UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 |
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FORM 10-Q |
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Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended September 30, 2001 |
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Commission File Number 0-5664 |
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(Name, State of Incorporation, Address and Telephone Number) |
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(a Delaware corporation)
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ROYAL GOLD, INC.
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202-1132
(303) 573-1660
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I.R.S. Employer Identification Number84-0835164 |
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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 X No |
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. |
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Class of Common Stock | Outstanding at November 1, 2001 |
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$0.01 Par Value | 17,896,564 Shares |
INDEX
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PART I | FINANCIAL STATEMENTS | PAGE |
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Item 1 | | Financial Statements | |
| | | Consolidated Balance Sheets | 3 |
| | | Consolidated Statements of Operation | 5 |
| | | Consolidated Statements of Cash Flows | 6 |
| | | Notes to Consolidated Financial Statements | 8 |
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Item 2. | | Management's Discussion and Analysis of Financial Condition and
Results of Operations |
13
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PART II | OTHER INFORMATION | |
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Item 6. | | Exhibits and Reports on Form 8-K | 14 |
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SIGNATURES | 15 |
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995. With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements regarding projected revenues, cash flows, profits, reserves, mineralization, planned levels of expenditures, settlement of the Casmalia matter, and that the Company envisions that further growth will more likely occur as a result of acquisitions, rather than from exploration. Factors that could cause actual results to differ materially from the projections incorporated herein include, among others, changes in precious metals prices, decisions and activities of the operators of our royalty properties, unanticipated grade, geological, metallurgical, processing or other problems, changes in project parameters as plans con tinue to be refined, economic and market conditions, future financial needs, the availability of acquisitions, and the ability to reach a definitive court approved settlement of the Casmalia matter, as well as other factors described elsewhere in this report. Most of these factors are beyond the Company's ability to predict or control. The Company disclaims any obligation to update any forward-looking statement made herein. Readers are cautioned not to put undue reliance on forward-looking statements.
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| | September 30, | | | June 30, | |
Current liabilities | | 2001 | | | 2001 | |
Accounts payable | $ | 676,265 | | $ | 485,785 | |
Dividend payable | | 0 | | | 894,490 | |
Accrued compensation | | 225,000 | | | 150,000 | |
Other | | 43,033 | | | 43,034 | |
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Total current liabilities | | 944,298 | | | 1,573,309 | |
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Other liabilities | | 125,456 | | | 127,100 | |
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Commitments and contingencies (note 5) | | | | | | |
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Stockholders' equity | | | | | | |
Common stock, $.01 par value, authorized
40,000,000 shares; and issued 18,122,790 and
18,101,622 shares, respectively | | 181,228 | | | 181,016 | |
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Additional paid-in capital | | 55,868,012 | | | 55,868,222 | |
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Accumulated other comprehensive income | | 0 | | | (553,472 | ) |
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Accumulated deficit | | (38,464,800 | ) | | (38,837,098 | ) |
| | 17,584,440 | | | 16,658,668 | |
Less treasury stock, at cost (226,226 shares) | | (1,096,872 | ) | | (1,096,872 | ) |
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Total stockholders' equity | | 16,487,568 | | | 15,561,796 | |
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Total liabilities and stockholders' equity | $ | 17,557,322 | | $ | 17,262,205 | |
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| | For The Three Months Ended | |
| | September 30, | | | September 30, | |
| | 2001 | | | 2000 | |
Royalty revenues | $ | 2,831,633 | | $ | 1,537,944 | |
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Costs and expenses | | | | | | |
Costs of operations | | 218,389 | | | 209,827 | |
General and administrative | | 445,617 | | | 385,835 | |
Exploration and business development | | 122,321 | | | 133,658 | |
Depreciation and depletion | | 596,810 | | | 228,491 | |
Total costs and expenses | | 1,383,137 | | | 957,811 | |
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Operating income | | 1,448,496 | | | 580,133 | |
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Interest and other income | | 37,858 | | | 61,789 | |
Gain (loss) on marketable securities | | (1,075,393 | ) | | 0 | |
Interest and other expense | | 31,064 | | | 0 | |
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Income before income taxes | | 379,897 | | | 641,922 | |
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Income tax expense | | 7,598 | | | 12,838 | |
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Net earnings | $ | 372,299 | | $ | 629,084 | |
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Adjustments to comprehensive income | | | | | | |
Unrealized change in market value of available for
sale securities | | 553,472 | | | (29,687 | ) |
Comprehensive income | $ | 925,771 | | $ | 599,397 | |
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Basic earnings per share | $ | 0.02 | | $ | 0.04 | |
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Basic weighted average shares outstanding | | 17,889,776 | | | 17,740,422 | |
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Diluted earnings per share | $ | 0.02 | | $ | 0.04 | |
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Diluted weighted average shares outstanding | | 18,025,341 | | | 17,872,443 | |
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| | For The Three Months Ended | |
| | September 30, | | | September 30, | |
| | 2001 | | | 2000 | |
Cash flows from investing activities | | | | | | |
Capital expenditures for property and equipment | $ | (8,956 | ) | $ | (37,401 | ) |
Decrease in other assets | | 31,323 | | | 5,020 | |
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Net cash provided by (used in) investing activities | | 22,367 | | | (32,381 | ) |
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Cash flows from financing activities: | | | | | | |
Dividends | | (894,490 | ) | | (885,004 | ) |
Proceeds from issuance of common stock | | 2 | | | 8,750 | |
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Net cash provided by (used in) financing activities | | (894,488 | ) | | (876,254 | ) |
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Net increase (decrease) in cash and equivalents | | 340,697 | | | (125,090 | ) |
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Cash and equivalents at beginning of period | | 4,578,278 | | | 4,647,160 | |
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Cash and equivalents at end of period | $ | 4,918,975 | | $ | 4,522,070 | |
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Bald Mountain |
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Effective January 1, 1998, the Company purchased a 50% undivided interest in a sliding-scale net smelter returns royalty that burdens a portion of the Bald Mountain mine, in White Pine County, Nevada. Bald Mountain is an open pit, heap leach mine operated by Placer Dome U.S. Inc. |
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Mule Canyon |
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In fiscal 1999, the Company purchased a 5% NSR royalty on a portion of the Mule Canyon mine, operated by Newmont Gold Company. |
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Yamana Resources |
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In fiscal 2000, the Company purchased a 2% NSR royalty on Yamana Resources' properties in Argentina. |
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2. | AVAILABLE FOR SALE SECURITIES |
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The Company holds available for sale securities in a number of mining and exploration companies. The Company realized a loss of $1,075,393 on these securities for the three months ended September 30, 2001. |
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On October 29, 2001, Yamana Resources Inc. announced that mining at the Martha mine had been temporarily suspended. Yamana also stated that surface operations will continue to sort and bag existing inventories of broken ore until all of it has been shipped, and that it is in discussion with its project lender with respect to refinancing alternatives. Yamana's loan matures on December 31, 2001. Based on all of this information, the Company revalued its available for sale securities in Yamana to current market value. |
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3. | EARNINGS PER SHARE ("EPS") COMPUTATION |
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At September 30, 2000, options to purchase 1,000,532 shares of common stock were outstanding, at an average price of $5.66 per share, but were not included in the computation of diluted EPS because the exercise price of the options was greater than the average market price of the common shares. |
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4. | FINANCIAL ACCOUNTING STANDARD NO. 133 |
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In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities ("SFAS 133").
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (July 1, 2000 for the Company), and establishes accounting and reporting standards for derivative instruments and hedging activities. The Company has been engaged in limited trading activities utilizing puts. In the near term, the Company will continue to mark its open positions to market and record the difference in the carrying value to current earnings. During the first three months of fiscal 2002, the Company recorded mark to market losses of $21,123 in operations related to puts. |
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5. | COMMITMENTS AND CONTINGENCIES |
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Casmalia |
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The Company received notice, on March 24, 2000, that the U.S. Environmental Protection Agency ("EPA") had identified Royal Resources, Inc. (Royal Gold's corporate predecessor) as one of 22,000 potentially responsible parties ("PRPs"), along with many oil companies, for clean-up of a fully-permitted hazardous waste landfill at Casmalia, Santa Barbara County, California, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("Superfund"). The Company's alleged PRP status stemmed from oil and gas exploration activities undertaken by Royal Resources in California during 1983-84. |
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At the end of June 2001, the Company agreed, in principle, subject to the drafting of an acceptable consent decree, to accept financial responsibility for approximately two million pounds of customary oil and gas well drilling mud, and to settle with the EPA. |
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6. | GENERAL |
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The unaudited financial statements as of September 30, 2001, and for the three months ended
September 30, 2001 and 2000, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of financial position, results of operations, and cash flows on a basis consistent with that of the prior audited consolidated financial statements. |
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Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, it is suggested that these financial statements be read in connection with the audited financial statements and the notes included in the Company's Annual Report on Form 10-K as of June 30, 2001. |
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Royal Gold is engaged in the acquisition of precious metals royalties and in the exploration and development of precious metals properties. |
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The Company seeks to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. The Company also explores and develops properties thought to contain precious metals and seeks to obtain royalty and other carried ownership interests in other mining companies. Substantially all of the Company's revenues are and can be expected to be derived from royalty interests, rather than from mining operations conducted by the Company. |
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At September 30, 2001, the Company had current assets of $7,440,392 compared to current liabilities of $944,298 for a current ratio of 8 to 1. This compares to current assets of $6,004,176 and current liabilities of $1,573,309 at June 30, 2001, resulting in a current ratio of 4 to 1. |
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During the quarter ended September 30, 2001, liquidity needs were met from $2,831,633 in royalty revenues from production at the Pipeline Mining Complex, Yamana, and at Bald Mountain, the Company's available cash resources, and interest and other income of $37,858. |
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The Company recorded a non-cash charge of $1,075,392 related to its available for sale securities. The decline in value of these securities was deemed to be other-than-temporary and therefore the decline in value was recognized. |
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On October 29, 2001, Yamana Resources Inc. announced that mining at the Martha mine had been temporarily suspended. Yamana also stated that surface operations will continue to sort and bag existing inventories of broken ore until all of it has been shipped, and that it is in discussion with its project lender with respect to refinancing alternatives. Yamana's loan matures on December 31, 2001. Based on all of this information, the Company revalued its available for sale securities in Yamana to current market value. |
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For fiscal 2002, the Company anticipates production of more than one million ounces of gold at the Pipeline Mining Complex, which includes the processing of carbonaceous ore, based on estimates from Cortez. Production at the Pipeline Mining Complex was approximately 315,000 ounces of gold during the quarter ended September 30, 2001. |
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The Company has obtained a $10 million line of credit from HSBC that may be used to acquire producing royalties. At this time no funds have been drawn under the line. |
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The Company will continue to explore its remaining properties, with a view to enhance the value of any such properties prior to possible farm out to major mining company partners. |
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The Company's current financial resources and sources of income should be adequate to cover the Company's anticipated expenditures for general and administrative costs, exploration and business development costs, and capital expenditures for the foreseeable future. |
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RESULTS OF OPERATIONS |
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Quarter Ended September 30, 2001, Compared with Quarter Ended September 30, 2000 |
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For the quarter ended September 30, 2001, the Company recorded net earnings of $372,299, or $0.02 per diluted share, as compared to net earnings of $629,084 or $0.04 per diluted share, for the quarter ended September 30, 2000. Net earnings for the current quarter reflect $2.8 million in royalty revenues. |
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The Company received royalty revenues of $2.6 million from its royalties at the Pipeline Mining Complex. The Company also received $0.1 million from its royalty at Bald Mountain and $0.1 million from royalties from Yamana. For the quarter ended September 30, 2000, the Company received royalty revenues of $1,537,944. This increase resulted from production at the Pipeline Mining Complex of approximately 315,000 ounces of gold this year versus approximately 188,000 ounces of gold in the prior year period. |
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Cost of operations increased compared to the quarter ended September 30, 2000, primarily related to Nevada Net Proceeds Tax expenditures associated with the increased royalties at the Pipeline Mining Complex, somewhat offset by lower mark to market costs of gold put contracts. |
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General and administrative expenses of $445,617 for the quarter ended September 30, 2001, increased compared to $385,835 for the quarter ended September 30, 2000, primarily because of decreased allocation of employee costs to exploration consistent with the Company's decreased emphasis on exploration. |
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Exploration and business development expenses decreased from $133,658 for the quarter ended September 30, 2000, to $122,321 for the quarter ended September 30, 2001, primarily due to decreased expenditures at the Milos Gold project, somewhat offset by increased business development costs. |
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Depreciation and depletion increased from $228,491 for the quarter ended September 30, 2000, to $596,810 for the quarter ended September 30, 2001, primarily due to increased production at the Pipeline Mining Complex and the increased depletion associated with the Company's purchase of the GSR3 royalty at the Pipeline Mining Complex, because the royalty rate increased from 0.475% to 0.7125%. |
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The Company recorded a non-cash charge of $1,075,392 related to its equity investments. The decline in value of these securities was deemed to be other-than-temporary and therefore the decline in value was recognized. |
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Interest and other income decreased from $61,789 for the quarter ended September 30, 2000 to $37,858 for the quarter ended September 30, 2001, primarily due to lower interest rates received on invested funds. |
