FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-5664
ROYAL GOLD, INC.
----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0835164
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SUITE 1000
1660 WYNKOOP STREET
DENVER, COLORADO 80202-1132
-------------------------------------- --------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 573-1660
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
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, and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OF OUTSTANDING AT
COMMON STOCK MAY 1, 2000
------------ --------------
$.01 PAR VALUE 17,860,822 SHARES
ROYAL GOLD, INC.
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets ................... 3-4
Consolidated Statements of Operations ......... 5-6
Consolidated Statements of Cash Flows ......... 7-8
Notes to Consolidated Financial
Statements ..................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 16
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................ 22
SIGNATURES .................................................. 23
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 future revenues from our principal royalties,
planned levels of exploration and other expenditures, timing of production
and schedules for development. Factors that could cause actual results to
differ materially from projected results include, among others, variations in
production results at the Pipeline Mining Complex, decisions and activities
of various mine operators, unanticipated grade, geological, metallurgical,
processing or other problems, conclusions of feasibility studies, changes in
project parameters as plans continue to be refined, the timing of receipt of
governmental permits, the failure of plant, equipment or processes to operate
in accordance with specifications or expectations, results of current
exploration activities, accidents, delays in start-up dates, environmental
costs and risks, changes in gold prices, as well as other factors. 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.
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, June 30,
2000 1999
---------- ----------
Current Assets
Cash and equivalents $ 3,419,663 $ 4,670,476
Marketable securities 1,002,198 4,014,418
Trade and other receivables 443,808 570,212
Royalties receivable in gold 1,927,305 64,218
Inventory 6,516 92,440
Prepaid expenses and other 2,278 34,946
Available for sale securities (note 5) 1,154,995 0
---------- ----------
Total current assets 7,956,763 9,446,710
Property and equipment, at cost
Mineral properties 11,320,170 3,044,135
Furniture, equipment and improvements 723,906 711,558
---------- ----------
12,044,076 3,755,693
Less accumulated depreciation,
depletion and amortization (2,368,331) (1,445,358)
---------- ----------
Net property and equipment 9,675,745 2,310,335
Other assets 35,767 57,767
---------- ----------
$ 17,668,275 $ 11,814,812
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
3
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2000 1999
---------- ----------
Current Liabilities
Accounts payable $ 683,486 $ 631,565
Current portion on notes payable 1,000,000 0
Accrued liabilities
Post retirement benefits 26,400 26,400
Accrued compensation 177,897 190,000
Other 62,562 16,496
---------- ----------
Total current liabilities 1,950,345 864,461
Notes payable 0 0
Post retirement benefit liabilities 61,297 81,098
Commitments and contingencies (Notes 2, 3 and 9)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 17,860,822 and 17,321,322
shares, respectively 178,608 173,213
Additional paid-in capital 55,840,531 54,027,150
Unrealized loss on available
for sale securities (165,493) 0
Accumulated deficit (39,153,383) (42,148,880)
---------- ----------
16,700,263 12,051,483
Less treasury stock, at cost
(210,726 and 238,726 shares, respectively) (1,043,630) (1,182,230)
---------- ----------
Total stockholders' equity 15,656,633 10,869,253
---------- ----------
$ 17,668,275 $ 11,814,812
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
4
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended
March 31,
--------------------------
2000 1999
---------- ----------
Royalty revenues $ 7,353,854 $ 774,418
Gain on gold inventory 68,677 634
Consulting revenues 8,000 12,575
Costs and expenses
Costs of operations 523,457 273,654
Direct costs of consulting 347 1,625
General and administrative 1,400,513 1,208,084
Exploration 1,444,552 2,245,118
Lease maintenance and holding costs 198,560 379,699
Depreciation and amortization 922,974 342,571
---------- ----------
Total costs and expenses 4,490,403 4,450,751
---------- ----------
Operating earnings (loss) 2,940,128 (3,663,124)
Interest and other income 218,295 538,401
Gain (loss) on marketable securities (5,444) (26,256)
Interest expense 96,351 0
---------- ----------
Earnings (loss) before income tax 3,056,628 (3,150,979)
Income tax expense 61,132 0
---------- ----------
Net earnings (loss) $ 2,995,496 $ (3,150,979)
========== ==========
Net earnings (loss) per share $ 0.17 $ (0.19)
Weighted average basic shares outstanding 17,480,431 17,007,727
Diluted earnings per share $ 0.17 $ (0.19)
Weighted average diluted shares outstanding 17,712,631 17,007,727
Adjustments to comprehensive income
Unrealized loss on available
for sale securities $ (165,493) $ 0
---------- ----------
Comprehensive income $ 2,830,003 $ (3,150,979)
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
5
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31,
--------------------------
2000 1999
---------- ----------
Royalty revenues $ 2,508,488 $ 139,466
Gain (loss) on gold inventory (116,585) 1,215
Consulting revenues 2,000 3,000
Costs and expenses
Costs of operations 150,575 132,419
Direct costs of consulting 0 0
General and administrative 370,913 391,462
Exploration 415,290 699,568
Lease maintenance and holding costs 11,374 52,365
Depreciation and amortization 307,488 44,517
---------- ----------
Total costs and expenses 1,255,640 1,320,331
---------- ----------
Operating earnings (loss) 1,138,263 (1,176,650)
Interest and other income 67,453 131,415
Gain (loss) on marketable securities 0 (8,845)
Interest expense 40,101 0
---------- ----------
Earnings (loss) before income tax 1,165,615 (1,054,080)
Income tax expense 23,312 0
---------- ----------
Net earnings (loss) $ 1,142,303 $ (1,054,080)
========== ==========
Net earnings (loss) per share $ 0.06 $ (0.06)
Weighted average basic shares outstanding 17,641,327 17,012,787
Diluted earning (loss) per share $ 0.06 $ (0.06)
Weighted average diluted shares outstanding 17,873,527 17,012,787
Adjustments to comprehensive income
Unrealized loss on available
for sale securities $ (165,493) $ 0
---------- ----------
Comprehensive income $ 976,810 $ (1,054,080)
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
6
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 31, March 31,
2000 1999
---------- ----------
Cash flows from operating activities
Net earnings (loss) $ 2,995,496 $ (3,150,979)
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 922,974 342,571
Loss on marketable securities 5,444 26,256
(Gain) loss on gold inventory (68,677) (634)
Non-cash stock issuance 136,500 0
(Increase) decrease in:
Marketable securities 6,776 (4,968)
Trade and other receivables 126,404 298,078
Royalties receivable in gold (1,794,410) (22,817)
Inventory 85,924 69,735
Prepaid expenses and other 32,668 (2,327)
Increase (decrease) in:
Accounts payable and accrued liabilities 85,885 50,785
Post retirement liabilities (19,801) (19,800)
---------- ----------
Total Adjustments (480,313) 736,879
---------- ----------
Net cash provided by (used in) operating
activities 2,515,183 (2,414,100)
Cash flows from investing activities
Purchase of available for sale securities (1,320,488) 0
Maturity of marketable securities 3,000,000 0
Capital expenditures for
property and equipment (8,288,384) (658,297)
(Increase)decrease in other assets 22,000 (200)
---------- ----------
Net cash provided by (used in) investing
activities $ (6,586,872) $ (658,497)
The accompanying notes are an integral part of
these consolidated financial statements.
7
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
March 31, March 31,
2000 1999
---------- ----------
Cash flows from financing activities
Proceeds from issuance of debt $ 1,000,000 $ 0
Proceeds from issuance of common stock 1,820,876 42,626
Purchase of common stock 0 (273,587)
---------- ----------
Net cash provided by (used in) financing
activities 2,820,876 (230,961)
Net increase (decrease) in cash and equivalents (1,250,813) (3,303,558)
Cash and equivalents at beginning of period 4,670,476 8,462,083
---------- ----------
Cash and equivalents at end of period $ 3,419,663 $ 5,158,525
========== ==========
Supplemental disclosure of non-cash activities:
28,000 shares of treasury stock were issued as a non-cash expenditure
during the quarter ended December 31, 1999.
The accompanying notes are an integral part of
these consolidated financial statements
8
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For a more complete understanding of the business and operations of Royal Gold,
Inc., please refer to the Report on Form 10-K of Royal Gold, Inc. for the annual
period ended June 30, 1999.
1. PROPERTY AND EQUIPMENT
The net carrying value of the Company's property and equipment consists of
the following components at March 31, 2000, and June 30, 1999:
March 31, June 30,
2000 1999
---------- ----------
Mineral Interests:
Pipeline GSR #1 $ - $ -
Pipeline GSR #2 - -
Pipeline GSR #3 7,444,259 -
Bald Mountain Royalty 1,714,981 1,956,825
Yamana Royalties 170,565 -
Other 300,823 300,823
9,630,628 2,257,648
---------- ----------
Office furniture, equipment
and improvements 45,117 52,687
---------- ----------
Net property and equipment $ 9,675,745 $ 2,310,335
========== ==========
As discussed in the following paragraphs, activity is being conducted on
substantially all of the properties where the Company has royalty
interests. The recoverability of the carrying value of capitalized
projects is evaluated based upon undiscounted estimated future net cash
flows from each property's proven and probable reserves. Reductions in
the carrying value of each property are recorded to the extent that the
Company's carrying value in each property exceeds its estimated future
discounted cash flows.
Presented below is a discussion of the status of each of the Company's
significant mineral interests.
A. PIPELINE MINING COMPLEX ROYALTIES
Effective July 1, 1999, the Company converted its 20% net profits
interest at South Pipeline into several gross smelter return royalties
extending over the mining complex that includes the Pipeline and South
9
Pipeline deposits. The Pipeline Mining Complex is owned by the Cortez
Joint Venture, a joint venture of Placer Cortez Inc. and Kennecott
Explorations (Australia) Ltd.
The royalty interests that Royal Gold holds as a result of the July 1,
1999 transaction include:
A) A sliding scale gross smelter returns ("GSR") royalty for all gold
produced from the "Reserve Claims" (52 claims that encompass all of
the presently known reserves, as of July 1, 1999, that make up the
Pipeline and South Pipeline deposits). The GSR on the Reserve Claims,
known as GSR #1, is tied to the gold price, with a floor of 0.40% GSR
below $210 per ounce of gold, and is capped at a 5% GSR for a gold
price of $470 per ounce or higher. At a gold price of between $270
and $310 per ounce, the GSR on the Reserve Claims is 2.25%.
B) A sliding scale GSR for all gold produced from certain GAS Claims
(296 claims immediately south and east of the Reserve Claims). This
royalty, known as GSR #2, is tied to the gold price, with a floor of
0.72% GSR below $210 per ounce of gold, and is capped at a 9% GSR for
a gold price of $470 per ounce or higher.
C) A 10% GSR on all gold and silver produced from any of the GAS
Claims from January 1, 1999, until the commencement of commercial
production from the South Pipeline deposit.
D) A 7% GSR on all silver produced from any of the Reserve Claims or
GAS Claims, commencing July 1, 1999.
Effective September 1, 1999, the Company acquired, for approximately
$8 million, 47.5 percent of a group of overriding royalty interests on
mineral production from some 6,000 acres of contiguous lands in Lander
County, Nevada, that, in the aggregate, covers the Pipeline gold mine
and the South Pipeline gold deposit. The overriding royalty interests
so purchased by the Company and identified collectively as GSR #3 may
be summarized as follows: (i) 0.475% of the gross value of all mineral
production from lands encompassed by 50 designated and unpatented
mining claims situated in Lander County, until a total of 3.7 million
troy ounces of gold has been produced from such lands (2.9 million
ounces have been produced as of March 31, 2000), and, thereafter,
0.7125% of the gross value of any subsequent mineral production from
such lands; and (ii) 0.7125% of the gross value of all mineral
10
production from any lands encompassed by the 348 mining claims already
subject to GSR #1 and GSR #2.
B. BALD MOUNTAIN
Effective January 1, 1998, Royal Gold acquired a 1.75% net smelter
returns royalty that burdens a portion of the current reserves at the
Bald Mountain Mine, White Pine County, Nevada. Bald Mountain is owned
and operated by Placer Dome U.S. Inc.
C. YAMANA ROYALTIES
Effective February 1, 2000, the Company acquired a 2% net smelter
returns royalty on all mineral production from any of Yamana's twenty-
one exploration and nineteen development properties in Santa Cruz
Province, Argentina. Yamana's mineral holding in Santa Cruz encompass
about 148,000 hectares.
2. INCOME TAXES
At June 30, 1999, the Company had an estimated net operating loss
carryforward for federal income tax purposes of approximately $24.7
million. If not used, the net operating loss carryforwards will expire
during the years 2001 through 2017. The Company's ability to generate
future taxable income to realize the benefit of its tax assets will depend
primarily on the spot price of gold. Due to net losses as a result of
depressed gold prices, a full valuation allowance of $11,528,157 was
established for the net deferred tax assets at June 30, 1999. The
continued volatility of the gold price makes it uncertain as to the
ultimate realization of these net deferred tax assets. However, the
benefits of prior losses, which are limited to fiscal year 2000 earnings,
are being recognized in fiscal year 2000 through an adjustment of the
valuation allowance.
3. ROYALTIES RECEIVABLE IN GOLD
At March 31, 2000, the value of 6,928 ounces of gold, related to the March
31 quarterly production from GSR #1 at the Pipeline Mining Complex, were
recorded as a receivable. This gold was received by the Company on May 1,
2000.
11
4. INVENTORY
Gold inventory on the balance sheet consists of refined gold bullion held
in uninsured accounts and gold coin inventory. The refined gold is stored
by the Company's refiner in Utah. The inventory is carried at market value
at the end of the period with unrealized gains or losses included in the
results of operations for the period. During the quarter ended March 31,
2000, all gold inventory was sold and at March 31, 2000, the Company held
no gold bullion in inventory. Inventory at March 31, 2000 consisted of
gold coins held for sale.
5. AVAILABLE FOR SALE SECURITIES
The Company classifies its equity security investments as available for
sale in accordance with SFAS 115. The book value of these securities are
marked to market quarterly with any unrealized gains or losses reported in
comprehensive income.
6. CURRENT NOTE PAYABLE
The Company has a $1,000,000 demand loan outstanding with HSBC Bank USA
(formerly Republic National Bank). This loan is collateralized by
$1,000,000 in U.S. Treasury obligations that are held by HSBC and carries
interest calculated at the prime rate.
7. SHAREHOLDERS' EQUITY
The Company issued 452,500 shares of common stock under its shelf
registration statement which generated proceeds of $1,810,000 and received
$10,875 from the exercise of 87,000 stock options. The Company also
granted 28,000 shares of treasury stock to non-employee directors. This
issuance was recorded at a market price of $4.875, the stock price on the
date of the grant.
12
8. EARNINGS PER SHARE COMPUTATION
For the three months ended March 31, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ----------- ----------
BASIC EPS
Earnings to
common stockholders $ 1,142,303 17,641,327 $ 0.06
Effect of
dilutive securities
Options - 232,200 -
------------- ----------- ----------
DILUTED EPS $ 1,142,303 17,873,527 $ 0.06
============= =========== ==========
For the nine months ended March 31, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ----------- ----------
BASIC EPS
Earnings to
common stockholders $ 2,995,496 17,480,431 $ 0.17
Effect of
dilutive securities
Options - 232,200 -
------------- ----------- ----------
DILUTED EPS $ 2,995,496 17,712,631 $ 0.17
============= =========== ==========
At March 31, 2000, options to purchase 1,005,532 shares of common stock,
at an average price of $5.66 per share, were not included in the
computation of diluted EPS because the exercise price of these options was
greater than the market price of the common shares at March 31, 2000. At
March 31, 1999, options to purchase 423,520 shares of common stock, at an
average price of $0.13 per share, were not included in the computation of
diluted EPS because the Company experienced a net loss in the quarter and
the nine month period and these options are anti-dilutive. Options to
purchase 820,498 shares of common stock, at an average price of $6.13 per
share, were outstanding at March 31, 1999, but were not included in the
13
computation of diluted EPS for the quarter and nine month period because
the exercise price of these options was greater than the market price of
the common shares at March 31, 2000.
9. CONTINGENCIES AND COMMITMENTS
The operations and activities conducted on the properties in which the
Company holds mineral interests are subject to various federal, state, and
local laws and regulations governing protection of the environment. These
laws are continually changing and are generally becoming more restrictive.
Management believes that the Company is in material compliance with all
applicable laws and regulations.
On March 24, 2000, the Company received notice from the U.S. Environmental
Protection Agency ("EPA") that EPA had identified "Royal Resources, Inc."
(corporate predecessor to the Company) as one of 22,000 potentially
responsible parties ("PRPs") for the clean-up, under the federal
Comprehensive Environmental Response, Cleanup and Liability Act
("Superfund"), of a fully-permitted, yet now bankrupt, hazardous waste
disposal and treatment facility at Casmalia, in Santa Barbara County,
California. The Company's liability, if any, for clean-up of the Casmalia
site would arise out of oil and gas exploration activities undertaken by
Royal Resources in Ventura County, California, in 1983 and 1984.
The Company is evaluating its potential liability in this matter and is
gathering relevant information and data so that it can respond
appropriately to the EPA's allegations.
10. GENERAL
The unaudited financial statements as of March 31, 2000, and for the three
and nine months ended March 31, 2000 and 1999 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.
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
14
audited financial statements and the notes included in the Company's
Annual Report on Form 10-K as of June 30, 1999.
15
ROYAL GOLD, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Royal Gold is engaged in the acquisition of precious metal royalties and
in the management and development of precious metal properties.
The Company's primary business strategy is to acquire royalties and other
carried ownership interests in precious metal mining properties through
the direct acquisition of such interests, financing properties in
production or near production and through exploration and development
activity (and subsequent transfer of the operating interest in the subject
properties to other firms). 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.
The Company has continued to explore its properties and anticipates
continued exploration activities for the remainder of the fiscal year.
The Company's long-term viability is ultimately dependent upon the
acquisition of royalties and the successful exploration and subsequent
development and operation by others of the Company's mineral interests.
It can be anticipated, because of the nature of the business, that
exploration on many of these properties will prove unsuccessful and that
the Company will terminate its interest in such properties. As
significant results are generated, at any such property, the Company will
re-evaluate the property and may substantially increase or decrease the
level of expenditures on that particular property. The profitability and
reserves of the Company are affected by the prevailing gold price.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had a working capital surplus of
$6,006,418. Current assets were $7,956,763, compared to current
liabilities of $1,950,345, for a current ratio of 4.1 to 1. This compares
to current assets of $9,446,710, and current liabilities of $864,641, at
June 30, 1999, resulting in a current ratio of 11 to 1.
The Company's liquidity needs are generally being met from its available
cash resources, royalty income, interest income, and the issuance of
common stock. During the first nine months of fiscal 2000, the Company
earned $7,024,057 from its royalty interest at the Pipeline Mining
Complex, and $329,575 from its royalty interest at Bald Mountain. The
Company also earned $218,295 in interest income on its cash and marketable
securities portfolio during the nine month period. This marketable
securities portfolio is invested in U.S. treasury notes with maturities of
two months or less. These marketable securities have a market value of
$999,380 and an adjusted cost basis of $1,002,198.
16
During the nine month period, the Company issued 452,500 shares of common
stock under its shelf registration statement which generated proceeds of
$1,810,000 and received $10,875 from the exercise of 87,000 stock options.
The Company entered into a $2,000,000 demand loan agreement with HSBC Bank
USA (formerly Republic National Bank) and has paid down the balance
outstanding to $1,000,000. The loan outstanding is collateralized by
$1,000,000 in U.S. Treasury obligations that are held by HSBC.
Management believes its cash resources will be adequate to fund planned
operations for the foreseeable future, based on production estimates from
Cortez, the operator or the Pipeline Mining Complex. The Company's
royalties are expected to yield approximately $8.5 million to the Company
in fiscal year 2000 based on the current gold price of $275 per ounce.
The Company's anticipated gold production is entirely unhedged. The
Company anticipates receiving $350,000 to $450,000 for the fiscal year in
revenues, based on production estimates from the operator, from its
interest at Bald Mountain, assuming a current gold price of $275 per
ounce.
The Company anticipates total general and administrative expenses for
fiscal 2000 to be approximately $1,700,000, of which $1,400,513 has been
spent to date. The Company also anticipates expenditures for exploration
and property holding costs to be approximately $1,900,000, of which
$1,643,112 has been spent. On a prospective basis, these amounts could
increase or decrease significantly, based on exploration results and
decisions about releasing or acquiring additional properties, among other
factors.
RESERVES
The Company has been advised by Placer Dome U.S. Inc. ("PDUS"), the 60%
owner and operator of Cortez Gold Mines, that Cortez has updated the
reserve estimate for the Pipeline Mining Complex, as of December 31, 1999,
using a gold price of $325 per ounce. As of December 31, 1999, proven and
probable reserves at the Pipeline Mining Complex were 159.1 million tons,
at an average grade of 0.052 ounces of gold per ton, containing
approximately 8.2 million ounces of gold.
PDUS, the operator of the Bald Mountain Mine, reports that as of December
31, 1999, at a $325 gold price, the proven and probable reserves related
to Royal Gold's royalty includes 10.2 million tons of ore, at an average
grade of 0.069 ounce of gold per ton, containing approximately 704,000
ounces of gold. In addition to the proven and probable reserves, the
17
operator reports that the Bald Mountain property contains additional
mineralization of 8.6 million tons of mineralized material, at an average
grade of 0.04 ounces per ton of gold.
YAMANA RESOURCES INC.
On February 1, 2000, the Company agreed to acquire, via a private
placement, three million units of Yamana Resources Inc. for Cdn $1.8
million or U.S. $1.3 million based on the exchange rates at closing. Each
Unit consists of one common share of Yamana and one-half of a warrant,
with each full warrant entitling Royal Gold to purchase another common
share of Yamana within a three-year period at Cdn $0.50 per share. Yamana
common stock is traded on Toronto Stock Exchange and the securities
purchased by the company will be restricted from public sale for ninety
days.
Royal Gold also purchased, for U.S. $150,000, a 2% net smelter returns
royalty on all mineral production from any of Yamana's properties,
including the high-grade silver property known as the Martha mine, at the
Bacon prospect, and the high-grade gold property known as Coyote, at the
Martinetas prospect.
Yamana's mineral holdings in the Santa Cruz Province of Argentina
encompass about 148,000 hectares. The most advanced of these properties
is the Martha mine, where permitting is now underway for a direct shipping
ore ("DSO") mining operation that is expected to be the first phase of a
four-phase mining program at Bacon. In a DSO project, high-grade ore is
shipped directly to a smelter, and no on-site processing is required.
Yamana has advised Royal Gold that it expects the Martha mine to be in
production by the first quarter of 2001, and that the DSO ore shoots at
Bacon are expected to produce about four million ounces of silver
equivalent within the first year of operations.
Royal Gold now holds approximately 7% of the issued and outstanding shares
of Yamana. Royal Gold's exercise of the warrants would increase its stake
in Yamana. All of the Yamana shares, and any shares acquired upon the
exercise of the warrants, will be subject to certain restrictions upon any
proposed resale.
INYO GOLD PROJECT
Effective March 31, 2000, the Company terminated its five year option
agreement that would have allowed the Company to acquire 105 of the claims
18
that make up the Inyo Gold Project for a cost of $900,000 plus accrued
interest from Standard Industrial Minerals, Inc.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2000, COMPARED TO THE QUARTER ENDED MARCH
31, 1999
For the quarter ended March 31, 2000, the Company reported net earnings of
$1,142,303 or $0.06 per basic share, as compared to a net loss of
$1,054,080, or $0.06 per basic share, for the quarter ended March 31,
1999.
Royalty revenues for the current quarter increased to $2,508,488, compared
to $139,466 for the quarter ended March 31, 1999. The increase in royalty
income is primarily attributable to royalty revenues from the Company's
interests in the Pipeline Mining Complex, that were not in effect in the
prior year period. In the prior year, the Company's royalty revenues were
derived from a 20% net profits interest ("NPI") at the Crescent Pit, a
portion of the South Pipeline Project.
The loss of $116,585 on gold inventory in the current quarter relates to a
decrease in the gold price.
Costs of operations increased to $150,575 for the quarter ended March 31,
2000, compared to $132,419 for the quarter ended March 31, 1999, primarily
because of the increase in expenditures related to Nevada net proceeds tax
owing on the higher royalty revenues offset by decreased expenditures
related to the royalty conversion in the prior year's quarter.
General and administrative costs of $370,913 for the current quarter
decreased from $391,462 for the quarter ended March 31, 1999, primarily
because of overall decrease in expenses related to cost containment
efforts.
Exploration expenditures of $415,290 for the quarter ended March 31, 2000,
decreased from $699,568 for the quarter ended March 31, 1999, primarily
because the Company ceased activity at one project in Nevada that was
dropped and decreased expenditures at the Milos Gold Project.
Lease maintenance and holding costs decreased from $52,365 for the quarter
ended March 31, 1999, to $11,374 for the quarter ended March 31, 2000,
primarily due to the cessation of holding costs on one property in Nevada.
19
Depreciation, depletion, and amortization costs increased from $44,517 to
$307,488 for the quarter ended March 31, 2000, primarily due to three
months of depletion relating to the Company's newly acquired royalty
interest at the Pipeline Mining Complex.
Interest income decreased from $131,413 for the quarter ended March 31,
1999, to $67,453 for the quarter March 31, 2000, primarily due to
decreased funds available for investing.
FOR THE NINE MONTHS ENDED MARCH 31, 2000, COMPARED TO NINE MONTHS ENDED
MARCH 31, 1999
For the nine months ended March 31, 2000, the Company reported net
earnings of $2,995,496, or $0.17 per basic share, as compared to a net
loss of $3,150,979, or $0.19 per basic share, for the nine months ended
March 31, 1999.
Royalty revenues for the nine month period increased to $7,353,854,
compared to $774,418 for the nine months ended March 31, 1999. The
increase in royalty income is primarily attributable to royalty revenues
from its interests in the Pipeline Mining Complex which were not in effect
in the prior period. In the prior year, the Company's royalty revenues
were derived from a 20% NPI interest at the Crescent Pit.
The gain of $68,677 on gold inventory in the current nine month period
relates to a substantial increase in the gold price during the first
quarter of the fiscal year.
Costs of operations increased to $523,457 for the nine months ended March
31, 2000, compared to $273,654 for the nine months ended March 31, 1999,
primarily because of the increase in the Nevada net proceeds tax owing on
the higher royalty revenues.
General and administrative costs of $1,400,513 for the nine months ended
March 31, 2000 increased from $1,208,084 for the nine months ended March
31, 1999, primarily because of non-recurring severance costs and a non-
recurring stock grant to non-employee directors.
Exploration expenditures of $1,444,552 for the nine months ended March 31,
2000, decreased from $2,245,118 for the nine months ended March 31, 1999,
primarily because the Company ceased activity at one project in Nevada
that was dropped, a decrease in activity at the Milos Gold property,
offset by increased expenditures at one property in Nevada.
20
Lease maintenance and holding costs decreased from $379,699 for the nine
months ended March 31, 1999, to $198,560 for the nine months ended March
31, 2000, primarily due to the cessation of claims fees on one property in
Nevada.
Depreciation, depletion, and amortization costs increased from $342,571 to
$922,974 for the nine months ended March 31, 2000, primarily due to seven
months of depletion relating to the Company's newly acquired royalty
interest at the Pipeline Mining Complex.
Interest income decreased from $538,401 for the nine months ended March
31, 1999, to $218,295 for the nine months March 31, 2000, primarily due to
decreased funds available for investing.
For a more complete understanding of the business and operations of Royal
Gold, Inc., please refer to the Report on Form 10-K of Royal Gold, Inc.
for the annual period ended June 30, 1999.
21
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROYAL GOLD, INC.
(Registrant)
Date: May 12, 2000 By: /s/ Stanley Dempsey
--------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: May 12, 2000 By: /s/ John Skadow
--------------------
John Skadow
Controller and Treasurer
23