viejo were approximately 41,200 ounces of gold during the fiscal year ended June 30, 2019, compared to approximately 45,400 ounces of gold during the fiscal year ended June 30, 2018.  Silver stream deliveries were approximately 2.0 million ounces of silver during the fiscal year ended June 30, 2019, compared to approximately 1.9 million ounces of silver during the fiscal year ended June 30, 2018.  In calendar 2019, Barrick expects production at Pueblo Viejo to be in line with calendar 2018 production levels, driven by increased throughput and recoveries, offset by declining ore grades.

Barrick indicated that scoping studies and pilot project work are supportive of a plant expansion at the Pueblo Viejo mine that could increase throughput by roughly 50% to 12 million tonnes per year, allowing the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022. To achieve this, Barrick is evaluating a flotation concentrator followed by ultra-fine grinding and tank oxidation of the concentrate. Barrick reported that testing to-date indicates that tank oxidation is preferable to the pad pre-oxidation process previously considered. Barrick expects to complete prefeasibility studies for the plant expansion and additional tailings capacity by the end of calendar 2019. According to Barrick, the project has potential to convert roughly seven million ounces of mineralized material to proven and probable reserves.

On May 14, 2018, Barrick reported it signed a 10-year natural gas supply contract with AES Andres DR, S.A. in the Dominican Republic that will enable the conversion of the Quisqueya I power generation facility from heavy fuel oil to natural gas.  Barrick anticipates converting the facility from heavy fuel oil to natural gas will reduce both greenhouse gas emissions and power costs at Pueblo Viejo.

Rainy River (Ontario, Canada)

RGLD Gold owns the right to purchase 6.50% of the gold produced from the Rainy River project until 230,000 gold ounces have been delivered, and 3.25% thereafter; and 60% of the silver produced from the Rainy River project until 3.1 million silver ounces have been delivered, and 30% thereafter. The cash purchase price for the gold and silver ounces is 25% of the spot price per ounce of gold or silver at the time of delivery.  As of June 30, 2019, approximately 24,000 ounces of gold and approximately 235,000 ounces of silver have been delivered to RGLD Gold.

The Rainy River mine is centered within Richardson Township in northwestern Ontario, Canada, and is operated by New Gold Inc. (“New Gold”).  The mine is approximately 40 miles northwest of Fort Frances, approximately 100 miles south of Kenora and approximately 260 miles west of Thunder Bay. The mine is easily accessible by a network of secondary all‑weather roads that branch off the well‑maintained Trans‑Canada Highways 11 and 71.

Gold stream deliveries from Rainy River were approximately 16,800 ounces of gold during the fiscal year ended June 30, 2019, compared to approximately 6,800 ounces of gold during the fiscal year ended June 30, 2018.  Silver stream deliveries were approximately 148,800 ounces of silver during the fiscal year ended June 30, 2019, compared to approximately 85,900 ounces of silver during the fiscal year ended June 30, 2018.  The increase resulted from the continued optimization of operations at Rainy River.

On May 1, 2019, New Gold announced that a buildup of excess water in the Tailings Management Area (“TMA”) from snowmelt caused a temporary suspension of milling operations at Rainy River on April 24, 2019.  Mining and crushing operations continued and ore was stockpiled during the suspension.  On May 6, 2019, New Gold announced that milling operations at Rainy River were restarted on May 3, 2019.  New Gold reported the water level in the TMA was lowered to a desirable operational level and pumping into the water management pond continued.

New Gold reported mill throughput for the June 2019 quarter averaged 21,117 tonnes per day and Rainy River averaged a record 24,230 tonnes per day in June 2019, surpassing the target of 24,000 tonnes per day.  New Gold expects milled grades to be lower in the second half of calendar 2019 as mining operations shift from Phase 1 to Phase 2 due to the depletion of Phase 1 ore.  New Gold also reported a 93% average gold recovery for the June 2019 quarter, a significant improvement over prior quarterly performance.  Also during the June 2019 quarter, New Gold advanced a comprehensive mine optimization study that includes the review of alternative open pit and underground mining scenarios with the overall objective of improving the return on investment over the life of mine by reducing open pit waste, overall underground

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development, and sustaining capital.  New Gold expects to complete an updated life of mine plan in the December 2019 quarter.

New Gold expects that full year calendar 2019 production will meet annual guidance of between 250,000 and 275,000 gold equivalent ounces.

Wassa (Western Region, Ghana)

RGLD Gold owns the right to purchase 10.50% of the gold produced from the Wassa, Prestea and Bogoso mines, operated by Golden Star, until an aggregate 240,000 ounces from Wassa, Prestea and Bogoso have been delivered.  A significant amount of the gold deliveries under the 10.50% gold stream are expected from the Wassa mine.  Once the delivery threshold is met, the stream percentage will decrease to 5.5% for the remaining term of the transaction.  The cash purchase price for gold is 20% of the spot price of gold per ounce delivered until the threshold is met, and 30% thereafter.  As of June 30, 2019, approximately 90,000 aggregate gold ounces have been delivered to RGLD Gold. 

The Wassa mine and oxide ore mill are located near the village of Akyempim in the Wassa East District, in the Western Region of Ghana, approximately 50 miles north of Cape Coast and 93 miles west of the capital Accra.  The main access to the site is from the east, via the Cape Coast to Twifo‑Praso road, then over the combined road‑rail bridge on the Pra River.  There is also an access road from Takoradi in the south via Mpohor.  An airport at Takoradi is capable of handling jet aircraft and is serviced by several commercial flights each day.

Stream deliveries from Wassa were approximately 16,600 ounces of gold during the fiscal year ended June 30, 2019, compared to approximately 14,500 ounces of gold during the fiscal year ended June 30, 2018.  The increase resulted from the ramp up at Wassa underground as Golden Star transitioned from the lower grade open pit to an underground-only mining operation.  Golden Star’s reported objective at Wassa underground is to increase the average production rate from approximately 3,500 tonnes per day in calendar 2019 to approximately 4,000 tonnes per day by mid-calendar 2020.

On July 15, 2019, Golden Star announced that drilling at Wassa underground intersected significant gold mineralization 200 meters down plunge to the south of the previously-identified mineralized material and has extended the strike of this underground ore body over 1.7 kilometers, which remains open to the south.  Golden Star expects drilling to focus on conversion of mineralized material to reserves at Wassa.

Golden Star reported that the mining rate at Wassa during the first half of calendar 2019 at 3,500 tonnes per day was in line with their expectations and indicated potential to improve production further during the second half of calendar 2019, but cautioned grades are likely to be lower than planned and below the overall reserve grade. As a result, Golden Star expects production in the second half of calendar 2019 to be lower than the first half of calendar 2019 and therefore, lowered their production guidance for calendar 2019 from between 170,000 and 180,000 ounces of gold to between 150,000 and 160,000 ounces of gold.

Royalty Interests

Cortez (Nevada, USA)

Cortez is a series of large open‑pit and underground mines, utilizing mill, roast and heap leach processing, which are operated by Nevada Gold Mines LLC (“NGM”), a joint venture between Barrick and Newmont Goldcorp with respect to their Nevada operations.  The operation is located approximately 60 air miles southwest of Elko, Nevada, in Lander County.  The site is reached by driving west from Elko on Interstate 80 approximately 46 miles and proceeding south on State Highway 306 approximately 23 miles. Our royalty interest at Cortez applies to the Pipeline and South Pipeline deposits, part of the Gap pit and the Crossroads deposit.

The royalty interests we hold at Cortez include:

(a)

Reserve Claims (“GSR1”). This is a sliding‑scale GSR royalty for all products from an area originally known as the “Reserve Claims,” which includes the majority of the Pipeline and South Pipeline deposits.

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The GSR1 royalty rate is tied to the price of gold and does not include indexing for inflation or deflation.  The GSR1 royalty rate is 5.0% at a gold price of $470 per ounce and higher.

(b)

GAS Claims (“GSR2”). This is a sliding‑scale GSR royalty for all products from an area outside of the Reserve Claims, originally known as the “GAS Claims,” which encompasses approximately 50% of the Gap deposit and all of the Crossroads deposit. The GSR2 royalty rate is tied to the gold price, without indexing for inflation or deflation.  The GSR2 royalty rate is 5.0% at a gold price of $470 per ounce and higher.

(c)

Reserve and GAS Claims Fixed Royalty (“GSR3”). The GSR3 royalty is a fixed rate GSR royalty of 0.7125% and covers the same cumulative area as is covered by our two sliding‑scale GSR royalties, GSR1 and GSR2, except certain claims that comprise a portion of the Crossroads deposit.

(d)

Net Value Royalty (“NVR1”) and Net Value Royalty (Crossroads) (“NVR1C”). The NVR1 royalty is a fixed royalty of 4.91% NVR that covers the area of the GAS Claims, excluding the majority of the Crossroads deposit.  The NVR1C royalty, which covers the majority of the Crossroads deposit, is a fixed royalty of 4.52% NVR.  

We also own three other royalties in the Cortez area where there is currently no production and no reserves attributed to these royalty interests.

Production attributable to our royalty interest at Cortez increased approximately 24% during our fiscal year ended June 30, 2019, when compared to the fiscal year ended June 30, 2018.  The increase was a result of production ramping up at the Crossroads deposit, which is subject to our NVR1C, GSR2 and portions of our NVR1 and GSR3 royalty interests. Initial ore production at Crossroads was realized during calendar 2018.  In calendar 2019, NGM expects Crossroads expansion stripping to transition to production phase stripping.

Peñasquito (Zacatecas, Mexico)

We own a production payment equivalent to a 2.0% NSR royalty on all metal production from the Peñasquito open‑pit mine, located in the State of Zacatecas, Mexico, and operated by a subsidiary of Newmont Goldcorp. The Peñasquito mine is located approximately 17 miles west of the town of Concepción del Oro, Zacatecas, Mexico. The mine, composed of two main deposits called Peñasco and Chile Colorado, hosts large gold, silver, zinc and lead reserves. The deposits contain both oxide and sulfide material, resulting in heap leach and mill processing.  There are two access routes to the site. The first is via a turnoff from Highway 54 onto the State La Pardita road, then onto the Mazapil to Cedros State road. The second access is via the Salaverna by‑pass road from Highway 54 approximately 16 miles south of Concepción del Oro. There is a private airport on site and commercial airports in the cities of Saltillo, Zacatecas and Monterrey.

 

Gold, silver, lead and zinc production attributable to our royalty interest at Peñasquito decreased approximately 58%, 21%, 4% and 38%, respectively, during the fiscal year ended June 30, 2019, when compared to the fiscal year ended June 30, 2018.

 

On April 29, 2019, Newmont Goldcorp reported a temporary suspension of operations at Peñasquito due to a blockade by a trucking contractor and certain community leaders.  Newmont Goldcorp subsequently reported on June 17, 2019 that dialogue with the blockade leaders had started, operations were beginning, and concentrate shipments from the mine and deliveries to the mine resumed.  Newmont Goldcorp reported that operations ramped back up in June 2019 and concentrate inventory levels are now back to normal.  This suspension resulted in significantly lower sales from Peñasquito during the June quarter as we recognized $1.1 million in royalty revenue at Peñasquito compared to $5.4 million in the prior year June quarter.

Newmont Goldcorp expects that grades for gold, silver and lead will improve during the last half of calendar 2019, zinc grades will remain unchanged, and production from Peñasquito will be 165,000 ounces of gold, 25 million ounces of silver, 180 million pounds of lead, and 245 million pounds of zinc for the period April 18 through December 31, 2019.

 

25

Reserve Information

Table 1 below summarizes proven and probable reserves for gold, silver, copper, nickel, zinc, lead, cobalt and molybdenum that are subject to our stream and royalty interests as of December 31, 2018, as reported to us by the operators of the mines.  Properties are currently in production unless noted as development (“DEV”) within the table.  The exploration royalties we own do not contain proven and probable reserves as of December 31, 2018.  Please refer to pages 28-30 for the footnotes to Table 1.

Operators’ Estimated Proven and Probable Gold Reserves

As of December 31, 2018(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold(2)

 

 

 

 

 

 

 

 

PROVEN +

 

 

 

 

 

 

 

 

 

 

PROBABLE

 

RESERVES(3)(4)(5)

 

    

 

    

 

    

 

    

 

    

Average

    

Gold

 

 

 

 

 

 

 

 

Tons of

 

Gold

 

Contained

 

 

 

 

 

 

 

 

Ore

 

Grade

 

Ozs(6)

PROPERTY

 

ROYALTY/METAL STREAM

 

OPERATOR

 

LOCATION

 

(M)

 

(opt)

 

(M)

Bald Mountain

 

1.75% - 2.5% NSR(7)

 

Kinross

 

United States

 

18.950

 

0.023

 

0.436

Cortez GSR1

 

0.40 - 5.0% GSR(8)

 

Nevada Gold Mines LLC

 

United States

 

28.337

 

0.017

 

0.491

Cortez GSR2

 

0.40 - 5.0% GSR(8)

 

Nevada Gold Mines LLC

 

United States

 

108.831

 

0.032

 

3.445

Cortez GSR3

 

0.71% GSR

 

Nevada Gold Mines LLC

 

United States

 

46.697

 

0.016

 

0.753

Cortez NVR1

 

4.91% NVR

 

Nevada Gold Mines LLC

 

United States

 

34.701

 

0.015

 

0.531

Cortez NVR1C

 

4.52% NVR (9)

 

Nevada Gold Mines LLC

 

United States

 

90.471

 

0.035

 

3.183

Gold Hill

 

1.0 - 2.0% NSR(10,11)

 

Kinross

 

United States

 

4.897

 

0.016

 

0.080

 

 

0.6 - 0.9% NSR(12)

 

 

 

 

 

 

 

 

 

 

Goldstrike (SJ Claims)

 

0.9% NSR

 

Nevada Gold Mines LLC

 

United States

 

29.729

 

0.085

 

2.525

Hasbrouck (DEV)

 

1.5% NSR

 

West Kirkland/Clover Nevada

 

United States

 

35.616

 

0.017

 

0.588

Leeville

 

1.8% NSR

 

Nevada Gold Mines LLC

 

United States

 

3.417

 

0.288

 

0.985

Marigold

 

2.0% NSR

 

SSR Mining

 

United States

 

146.720

 

0.013

 

1.863

Pinson (DEV)

 

3.0% NSR(13,14)

 

Waterton Precious Metals Fund

 

United States

 

7.557

 

0.064

 

0.483

 

 

2.94% NSR(13,15)

 

 

 

 

 

 

 

 

 

 

Relief Canyon (DEV)

 

3.0% NSR(16)

 

Americas Silver

 

United States

 

26.204

 

0.017

 

0.436

Robinson

 

3.0% NSR

 

KGHM

 

United States

 

84.310

 

0.005

 

0.413

Ruby Hill

 

3.0% NSR

 

Waterton Precious Metals Fund

 

United States

 

1.726

 

0.014

 

0.024

Twin Creeks

 

2.0% GPR

 

Nevada Gold Mines LLC

 

United States

 

0.876

 

0.065

 

0.057

Wharf

 

0.0 - 2.0% GSR(17)

 

Coeur Mining

 

United States

 

32.850

 

0.026

 

0.855

Back River - Goose Lake (DEV)

 

1.95% GSR(18)

 

Sabina Gold & Silver

 

Canada

 

13.623

 

0.184

 

2.503

Canadian Malartic

 

1.0 - 1.5% NSR(19)

 

Agnico Eagle/Yamana

 

Canada

 

57.843

 

0.029

 

1.682

Holt

 

0.00013 x quarterly avg. gold price

 

Kirkland Lake

 

Canada

 

2.953

 

0.124

 

0.366

Kutcho Creek (DEV)

 

2.0% NSR

 

Capstone Mining

 

Canada

 

11.509

 

0.009

 

0.100

LaRonde Zone 5

 

2.0% NSR

 

Agnico Eagle

 

Canada

 

10.395

 

0.066

 

0.681

Mount Milligan

 

35% of payable gold(20)

 

Centerra Gold

 

Canada

 

493.353

 

0.010

 

4.736

Pine Cove

 

7.5% NPI

 

Anaconda Mining

 

Canada

 

0.979

 

0.037

 

0.036

Rainy River

 

6.5% of gold produced(21)

 

New Gold

 

Canada

 

136.398

 

0.031

 

4.185

Schaft Creek (DEV)

 

3.5% NPI

 

Copper Fox/Teck

 

Canada

 

1,037.054

 

0.006

 

5.775

Williams

 

0.97% NSR

 

Barrick

 

Canada

 

18.017

 

0.059

 

1.068

Dolores

 

3.25% NSR

 

Pan American

 

Mexico

 

49.053

 

0.025

 

1.211

Peñasquito

 

2.0% NSR

 

Newmont Goldcorp

 

Mexico

 

573.654

 

0.016

 

9.110

Andacollo

 

100% of payable gold(22)

 

Teck

 

Chile

 

348.771

 

0.003

 

1.049

La Fortuna (DEV)

 

1.4% NSR(23)

 

Newmont Goldcorp

 

Chile

 

198.103

 

0.013

 

2.674

Don Mario

 

3.0% NSR

 

Orvana

 

Bolivia

 

2.867

 

0.056

 

0.160

Don Nicolas

 

2.0% NSR

 

Compañia Inversora en Minas

 

Argentina

 

1.327

 

0.148

 

0.196

Pueblo Viejo

 

7.5% of payable gold(24)

 

Barrick

 

Dominican Republic

 

84.593

 

0.077

 

6.551

El Limon

 

3.0% NSR

 

B2Gold

 

Nicaragua

 

0.661

 

0.106

 

0.070

La India (DEV)

 

3.0% NSR

 

Condor Gold

 

Nicaragua

 

7.606

 

0.089

 

0.675

Mara Rosa (DEV)

 

2.75% NSR

 

Amarillo Gold

 

Brazil

 

26.235

 

0.041

 

1.087

Balcooma (DEV)

 

1.5% NSR

 

Consolidated Tin

 

Australia

 

0.762

 

0.002

 

0.001

Gwalia Deeps

 

1.5% NSR

 

St . Barbara

 

Australia

 

11.550

 

0.191

 

2.205

Jaguar Nickel (DEV)

 

1.5% NSR

 

Washington H. Soul Pattinson

 

Australia

 

1.323

 

0.008

 

0.010

King of the Hills

 

1.5% NSR

 

Red 5

 

Australia

 

0.794

 

0.112

 

0.089

Meekatharra

 

1.5% NSR(25)

 

Westgold Resources

 

Australia

 

6.246

 

0.074

 

0.460

South Laverton

 

1.5% NSR

 

Saracen

 

Australia

 

17.207

 

0.072

 

1.232

Southern Cross

 

1.5% NSR

 

Shandong Tianye

 

Australia

 

9.639

 

0.099

 

0.959

Wembley Durack (DEV)

 

1.0% NSR

 

Westgold Resources

 

Australia

 

0.362

 

0.055

 

0.020

Inata

 

2.5% GSR

 

Balaji Group

 

Burkina Faso

 

6.352

 

0.054

 

0.340

Taparko(26)

 

2.0% GSR  

 

Nord Gold

 

Burkina Faso

 

6.504

 

0.074

 

0.483

Prestea

 

10.5% of payable gold (27)

 

Golden Star Resources

 

Ghana

 

0.853

 

0.372

 

0.317

Wassa

 

10.5% of payable gold (27)

 

Golden Star Resources

 

Ghana

 

18.606

 

0.079

 

1.473

 

26

Operators’ Estimated Proven and Probable Silver Reserves

As of December 31, 2018(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Silver(28)

 

 

 

 

 

 

 

 

PROVEN +

 

RESERVES

 

 

 

 

 

 

 

 

PROBABLE

 

(3)(4)(5)

 

 

 

 

 

 

 

 

 

 

Average

 

Silver

 

 

 

 

 

 

 

 

Tons of