UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Form 10-K Annual Report Pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934 for the Fiscal Year Ended June 30, 2000.
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Commission File No. 0-5664
ROYAL GOLD, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation or Organization)
84-0835164
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(Employer Identification Number)
1660 WYNKOOP STREET, SUITE 1000, DENVER, COLORADO
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(Address of Principal Executive Offices)
80202-1132
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(Zip Code)
(303) 573-1660
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(Registrant's Telephone Number, including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK $0.01 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
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(Title of Class) (Name of Exchange on which registered)
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 ninety (90) days.[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of August 31, 2000, the average bid and asked price of the Company's
stock was $3.50 per share. The aggregate market value of voting stock held
by non-affiliates was $47,263,000. As of August 31, 2000, there were
17,700,096 shares of Common Stock, $0.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on November 14, 2000: Part III, Items 11, 12 and 13.
Total Number of Pages: 50
Exhibit Index - Page 46
TABLE OF CONTENT
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Part I PAGE
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Items 1.
and 2. Business and Properties 1
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II
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Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 22
Part III
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Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management 45
Item 13. Certain Relationships and Related Transactions 45
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 46
Exhibit 21. The Company and Its Subsidiaries 48
Signatures 50
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation
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Reform Act of 1995 With the exception of historical matters, the matters
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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 planned royalties and levels of exploration,
general and administrative expenses, and other expenditures. Factors that
could cause actual results to differ materially from projections or
estimates include, among others, changes in gold, silver or other commodity
prices, decisions and activities of mine operators regarding the various
properties where the Company has royalties, unanticipated grade, geological,
metallurgical, processing or other problems, timing of production and
schedules for development, changes in project parameters as plans continue
to be refined, results of current exploration activities, accidents,
environmental costs and risks, 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. See "Business and Properties
- - Risk Factors".
PART I
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Items 1 and 2. BUSINESS AND PROPERTIES
GENERAL
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Royal Gold, Inc. (together with its subsidiaries, "Royal Gold" or the
"Company"), is engaged in the acquisition and management of precious metals
royalties.
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
these properties through the subsequent transfer of operating interests to
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. During the fiscal year, the
Company focused on the acquisition of royalty interests, rather than the
creation of such interests through exploration, followed by further
development and property transfers to larger mining companies. The Company
expects that this emphasis on acquisition or royalty financing, rather than
exploration, will continue in the future.
The Company's principal mineral property interests are two sliding-scale
gross smelter returns ("GSR") royalties and one fixed GSR royalty over the
mining complex that includes the Pipeline and South Pipeline gold mines,
operated by the Cortez Joint Venture. The Pipeline Mining Complex is
located in Crescent Valley, Nevada. The sliding scale GSR royalties were
obtained as a result of the conversion of the Company's 20% net profits
interest royalty at South Pipeline; this transaction occurred April 1, 1999.
The Company also has a 1.75% net smelter returns ("NSR") royalty interest
covering a portion of the Bald Mountain mine, operated by Placer Dome U.S.
Inc ("PDUS").
In fiscal 2000, the Company generated revenues of $8,976,422 from its GSR
royalties at the Pipeline Mining Complex and $429,881 from its royalty
interest at the Bald Mountain mine.
The Company also owns a 2% NSR royalty on all of the properties held by
Yamana Resources, Inc. in Argentina and a royalty interest over a portion of
the Mule Canyon mine, and over one other exploration-stage project in
Nevada. (The portion of Mule Canyon property that is subject to the
Company's royalty is not yet in production.) The Company is also engaged in
exploration at the Milos Gold project, in Greece. During the past fiscal
year, the Company evaluated opportunities in Canada, Europe, South
America, Australia and at the Alligator Ridge project in Nevada.
Royal Gold is also engaged, through two wholly-owned subsidiaries, Denver
Mining Finance Company ("DMFC") and Environmental Strategies, Inc. ("ESI"),
in the provision of financial, operational, and environmental consulting
services to the mining industry and to companies serving the mining
industry. During fiscal 2000, income generated from consulting services was
not material.
The Company was incorporated under the laws of the State of Delaware on
January 5, 1981. Its executive offices are located at 1660 Wynkoop Street,
Suite 1000, Denver, Colorado 80202, (303) 573-1660. See Exhibit 21, "The
Company and Its Subsidiaries."
1
Developments During Fiscal 2000
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The significant developments during fiscal 2000 were:
(1) The Company recorded royalty revenues of $9,406,656.
(2) The Company returned to profitability with earnings of $3,952,979, or
$0.22 per diluted share.
(3) The Company added to its producing portfolio with the acquisition of a
third royalty described below as GSR3, at the Pipeline Mining Complex,
which yielded royalty revenue of $1,366,605.
(4) The Company purchased three million units of the securities of Yamana
Resources, Inc., for $1,293,480. Each unit consists of one share and
one-half warrant to purchase an additional share for Cdn $0.50 per
share, until February 2003. The Company also purchased a 2% net
smelter returns royalty over all of Yamana Resources, Inc.'s current
properties in Argentina.
(5) The Company has reached its one-half share of $5 million in
expenditures that were required for it to earn a 25% share of Midas,
S.A., the exploration and exploitation license holder at the Milos
Gold project.
(6) The Company declared its first dividend of $0.05 per share, which was
paid on July 21, 2000.
(7) Cortez, the operator of the Pipeline Mining Complex, advised the
Company that all permits for full scale mining and processing of the
South Pipeline Pit were received in June 2000, and that, as of July
17, 2000, pre-stripping and other development work had commenced at
South Pipeline.
PROPERTIES
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Recent activities at each of the significant properties in which the Company
has an interest are described below. Reference is made to footnotes in the
financial statements for more information on property histories.
In all instances, reserves have been estimated by the use of drilling,
mapping, sampling, geological interpretation, assaying and other standard
evaluation methods generally applied by the mining industry.
2
Pipeline Mining Complex
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The Pipeline Mining Complex is located 60 miles southwest of Elko, Nevada,
in Lander County. Access to the Complex is achievable by federal highway,
and state and county roads, all of which are paved.
On April 1, 1999, Royal Gold and The Cortez Joint Venture ("Cortez") agreed
to convert the Company's 20% net profits interest in the South Pipeline
project into several gross smelter returns royalties extending over a mining
complex that includes the Pipeline and South Pipeline gold mines. Each of
the Pipeline and South Pipeline mines is operated by Cortez, which is a
joint venture between Placer Cortez Inc. (60%) and Kennecott Explorations
(Australia) Ltd. (40%), a subsidiary of Rio Tinto.
A "Gross Smelter Returns" royalty is measured by all of the revenues
attributed to material that is mined and processed, with no deduction for
any costs paid by or charged to Cortez. The only possible deduction would
be for any amounts that might be paid for future royalty assessments that
might be imposed by the United States government following revision of the
1872 Mining Law.
Under the new agreement providing for the GSR royalties, Royal Gold is
entitled to receive all material information about exploration, planning,
budgeting, development, mining and production for the Pipeline Mining
Complex. In consideration of the agreement, Royal Gold surrendered its 20%
net profits interest at South Pipeline and various contractual rights,
including the contingent right to operate the South Pipeline property under
defined circumstances.
The royalty interests Royal Gold now holds at the Pipeline Mining Complex,
includes:
(a) Reserve Claims ("GSR1"). A sliding scale GSR for all gold
produced from the "Reserve Claims," or some 52 claims that encompass
all of the currently-known reserves in the Pipeline and South Pipeline
deposits. The GSR rate on the Reserve Claims is tied to the gold
price, without indexing for inflation or deflation, as follows:
3
Price of Gold Per Ounce ($U.S.) Gross Smelter Returns
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Below $210 0.40%
$210-$229.99 0.50%
$230-$249.99 0.75%
$250-$269.99 1.30%
$270-$309.99 2.25%
$310-$329.99 2.60%
$330-$349.99 3.00%
$350-$369.99 3.40%
$370-$389.99 3.75%
$390-$409.99 4.00%
$410-$429.99 4.25%
$430-$449.99 4.50%
$450-$469.99 4.75%
$470 and above 5.00%
(b) GAS Claims ("GSR2"). A sliding scale GSR for all gold produced
from the remaining GAS Claims. The GAS Claims include some 310 lode mining
claims, but production from 22 of the GAS Claims (those claims that
encompass the South Pipeline reserve) will be subject to the Reserve Claims
GSR. At present, apart from the Reserve Claims, there are no ore reserves
on the GAS claims, but the GAS claims do host gold mineralization. The GSR
rate on the GAS Claims is tied to the gold price, without indexing for
inflation or deflation, as follows:
Price of Gold Per Ounce ($U.S.) Gross Smelter Returns
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Below $210 0.72%
$210-$229.99 0.90%
$230-$249.99 1.35%
$250-$269.99 2.34%
$270-$309.99 4.05%
$310-$329.99 4.68%
$330-$349.99 5.40%
$350-$369.99 6.12%
$370-$389.99 6.75%
$390-$409.99 7.20%
$410-$429.99 7.65%
$430-$449.99 8.10%
$450-$469.99 8.55%
$470 and above 9.00%
(c) The Saddle Area GSR. 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) The Silver GSR. A 7% GSR on all silver produced from any of the
Reserve Claims or the GAS Claims, commencing July 1, 1999.
(e) The Other Products NSR. A 3% NSR royalty on all products, other
than gold or silver, produced from any of the Reserve Claims or GAS Claims,
4
commencing July 1, 1999. An NSR royalty is measured by all of the revenues
received by the operator following the sale or final disposition of a given
product, less the proportionate costs of refining such product for sale,
transportation of the product to a market, and applicable insurance.
The several GSR royalties (except for the Silver GSR)are payable in-kind
and, under certain circumstances, the Company would be entitled to delayed
production payments (i.e., payments not recoupable by Cortez) of $400,000
per year.
The Company's new arrangement with Cortez is governed by a new Royalty
Agreement, effective as of April 1, 1999, which supersedes the Agreement for
Resolution of Disputes and Litigation and for the Formation of the South
Pipeline Project, dated September 18, 1992, by which Royal Gold held its 20%
net profits interest in South Pipeline.
Effective September 1, 1999, the Company purchased, from a group of
individuals, a portion of the group's overriding royalty interest over the
Pipeline Mining Complex. The purchase price was $8.075 million. The
royalty is known as GSR3 and is a 0.48% GSR royalty that escalates to
0.7125% GSR after 3.7 million ounces are produced from the Pipeline deposit.
As of June 30, 2000, 3.1 million ounces had been produced. The GSR royalty
covers the same area as covered by the Company's two sliding scale gross
smelter returns royalties, GSR1 and GSR2.
Reserves
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The following table shows the reserves that have been defined at the
Pipeline Mining Complex:
5
Pipeline Mining Complex
Proven and Probable Reserves (1)(2)
December 31, 1999
Tons Average Grade Contained
(millions) (oz Au/ton) Oz Au (3)
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Pipeline Mining Complex 145.5 0.056 8,203,000
(1) "Reserve" is that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve
determination.
"Proven (Measured) Reserves" are reserves for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes and the grade is 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 the size, shape, depth
and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which the quantity and
grade are computed from information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling, and measurement
are farther apart or are otherwise less adequately spaced. The degree of
assurance of probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological continuity
between points of observation.
(2) Amounts shown represent 100% of the reserves. The Company holds a
sliding-scale GSR royalty and a fixed rate GSR royalty on this property.
See "Pipeline Mining Complex."
(3) Contained ounces shown are before an allowance for dilution of ore in
the mining process. The assumed processing recovery rates are 88% for mill-
grade ore, and 65% for heap leach material. These reserves, estimated by
Cortez, are based on a life-of-mine gold price of $325 per ounce.
Other Mineralization
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Set forth below is a table showing, in the aggregate, the additional
mineralization that has been defined at the Pipeline Mining Complex:
6
Pipeline Mining Complex
Additional Mineralization (1)(2)
December 31, 1999
Tons Average Grade
(millions) (oz Au/ton)
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Pipeline Mining Complex 22.2 0.038
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(1) Gold mineralization has not been included in the proven and probable
ore reserve estimates because even though drilling, trenching and/or
underground work indicates a sufficient quantity and grade to warrant
further exploration or development expenditures, these deposits do not
qualify as commercially mineable ore bodies until further drilling and
metallurgical work are completed, and until other economic and technical
feasibility factors based upon such work are resolved.
(2) The amounts shown are computed by Cortez and represent 100% of the
deposits. The Company holds a sliding-scale GSR royalty and a fixed rate
GSR royalty on this property.
Bald Mountain
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Effective January 1, 1998, the Company purchased, for $2,250,000 in cash and
the assumption of $218,312 in debt, a 50% undivided interest in a sliding-
scale NSR royalty that burdens approximately 81% of the Bald Mountain mine.
Bald Mountain is located in White Pine County, approximately 65 miles south
of Elko, Nevada. Year-round access to Bald Mountain is available via paved
and improved but unpaved county roads. Bald Mountain is an open pit, heap
leach mine operated by PDUS.
At December 31, 1999, Placer Dome informed the Company that the portion of
the mine covered by this royalty contained proven and probable reserves of
10,226,000 tons of ore, at an average grade of 0.069 ounces per ton ("opt"),
containing approximately 704,000 ounces of gold.
These reserves, estimated by Placer Dome, are based on a gold price of
$325/oz. In addition, the property covered by this royalty contains an
additional 8,573,000 tons of mineralized material, at an average grade of
0.040 opt of gold.
Yamana Resources
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The Company acquired, in February 2000, a 2% NSR royalty on all mineral
production from any of Yamana's properties in Santa Cruz province,
Argentina.
These properties are accessible via improved provincial highways, some of
which are paved. Yamana Resources, Inc. is a Spokane-based mineral
exploration company.
7
Mule Canyon
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Mule Canyon is located in Lander County Nevada, 14 miles west of the town of
Beowawe. The Company holds a 5% net smelter returns royalty interest on a
portion of the Mule Canyon mine, operated by Newmont Gold Company. The
portion of the mine that is subject to this royalty interest is expected to
produce about 25,000 ounces of gold, with production expected to commence in
calendar 2001. The property consists of three parcels of land covering
6,720 acres.
Buckhorn South
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The Buckhorn South project is located in Eureka County, Nevada,
approximately 50 miles southwest of Elko, Nevada. The property consists of
265 unpatented mining claims.
Of the 265 claims that comprise Buckhorn South, the Company leased 131
claims, and the Company staked the balance of the project area. The leased
claims are burdened by cumulative royalties equal to a 4% NSR; the remaining
claims are subject to a 1% NSR.
A predecessor in interest at the property completed some 10,400 feet of
drilling and, on the basis of such work and other exploration, had by 1984,
estimated that the "Zeke" deposit contains two million tons of
mineralization, with an average grade of 0.056 opt.
During the period 1994-1997, the Company conducted geophysical surveys and
several drilling programs. Through its work, the Company identified new
areas of gold mineralization about one mile south of the Zeke deposit, and
also identified structurally complex areas that may contain significant
alteration and sulfides. Holes drilled by the Company identified viable
targets with gold exceeding 0.01 opt, and five such holes contained
intervals exceeding 0.045 opt of gold.
During 1998, the Company optioned its Buckhorn South project to Independence
Mining Company, Inc., now called AngloGold North America. Under the
agreement, AngloGold was to explore Buckhorn South and, depending upon the
results, take an assignment of Royal Gold's interest in the property,
subject to assumption of all existing burdens and with Royal Gold retaining
a 14% net profits interest royalty. In fiscal 1998, AngloGold exercised its
option at Buckhorn South.
Milos Gold
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Athens-based Silver & Baryte Ore Mining Company S.A. ("Silver & Baryte"),
through its Greek subsidiary Midas S.A., holds a Greek exploration and
exploitation license to prospect, explore, and mine gold from public mining
sites on the Greek island of Milos and on other islands in the Cyclades
chain, in the south Aegean Sea.
In March 1998, the Company signed agreements with Silver & Baryte and with
an Australian investor group, Aegean International Gold, Inc. ("Aegean")
8
(formerly Goldmax and Rakov Pty Ltd.), to explore for and mine gold and
other minerals on the lease.
Prior exploration at Milos by Silver & Baryte and by Renison Goldfields, a
major Australian gold producer, has confirmed that the island hosts
epithermal gold deposits.
Under the agreements, Royal Gold and Aegean are required to jointly fund not
less than $5.0 million ($2.5 million each) in exploration and development
expenses on the Milos project, over a period of three years, at a rate of at
least $1.7 million per year to earn a 50% interest in Midas S.A. The
three parties will thereafter participate jointly in further exploration and
development. Silver & Baryte may elect to maintain a 50% interest in Midas
S.A., or convert to a 20% net profits interest or a 5% NSR interest, in any
mining project on Milos.
During fiscal 1999, the Company drilled 72,500 feet of reverse circulation
drilling and discovered significant mineralization in three of the prospect
areas. Based on this drilling, the mineralization estimate for the Milos
gold project deposit is approximately 9.5 million tons, at an average grade
of 0.071 opt, using a 0.029 opt cut-off. Programs are being planned and
implemented for fiscal 2001 to develop the data necessary to determine the
mineability of the mineralization that has been identified.
During fiscal 2000, the Company has spent its one-half share of the $5
million in expenditures that were required for it to earn a 25% share of
Midas, S.A.
In August 2000, Royal Gold was advised by Silver & Baryte that its
affiliate, Midas S.A., received a letter from the Greek Ministry of
Environment, Regional Planning and Public Works stating that the Ministry
was returning the environmental impact study which had been submitted by
Midas S.A. for the purpose of performing further exploration work on the
island of Milos, Greece. The Ministry's letter stated the reason for such
action was that "...approval of the study in this phase would create
unfavorable consequences for the environment in the area." Silver and
Baryte is protesting this return of the study with the Ministry.
Alligator Ridge
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Alligator Ridge is located about 100 miles south-southeast of Elko, Nevada,
in White Pine County, Nevada, and about 30 miles directly south of Placer
Dome's Bald Mountain operations.
In August 1998, the Company entered into an agreement with Placer Dome U.S.,
Inc. pursuant to which Royal Gold would undertake approximately $4 million
in exploration work over the next six years. Depending on the results of
Royal Gold's exploration program, and at the option of Placer Dome, either
Royal Gold would acquire ownership of up to 1,638 unpatented claims that are
now included within the Alligator Ridge claim block (such conveyance would
be subject to a reservation by Placer Dome of a 5% net proceeds royalty
interest), or else Placer Dome would reimburse Royal Gold for 200% of its
9
cumulative investment in Alligator Ridge, and would also grant to Royal Gold
a 22% net proceeds royalty interest in any future production.
Under the terms of the agreement, Royal Gold had a firm commitment to spend
at least $300,000 in defined work during the first year. In years two
through six, Royal Gold was required to spend successively greater amounts
to keep the agreement in force, but the Company could also unilaterally
terminate the agreement at any time after the first full year.
During fiscal 1999, exploration at Alligator Ridge focused on a review of
an existing data base to identify targets that might contain significant
gold potential, initiation of field work to access target areas, and the
drilling of seven holes totaling 4,970 feet. Three of the drill holes
encountered anomalous gold.
During fiscal 2000, the Company performed additional work and based on the
cumulative results achieved, determined to terminate its interest in the
property.
Other Foreign Activities
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The Company owns a 50% interest in Greek American Exploration Ltd.
("GRAMEX"), a Bulgarian private limited company that has entered into an
agreement with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research and exploration over 700 square kilometers in
the Krumovgrad and Ivaylovgrad areas of Bulgaria.
GRAMEX and Phelps Dodge Exploration Corporation ("PDX") joined together to
form a Bulgarian company named Sofia Minerals Ltd. ("SOMIN"). SOMIN is a
joint venture company held equally by GRAMEX and PDX. SOMIN will explore,
evaluate and develop properties in Bulgaria. SOMIN has signed a concession
agreement with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research in Bulgaria.
The Company has also formed an entity that will seek to acquire existing
gold royalties in Australia as well as to create royalty interests by
investing in junior Australian resource companies with emerging or advanced
exploration projects. The company, Royal Australia Pty Ltd, is based in
Perth, Western Australia, and the Company has a 67% interest in the entity.
The remainder of the equity in the new entity is held by affiliates of
Resource Finance Corporation ("RFC"). RFC is an investment and merchant
banking firm that caters to natural resource firms.
Sales Contracts
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The Company sold 21,348 ounces of gold bullion in fiscal 2000, utilizing two
metal traders during the period, at an average realized price of $290/oz.
The Company maintains trading relationships with a number of metal traders.
The Company is currently receiving its GRS1 royalty from the Pipeline Mining
Complex in-kind.
10
Competition
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There is aggressive competition within the minerals industry to discover and
acquire properties considered to have commercial potential. The Company
competes for the opportunity to participate in promising exploration
projects with other entities, many of which have greater resources than the
Company. In addition, the Company competes with others in efforts to obtain
financing to explore and develop mineral properties, and it also competes
with others in efforts to purchase precious metals royalty interests.
Company Personnel
- -----------------
At August 31, 2000, the Company had eleven full-time employees located in
Denver, Colorado. The Company's employees are not subject to a labor
contract or collective bargaining agreement.
Consulting services, relating primarily to geologic and geophysical
interpretations, and advice with respect to metallurgical, engineering, and
other technical matters as may be deemed useful in the operation of the
Company's business, are provided by independent contractors.
Regulation
- ----------
The Company's world-wide exploration activities are subject to various
federal, state and local laws and regulations governing prospecting,
exploration, development, production, labor standards, occupational health,
mine safety, control of toxic substances, and other matters involving
environmental protection, and taxation. The environmental protection laws
address, among other things, the maintenance of air and water quality
standards, the preservation of threatened and endangered species of wildlife
and vegetation, the preservation of certain archaeological sites,
reclamation, and limitations on the generation, transportation, storage and
disposal of solid and hazardous wastes. There can be no assurance that all
the required permits and governmental approvals necessary for the Company's
activities on any mining project with which the Company may be associated
can be obtained on a timely basis and maintained as required. The operators
of the properties where the Company holds its royalty interests are also
subject to these same laws and regulations. See "LEGAL PROCEEDINGS." The
Company believes that the properties and operations in which it retains
interests are currently in material compliance with all applicable laws and
regulations.
RISK FACTORS
- ------------
Our business faces risks of passive ownership.
- ----------------------------------------------
At present, the Company's principal assets are its royalty interests at the
Pipeline Mining Complex. The Company's success is dependent on the extent
to which the Pipeline Mining Complex proves to be successful, and on the
extent to which Royal Gold is able to acquire or create other lucrative
royalty interests.
11
The holder of a royalty interest typically has no executive authority
regarding development or operation of a mineral property. Therefore, unless
the Company is able to secure and enforce certain extraordinary rights, it
can be expected that the Company will not be in control of basic decisions
regarding development and operation of the Pipeline Mining Complex, or any
of the other properties in which the Company may have an interest.
Thus, the Company's strategy of having others operate properties in which it
retains a royalty or other passive interest puts the Company generally at
risk to the decisions of others regarding all basic operating matters,
including permitting, feasibility analysis, mine design and operation, and
processing, plant and equipment matters, among others. Although the Company
attempts to secure contractual rights that will permit the Company to
protect its interests, there can be no assurance that such rights will be
sufficient or that the Company's efforts will be successful in achieving
timely or favorable results.
Decreases in prices of gold and silver would reduce our royalty revenues.
- -------------------------------------------------------------------------
The profitability of gold mining operations (and thus the value of the
Company's royalty interests and exploration properties) is directly related
to the market price of gold. The market price of gold fluctuates widely and
is affected by numerous factors beyond the control of any mining company.
These factors include industrial and jewelry fabrication demand,
expectations with respect to the rate of inflation, the relative strength of
the U.S. dollar and other currencies, interest rates, gold sales by central
banks, forward sales by gold producers, global or regional political,
economic or banking crises, and a number of other factors. If the market
price of gold should drop dramatically, the value of the Company's royalty
interests and exploration properties could also drop dramatically, and the
Company might not be able to recover its investment in those interests or
properties. (This risk also relates to fluctuations in the market prices of
silver and other precious metals.) The selection of a property for
exploration or development, the determination to construct a mine and place
it into production, and the dedication of funds necessary to achieve such
purposes are decisions that must be made long before the first revenues from
production will be received. Price fluctuations between the time that such
decisions are made and the commencement of production can drastically affect
the economics of a mine.
The volatility in gold prices is illustrated by the following table, which
sets forth, for the periods indicated, the high and low prices in U.S.
dollars per ounce of gold based on the London PM fix.
12
Year Gold Price Per Ounce($)
---- -----------------------
High Low
---- ---
1994 396 370
1995 393 372
1996 416 368
1997 367 283
1998 313 273
1999 326 253
January - June 2000 313 271
At June 30, 2000, the Company held no gold bullion in inventory.
Additionally, at June 30, 2000, the Company had a royalty receivable of
5,425 ounces of gold.
The Company has entered into hedging contracts.
- -----------------------------------------------
The Company has purchased puts to protect against a significant decline in
the price of gold during calendar years 2001 through 2003. Each calendar
quarter has revenue protection for 2,550 ounces of gold at $270 per ounce
and 3,750 ounces of gold at $250 per ounce.
The mining industry is subject to many risks.
- ---------------------------------------------
Mineral exploration and development is highly speculative and capital
intensive. Most exploration efforts are not successful, in that they do not
result in the discovery of mineralization of sufficient quantity or quality
to be profitably mined. The operations of the Company are also indirectly
subject to all of the hazards and risks normally incident to developing and
operating mining properties. These risks include insufficient ore reserves,
fluctuations in production costs that may make mining of ore uneconomic;
significant environmental and other regulatory restrictions; labor disputes;
geological problems; pit-walls or tailings dam failures; force majeure
events; and the risk of injury to persons, property or the environment.
Estimates of reserves and mineralization may be incorrect and this would
- ------------------------------------------------------------------------
adversely effect the properties covered by our royalties.
- ---------------------------------------------------------
There are numerous uncertainties inherent in estimating proven and probable
reserves and mineralization, including many factors beyond the control of
the Company. The estimation of reserves and mineralization is a subjective
process and the accuracy of any such estimates 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
justify revision of such estimates. No assurances can be given that the
volume and grade of reserves recovered and rates of production will not be
less than anticipated. Assumptions about prices are subject to great
uncertainty and gold prices have fluctuated widely in the past. Declines in
the market price of gold or other precious metals also may render reserves
or mineralization containing relatively lower grades of ore uneconomic to
exploit. Changes in operating and capital costs and other factors
13
including, but not limited to, short term operating factors such as the need
for sequential development of ore bodies and the processing of new or
different ore grades, may materially and adversely affect reserves.
Proposed federal legislation would decrease our royalty revenues.
- -----------------------------------------------------------------
In recent years, the U.S. Congress has considered a proposed major revision
of the General Mining Law, which governs the creation and possession of
mining claims, and related activities on federal public lands in the United
States. It is anticipated that another bill may be introduced in the
Congress during 2001, and it is possible that a new law could be enacted.
The Company expects that if and when a new mining law is enacted, it will
impose a royalty upon production of minerals from federal lands and will
contain new requirements for mined land reclamation, and similar
environmental control and reclamation measures. It remains unclear to what
extent any such new legislation may affect existing mining claims or
operations. The effect of any such revision of the General Mining Law on
the Company's operations in the United States cannot be determined
conclusively until such revision, if any, is enacted.
The mining industry is subject to environmental risks.
- ------------------------------------------------------
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. Insurance against
environmental risks (including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from
exploration and production) is not generally available to the Company (or to
other companies within the mining industry) at a reasonable price. To the
extent that the Company becomes subject to environmental liabilities, the
satisfaction of any such liabilities would reduce funds otherwise available
to the Company and could have a material adverse effect on the Company.
Laws and regulations intended to ensure the protection of the environment
are constantly changing, and are generally becoming more restrictive.
If title to properties are not properly maintained by the operators, the
- ------------------------------------------------------------------------
Company's royalty revenues may be decreased.
- --------------------------------------------
The validity of unpatented mining claims, which constitute a significant
portion of the properties where the Company holds royalties in the United
States, is often uncertain, and such validity is always subject to contest.
Unpatented mining claims are unique property interests and are generally
considered subject to greater title risk than patented mining claims, or
real property interests that are owned in fee simple.
Foreign operations are subject to many risks.
- ---------------------------------------------
The Company's foreign activities are subject to the risks normally
associated with conducting business in foreign countries, including exchange
controls and currency fluctuations, limitations on repatriation of earnings,
foreign taxation, laws or policies of particular countries, labor practices
and disputes, and uncertain political and economic environments, as well as
14
risks of war and civil disturbances, or other risks that could cause
exploration or development difficulties or stoppages, restrict the movement
of funds or result in the deprivation or loss of contract rights or the
taking of property by nationalization or expropriation without fair
compensation. Foreign operations could also be adversely impacted by laws
and policies of the United States affecting foreign trade, investment and
taxation. The Company currently has exploration projects in Greece, Romania
and Bulgaria and holds precious metals royalties in Argentina. The Company
holds shares of Yamana Resources which trades on the Toronto Stock Exchange.
The value of the Yamana Resources shares, and of the 2% NSR interest on
Yamana Resources' Argentine properties, are dependent on the ability of
Yamana Resources to identify and then profitably exploit silver or other
precious metals deposits in Argentina. The Company also has precious metal
royalty acquisition or development opportunities in other parts of the
world, including Canada, Australia, Europe, Russia and other Republics of
the former Soviet Union and South America.
15
Item 3. LEGAL PROCEEDINGS
Casmalia
- --------
The Company received notice, on March 24, 2000, that the U.S. Environmental
Protection Agency ("EPA") has 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
stems from oil and gas exploration activities undertaken by Royal Resources
in California during 1983-84.
The Company is evaluating its potential for liability in this matter and is
gathering relevant information so that it can respond appropriately to the
EPA's allegations.
The Company has responded to the EPA stating that it believes it has no
liability at the site. The EPA has notified the Company that the response
is being reviewed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended June 30, 2000. Annual meeting results will be described in Item 4 to
the Company's report that will be filed on Form 10-Q, for the quarter ended
December 31, 2000.
16
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the Nasdaq National Market
system, under the symbol "RGLD" and on the Toronto Stock Exchange under the
symbol "RGL." The following table shows the high and low closing sales
prices, in U.S. dollars, for the Common Stock on Nasdaq for each quarter
since June 30, 1998.
Sales Prices
------------------
High Low
Fiscal Year Closing Closing
- ----------- ------- -------
1999:
First Quarter (July, Aug., Sept. - 1998) $5.00 $3.38
Second Quarter (Oct., Nov., Dec. - 1998) $5.00 $3.25
Third Quarter (Jan., Feb., March - 1999) $5.13 $3.48
Fourth Quarter (April, May, June - 1999) $5.00 $3.75
2000:
First Quarter (July, Aug., Sept. - 1999) $6.13 $3.38
Second Quarter (Oct., Nov., Dec. - 1999) $5.75 $3.31
Third Quarter (Jan., Feb., March - 2000) $4.75 $3.38
Fourth Quarter (April, May, June - 2000) $4.00 $2.50
As of August 31, 2000, there were approximately 1,100 shareholders of record
of the Company's Common Stock.
Dividends
- ---------
The Company declared it's first dividend of $0.05 per share on its Common
Stock, payable to holders of record as of July 6, 2000. This dividend was
paid on July 21, 2000.
The Company plans to sustain a dividend on a fiscal year basis, subject to
the discretion of the Board of Directors, which will consider among other
things gold prices, economic and market conditions, and the financial needs
of opportunities that might arise in the future.
17
Item 6. SELECTED FINANCIAL DATA
For the Year Ended June 30,
----------------------------------------------
2000 1999 1998 1997 1996
Selected Statement of ---- ---- ---- ---- ----
Operations Data (Amounts in thousands, except per share data)
- --------------------- ----------------------------------------------
Royalty revenue $ 9,407 $ 972 $ 2,176 $ 8,890 $ 3,680
Exploration expense 1,627 2,831 $ 2,001 1,738 1,434
General and
administrative expense 1,768 1,704 1,679 1,693 1,186
Depreciation and
depletion 1,193 464 155 51 229
Impairment of mining
assets 0 4,616 0 0 0
Earnings (loss) 3,953 (8,808) (3,543) 4,054 589
Basic earnings
(loss) per share $ 0.23 $ (0.51) $ (0.21) $ 0.26 $ 0.04
Diluted earnings
(loss) per share $ 0.22 $ (0.51) $ (0.21) $ 0.24 $ 0.04
As of June 30,
----------------------------------------------
2000 1999 1998 1997 1996
Selected Balance ---- ---- ---- ---- ----
Sheet Data (Amounts in thousands)
- ----------------- ----------------------------------------------
Total assets $17,498 $11,815 $20,927 $18,981 $14,063
Working capital 5,692 8,582 11,437 13,942 11,130
Long-term obligations 125 81 108 134 111
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At June 30, 2000, the Company had current assets of $7,564,689 compared to
current liabilities of $1,872,246 for a current ratio of 4 to 1. This
compares to current assets of $9,446,710 and current liabilities of
$864,461, at June 30, 1999, resulting in a current ratio of 11 to 1.
During fiscal 2000, liquidity needs were met from: (i) $9,406,656 in
revenues from production at the Pipeline Mining Complex and at Bald
Mountain, (ii) the Company's available cash resources, and interest and
other income of $271,374, and (iii) cash receipts from the issuance of
common stock and the exercise of options of $1,827,125.
During the fiscal year, the Company spent $8,105,020 on the purchase of a
GSR royalty at the Pipeline Mining Complex, $172,310 on the purchase of a 2%
royalty covering the properties held by Yamana Resources, Inc. in Argentina,
and $63,299 on other capital expenditures.
18
During the fiscal year, the Company acquired three million units of the
securities of Yamana Resources, Inc. for $1,293,480. Each unit consists of
one share and one-half warrant to purchase an additional share for Cdn $0.50
per share, until February 2003. The Company has an unrealized loss of
$400,215 in these securities at June 30, 2000.
The only material commitments of the Company that cannot be terminated at
the sole discretion of the Company are (i) employment agreements with three
officers, calling for minimum payments of approximately $540,000; and (ii)
office lease payments of $476,119 through the lease period ending October
2005.
For fiscal 2001, the Company anticipates royalty revenues of $7.7 million at
a $275 gold price based on production estimates of 930,000 ounces of gold at
the Pipeline Mining Complex, which includes the processing of carbonaceous
ore. Depletion and depreciation from this production is estimated to be
$1.6 million. The Company has also budgeted general and administrative
expenses of approximately $1.7 million, costs of operations of approximately
$0.6 million and exploration and property holding costs of approximately
$0.8 million. The Company estimates interest income of $0.4 million and
income taxes of $0.1 million. These amounts could increase or decrease
significantly, at any time during the fiscal year, based on the gold price,
exploration results and decisions about releasing or acquiring additional
properties, among other factors. The Company will evaluate acquisition
opportunities and may use cash or stock for these acquisitions.
Acquisitions have become a more important part of the Company's growth
strategy and could be substantial, while exploration is becoming less
important.
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.
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 leasehold expenses, and capital
expenditures for the foreseeable future.
RESULTS OF OPERATIONS
- ---------------------
Fiscal Year Ended June 30, 2000 Compared with Fiscal Year Ended
- ---------------------------------------------------------------
June 30, 1999
- -------------
For the year ended June 30, 2000, the Company recorded net earnings of
$3,952,979, or $0.22 per diluted share, as compared to a net loss of
$8,808,173, or $0.51 per diluted share, for the year ended June 30, 1999.
Net earnings for the current year reflect $9.4 million in royalty revenues.
The Company received royalty revenues of $8,976,422 from its royalties at
the Pipeline Mining Complex, of which $1,151,843 relates to the now
completed Crescent Pit production. The Company also received $429,881 from
its royalty at Bald Mountain. In the prior fiscal year, the Company
19
received royalty revenues of $441,102 from the Crescent Pit and $530,848
from Bald Mountain.
Cost of operations increased compared to the prior year, primarily related
to Nevada Net Proceeds Tax expenditures associated with the increased
royalties at the Pipeline Mining Complex.
General and administrative expenses of $1,768,428 for the year ended June
30, 2000 increased slightly compared to $1,704,326 for the year ended June
30, 1999, primarily because of non-recurring severance costs and a non-
recurring stock grant to non-employee directors offset by an overall
decrease in expenses due to cost containment efforts.
Exploration expenses decreased from $2,831,095 in fiscal 1999 to $1,625,698
in fiscal 2000, primarily due to decreased expenditures at the Milos Gold
project, the Manhattan project and the Alligator Ridge project. Lease
maintenance and holding costs decreased from $410,249 in fiscal 1999 to
$242,127 in fiscal 2000, primarily due to decreased holding costs at the
Alligator Ridge property.
Interest and other income decreased from $654,448 in fiscal 1999 to $271,347
in fiscal 2000, primarily due to decreased funds available for investing.
In fiscal 1999, the Company recorded a full impairment of its investment in
the Inyo Gold Project. There were no impairments in the current fiscal
year.
Depreciation and depletion increased from $463,733 in fiscal 1999 to
$1,193,108 in fiscal 2000, primarily due to the depletion associated with
the Company's purchase of the GSR3 royalty at the Pipeline Mining Complex.
Fiscal Year Ended June 30, 1999 Compared with Fiscal Year Ended
- ---------------------------------------------------------------
June 30, 1998
- -------------
For the year ended June 30, 1999, the Company recorded a net loss of
$8,808,173, or $0.51 per diluted share, as compared to a net loss of
$3,542,729, or $0.21 per diluted share, for the year ended June 30, 1998.
The net loss for the year ended June 30, 1999, reflects the $4.6 million
impairment of mining assets, primarily at the Inyo Gold project, and reduced
revenues from royalties from the Crescent Pit.
The Company received royalty revenue from Crescent Pit heap leach material
of $441,102 and $530,848 from the royalty at Bald Mountain in fiscal 1999.
During the year ended June 30, 1998, the Company received $2,047,142 from
its 20% NPI royalty at the Crescent Pit and $128,643 for its interest at
Bald Mountain.
Costs of operations decreased compared to the prior year, which related to
the payment of Nevada Net Proceeds Tax associated with the decreased
production at the Crescent Pit, offset by increased costs of monitoring the
Company's interest at South Pipeline.
20
General and administrative expenses remained flat at $1,704,326 for the year
ended June 30, 1999, compared to $1,679,203 for the year ended June 30,
1998. General and administrative expenses consist primarily of employee
compensation and benefits, office lease expense, investor relations
expenses, office equipment expenses, and travel and communication costs.
Exploration costs increased from $2,001,118 in fiscal 1998 to $2,831,095 in
fiscal 1999, primarily due to expenditures at the Milos Gold project and the
Manhattan project, offset by decreased expenditures related to three
properties that have been dropped. Lease maintenance and holding costs
decreased from $736,457 in fiscal 1998 to $410,249 in fiscal 1999, primarily
due to decreased holding costs at Buckhorn South and at the Manhattan
project, offset by holding costs associated with the Alligator Ridge
property.
The Company recorded a full impairment of its investment in the Inyo Gold
Project during the fourth quarter of fiscal 1999 because spot gold prices
fell to $261 per ounce at June 30, 1999.
Interest and other income was $654,448 in fiscal 1999, a decrease from
$786,090 in fiscal 1998, due primarily to decreased funds available for
investing.
Depreciation and depletion increased from $155,296 for fiscal 1998 to
$463,733 for fiscal 1999, primarily due to the depletion associated with the
Company's Bald Mountain royalty.
Impact of Inflation
- -------------------
The Company's operations have been subject to general inflationary
pressures, which have not had a significant impact on its operating costs.
21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL GOLD, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants 23
FINANCIAL STATEMENTS
Consolidated Balance Sheets 24
Consolidated Statements of Operations
and Comprehensive Income 26
Consolidated Statements of Stockholders' Equity 27
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 32
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Royal Gold, Inc.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations and comprehensive income, of
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Royal Gold, Inc. and its subsidiaries at
June 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2000, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
August 18, 2000
23
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and 1999
ASSETS
2000 1999
------------ -------------
Current Assets
Cash equivalents $ 4,647,160 $ 4,670,476
Marketable securities 0 4,014,418
Royalty receivables 1,761,266 312,098
Prepaid expenses and other 235,990 449,718
Available for sale
securities (Note 3) 920,273 0
------------ -------------
Total current assets 7,564,689 9,446,710
------------ -------------
Property and equipment, at cost,
net (Note 2) 9,337,746 2,190,225
------------ -------------
Other Assets 595,147 177,877
------------ -------------
Total Assets $ 17,497,582 $ 11,814,812
============ =============
The accompanying notes are an integral
part of these consolidated financial statements.
24
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
As of June 30, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
------------ -------------
Current Liabilities
Accounts payable $ 713,580 $ 631,565
Dividend payable 885,003 0
Accrued compensation 212,370 190,000
Other 61,293 42,896
------------ -------------
Total current liabilities 1,872,246 864,461
------------ -------------
Other liabilities 124,697 81,098
Commitments and contingencies
(Notes 6 and 10)
Stockholders' equity
Common stock, $.01 par value, authorized
40,000,000 shares; and issued
17,910,822 and 17,321,322 shares,
respectively 179,108 173,213
Additional paid-in capital 55,846,280 54,027,150
Accumulated other comprehensive income (400,215) 0
Accumulated deficit (39,080,904) (42,148,880)
------------ -------------
16,544,269 12,051,483
Less treasury stock, at cost
(210,726 and 238,726 shares,
respectively) (1,043,630) (1,182,230)
------------ -------------
Total stockholders' equity 15,500,639 10,869,253
------------ -------------
Total liabilities and stockholders'
equity $ 17,497,582 $ 11,814,812
============ =============
The accompanying notes are an integral
part of these consolidated financial statements.
25
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
for the years ended June 30, 2000, 1999 and 1998
2000 1999 1998
------------ ----------- -----------
Royalty revenues $ 9,406,656 $ 959,014 $ 1,344,276
Interest and other income 271,347 654,448 786,090
------------ ----------- -----------
Total revenues 9,678,003 1,613,462 2,130,366
Costs and expenses
Costs of operations 692,940 361,055 367,010
General and administrative 1,768,428 1,704,326 1,679,203
Exploration 1,625,698 2,831,095 2,001,118
Lease maintenance and
holding costs 242,127 410,249 736,457
Impairment of mining assets 0 4,615,731 0
Depreciation and depletion 1,193,108 463,733 155,296
------------ ----------- -----------
Total costs and expenses 5,522,301 10,386,189 4,939,084
------------ ----------- -----------
Operating income (loss) 4,155,702 (8,772,727) (2,808,718)
Loss on marketable securities 5,444 35,446 53,731
Interest and other expense 116,541 0 0
------------ ----------- -----------
Income (loss) before income taxes 4,033,717 (8,808,173) (2,862,449)
Income tax expense 80,738 0 680,280
------------ ----------- -----------
Net earnings (loss) 3,952,979 (8,808,173)$(3,542,729)
------------ ----------- -----------
Adjustments to comprehensive income
Unrealized loss on available
for sale securities (400,215) 0 0
------------ ----------- -----------
Comprehensive income (loss) $ 3,552,764 $(8,808,173)$(3,542,729)
============ =========== ===========
Basic earnings (loss) per share $ 0.23 $ (0.51) $ (0.21)
============ =========== ===========
Basic weighted average shares
outstanding 17,528,244 17,160,228 16,617,133
Diluted earnings (loss) per share $ 0.22 $ (0.51)$ (0.21)
============ =========== ===========
Diluted weighted average
shares outstanding 17,710,371 17,160,228 16,617,133
The accompanying notes are an integral
part of these consolidated financial statements.
26
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 2000, 1999 and 1998
Common Stock
------------------------------
Shares Amount
---------- ------------
Balance, June 30, 1997 15,877,202 $ 158,772
---------- ------------
Issuance of common stock for:
Exercise of options 189,400 1,894
Exercise of warrants 203,000 2,030
Private placement 800,000 8,000
---------- ------------
Balance, June 30, 1998 17,069,602 170,696
---------- ------------
Issuance of common stock for:
Exercise of options 251,720 2,517
---------- ------------
Balance, June 30, 1999 17,321,322 173,213
---------- ------------
Issuance of common stock for:
Exercise of options 137,000 1,370
Private placement 452,500 4,525
---------- ------------
Balance of June 30, 2000 17,910,822 $ 179,108
========== ============
The accompanying notes are an integral
part of these consolidated financial statements.
27
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
for the years ended June 30, 2000, 1999 and 1998
Additional Other
Paid-In Accumulated Comprehensive
Capital Deficit Income (Loss)
------------ ------------- -----------
Balance, June 30, 1997 $ 47,447,397 $(29,797,978) $ -
------------ ------------- -----------
Issuance of common stock for:
Exercise of options 39,187
Exercise of warrants 302,470
Private placement 6,189,773
Net loss and comprehensive
loss for the year ended
June 30, 1998 (3,542,729)
------------ ------------- -----------
Balance, June 30, 1998 53,978,827 (33,340,707) -
------------ ------------- -----------
Issuance of common stock for:
Exercise of options 48,323
Net loss and comprehensive
loss for the year ended
June 30, 1999 (8,808,173)
------------ ------------- -----------
Balance, June 30, 1999 54,027,150 (42,148,880) -
------------ ------------- -----------
Issuance of common stock for:
Exercise of options 15,755
Private placement 1,805,475
Issuance of treasury shares to:
Non-employee directors (2,100)
Net earnings and comprehensive
loss for the year ended
June 30, 2000 3,952,979 (400,215)
Dividends (885,003)
------------ ------------- -----------
Balance of June 30, 2000 $ 55,846,280 $(39,080,904) $ (400,215)
============ ============= ===========
The accompanying notes are an integral
part of these consolidated financial statements.
28
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
for the years ended June 30, 2000, 1999 and 1998
Treasury Stock Total
------------------- Stockholders'
Shares Amount Equity
------- ----------- -----------
Balance, June 30, 1997 15,026 $ (75,173) $17,733,018
------- ----------- -----------
Issuance of common stock for:
Exercise of options 41,081
Exercise of warrants 304,500
Private placement 6,197,773
Purchases of common stock 128,700 (684,610) (684,610)
Net loss and comprehensive
loss for the year ended
June 30, 1998 (3,542,729)
------- ----------- -----------
Balance, June 30, 1998 143,726 (759,783) 20,049,033
------- ----------- -----------
Issuance of common stock for:
Exercise of options - - 50,840
Purchases of common stock 95,000 (422,447) (422,447)
Net loss and comprehensive
loss for the year ended
June 30, 1999 (8,808,173)
------- ----------- -----------
Balance, June 30, 1999 238,726 (1,182,230) 10,869,253
------- ----------- -----------
Issuance of common stock for:
Exercise of options 17,125
Private placement 1,810,000
Issuance of treasury shares to:
Non-employee directors (28,000) 138,600 136,500
Net earnings and comprehensive
loss for the year ended
June 30, 2000 3,552,764
Dividends (885,003)
------- ----------- -----------
Balance, June 30, 2000 210,726 $(1,043,630) $15,500,639
======= =========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
29
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities
Net income (loss) $ 3,952,979 $(8,808,173) $(3,542,729)
----------- ----------- -----------
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and depletion 1,193,108 463,733 155,296
Loss on marketable
securities 5,444 35,446 53,731
Impairment of mining assets 0 4,615,731 0
Deferred taxes 0 0 635,000
Non cash compensation 136,500 0 0
(Increase) decrease in:
Royalty receivables (1,449,168) (95,068) 5,220,436
Other current assets 222,702 61,627 54,630
Increase (decrease) in:
Accounts payable and
accrued liabilities 122,782 93,687 (343,140)
Other liabilities 43,599 (26,399) (26,400)
----------- ----------- -----------
Total adjustments 274,967 5,148,757 5,749,553
----------- ----------- -----------
Net cash provided by (used in)
operating activities $ 4,227,946 $(3,659,416) $ 2,206,824
----------- ----------- -----------
The accompanying notes are an integral
part of these consolidated financial statements.
30
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS, Continued
for the years ended June 30, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from investing activities
Capital expenditures for
property and equipment $(8,340,629) $ (740,696) $(2,901,983)
Maturity (purchase) of held-to-
maturity securities, net 4,000,000 980,312 0
Purchase of available for sale
securities (1,320,488) 0 0
Increase in other assets (417,270) (200) (34,800)
----------- ----------- -----------
Net cash provided by (used in)
investing activities (6,078,387) 239,416 (2,936,783)
----------- ----------- -----------
Cash flows from financing activities
Purchase of common stock 0 (422,447) (684,610)
Proceeds from issuance of
common stock 1,827,125 50,840 6,543,354
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,827,125 (371,607) 5,858,744
----------- ----------- -----------
Net increase (decrease) in cash
and equivalents (23,316) (3,791,607) 5,128,785
----------- ----------- -----------
Cash and equivalents at beginning
of period 4,670,476 8,462,083 3,333,298
----------- ----------- -----------
Cash and equivalents at
end of period $ 4,647,160 $ 4,670,476 $ 8,462,083
=========== =========== ===========
Supplemental Information:
The Company paid federal income taxes of $57,500 in fiscal 1998.
The Company declared a dividend on common stock of $885,004 during fiscal
year 2000, which was paid in July 2000.
The accompanying notes are an integral
part of these consolidated financial statements.
31
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies
---------------------------------------------------------
Operations
Royal Gold, Inc. (the "Company" or "Royal Gold") was incorporated under
the laws of the State of Delaware on January 5, 1981, and is engaged in
the acquisition and management of precious metals royalty interests.
Royalty revenue currently is generated from mining operations in the
United States. The Company also provides financial, operational, and
environmental consulting services to companies in the mining industry.
Substantially all the Company's revenues are and can be expected to be
derived from royalty interests rather than mining activity or consulting
services.
Summary of Significant Accounting Policies
Use of Estimates:
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Basis of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions and account balances have been eliminated in consolidation.
Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. At June 30, 2000, cash
equivalents included approximately $4,273,985 of temporary cash
investments in three uninsured government securities money market funds.
Available for Sale Securities:
Investments in securities that have readily determinable fair values are
classified as available-for-sale investments. Unrealized gains and
losses on these investments are recorded in accumulated other
comprehensive income as a separate component of stockholders' equity,
except that declines in market value judged to be other than temporary
are recognized in determining net income. Realized gains and losses on
these investments are included in determining net income.
32
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mineral Properties:
Acquisition costs of royalty properties are capitalized and depleted
using the units of production method over the life of the mineral
property. Exploration costs are charged to operations when incurred. The
recoverability of the carrying value of royalty interests is evaluated
based upon estimated future net cash flows from each royalty interest
property using estimates of proven and probable reserves. Reductions in
the carrying value of each property are measured and recorded to the
extent that the Company's carrying value in each property exceeds its
estimated future discounted cash flows.
Management's estimate of the gold prices, recoverable proven and probable
reserves related to the royalty property, operating, capital and
reclamation costs of the mine operators are subject to certain risks and
uncertainties which may affect the recoverability of the Company's
investment in property, plant and equipment. Although management has
made its best estimate of these factors based on current conditions, it
is possible that changes could occur in the near term which could
adversely affect management's estimate of the net cash flows expected to
be generated from properties in operation.
Office Furniture, Equipment and Improvements:
The Company depreciates its office furniture, equipment and improvements
over estimated useful lives of 15 years for office furniture, 3 years for
computer equipment, and 5 years for other office equipment, using the
straight-line method. The cost of normal maintenance and repairs is
charged to expenses as incurred. Significant expenditures which increase
the life of the asset are capitalized and depreciated over the estimated
remaining useful life of the asset. Upon retirement or disposition of
office furniture, equipment, or improvements, related gains or losses are
recorded in operations.
Revenue:
Royalty revenue is recognized when earned. For royalties received in
gold, royalty revenue is recorded at the spot price of gold.
Income Taxes:
Deferred income taxes reflect the expected future tax consequences of
temporary differences between the tax basis amounts and financial
statement carrying amounts of assets and liabilities at each year end and
the expected future benefits of net operating loss carryforwards, tax
credits and other carryforwards.
Reclassifications:
Certain accounts in the prior period financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current period financial statements.
33
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings (Loss) Per Share:
Basic earnings (loss) per share is computed by dividing the net income or
loss by the weighted average number of common shares outstanding during
each year. Diluted earnings per share reflects the effect of dilutive
options and warrants.
2. Property and Equipment
----------------------
The carrying value of the Company's property and equipment consists of the
following components at June 30, 2000 and 1999:
Accumulated
Depreciation
Gross & Depletion Net
------------ ------------ ------------
As of June 30, 2000
Royalties
GSR1 $ - $ - $ -
GSR2 - - -
GSR3 8,105,020 856,389 7,248,631
Bald Mountain 2,468,762 822,649 1,646,113
Mule Canyon 180,714 - 180,714
Yamana Resources, Inc. 172,809 - 172,809
------------ ------------ ------------
Total royalties 10,927,305 1,679,038 9,248,267
Office furniture, equipment
and improvements 773,906 684,427 89,479
------------ ------------ ------------
$ 11,701,211 $ 2,363,465 $ 9,337,746
============ ============ ============
As of June 30, 1999
Royalties
GSR1 $ - $ - $ -
GSR2 - - -
Bald Mountain 2,468,312 511,487 1,956,825
Mule Canyon 180,714 - 180,714
------------ ------------ ------------
Total royalties 2,649,026 511,487 2,137,539
Office furniture, equipment
and improvements 711,558 658,872 52,686
------------ ------------ ------------
$ 3,360,584 $ 1,170,359 $ 2,190,225
============ ============ ============
Presented below is a discussion of the status of each of the Company's
currently significant mineral properties.
Pipeline Mining Complex:
The Company holds two sliding scale gross smelter returns royalties (GSR1
and GSR2) and a fixed gross royalty (GSR3) over the Pipeline Mining
Complex that includes the Pipeline and South Pipeline gold deposits in
Lander County, Nevada.
34
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Pipeline Mining Complex is owned by The Cortez Joint Venture, a joint
venture between Placer Cortez Inc. (60%), a subsidiary of Placer Dome
Inc., and Kennecott Explorations (Australia) Ltd. (40%), a subsidiary of
Rio Tinto.
Bald Mountain:
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.
Mule Canyon:
In fiscal 1999, the Company purchased a 5% NSR royalty on a portion of
the Mule Canyon mine, operated by Newmont Gold Company.
Yamana Resources:
In fiscal 2000, the Company purchased a 2% NSR royalty on Yamana
Resources' properties in Argentina.
3. Available for Sale Securities
-----------------------------
During the fiscal year, the Company acquired three million units of the
securities of Yamana Resources, Inc. for $1,320,488. Each unit consists of
one share and one-half warrant to purchase an additional share for Cdn $0.50
per share, until February 2003. The Company had an unrealized loss of
$400,215 in these securities at June 30, 2000.
4. Earnings per share ("EPS") computation
--------------------------------------
For the year ended June 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic EPS
Income available to
common stockholders $ 3,952,979 17,528,244 $ 0.23
Effect of
dilutive securities 182,127
------------- ------------- -------------
Diluted EPS $ 3,952,979 17,710,371 $ 0.22
============= ============= =============
Options to purchase 1,080,532 shares of common stock, at an average purchase
price of $5.46 per share, were outstanding at June 30, 2000, but were not
included in the computation of diluted EPS because the exercise price of
these options were greater than the average market price of the common
shares.
35
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended June 30, 1999
Income(Loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic EPS
Income (loss) available
to common stockholders $ (8,808,173) 17,160,228 $ (0.51)
Effect of dilutive
securities -
------------- ------------- -------------
Diluted EPS $ (8,808,173) 17,160,228 $ (0.51)
============= ============= =============
Options to purchase 341,800 shares of common stock, at an average purchase
price of $0.28 per share, and 892,498 shares, at an average price of $5.96
per share, were not included in the computation of diluted EPS because the
Company experienced a net loss in the year and these options were
antidilutive.
For the year ended June 30, 1998
Income(Loss) Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic EPS
Income (loss) available
to common stockholders $ (3,542,729) 16,617,133 $ (0.21)
Effect of dilutive
securities -
------------- ------------- -------------
Diluted EPS $ (3,542,729) 16,617,133 $ (0.21)
============= ============= =============
Options to purchase 609,520 shares of common stock, at an average purchase
price of $0.35 per share, and 703,498 shares, at an average price of $6.39,
were not included in the computation of diluted EPS because the Company
experienced a net loss in the year and these options were antidilutive.
5. Income Taxes
------------
The tax effects of significant temporary differences and carryforwards which
give rise to the Company's deferred tax assets and liabilities at June 30,
2000 and 1999, are as follows:
2000 1999
------------ ------------
Net operating loss carryforwards $ 8,311,261 $ 8,661,069
Mineral property basis 1,273,075 2,610,368
AMT credit carryforward 155,715 99,172
Loss on sale of gold - 295,367
Other 114,926 192,019
------------ ------------
Total deferred tax assets 9,854,977 11,857,995
Valuation allowance (9,305,431) (11,528,157)
------------ ------------
Net deferred tax assets 549,546 329,838
------------ ------------
Gold inventory (549,546) (58,641)
Other - (271,197)
------------ ------------
Total deferred tax liabilities (549,546) (329,838)
------------ ------------
Total net deferred taxes $ - $ -
============ ============
36
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2000, the Company has approximately $23.7 million of net
operating loss carryforwards which, if unused, will expire during the years
2001 through 2019. Historically, the Company has experienced taxable losses
and the Company's ability to generate future taxable income to realize the
benefits of its tax assets will depend primarily on the spot price of gold
and the operating decisions of the owners of these mineral properties. The
Company will continue to evaluate the valuation allowance.
The components of income tax expense (benefit) for the years ended June 30,
2000, 1999 and 1998, are as follows:
2000 1999 1998
------------ ------------ ------------
Current federal tax expense $ 80,738 $ - $ 680,280
Deferred tax expense(benefit) 2,222,726 (3,464,237) -
Increase (decrease) in
deferred tax asset
valuation allowance (2,222,726) 3,464,237 -
------------ ------------ ------------
$ 80,738 $ - $ 680,280
============ ============ ============
The provision for income taxes for the years ended June 30, 2000, 1999 and
1998, differs from the amount of income tax determined by applying the
applicable U.S. statutory federal income tax rate to pre-tax loss from
operations as a result of the following differences:
2000 1999 1998
------------ ------------ ------------
Total expense(benefit)
computed by applying
statutory rate $ 1,411,801 $ (3,082,861) $ (1,001,857)
Adjustments of valuation
allowance and other (1,002,402) 3,464,237 1,839,002
Excess depletion (328,661) (381,376) (156,865)
------------ ------------ ------------
$ 80,738 $ - $ 680,280
============ ============ ============
The changes in the valuation allowance in fiscal 2000 and 1999 are due to
the utilization of net operating losses in the current year.
The change in the valuation allowance in fiscal 1998 is related to
establishing a valuation allowance for the 1998 net operating losses.
37
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments
-----------
Operating Lease:
The Company leases office space under a lease agreement which expires
October 31, 2004. Future minimum cash rental payments are as follows:
Years ending June 30,
---------------------------
2001 $ 102,887
2002 107,014
2003 111,317
2004 115,797
2005 39,104
---------
$ 476,119
=========
Rent expense charged to operations for the years ended June 30, 2000,
1999, and 1998, amounted to $159,122, $145,731 and $135,838, respectively.
Employment Agreements:
The Company has one-year employment agreements with three of its officers
which require total minimum future compensation, at June 30, 2000, of
$540,000. The terms of each of these agreements automatically extend,
every February, for one additional year, unless terminated by the Company
or the officer, according to the terms of the agreements.
7. Stockholders' Equity
--------------------
Preferred Stock:
The Company has 10,000,000 authorized and unissued shares of $.01 par
value Preferred Stock.
Stockholders' Rights Plan:
During fiscal 1998, the Company sold 800,000 shares of common stock, to
an institutional investor in Canada, resulting in a net proceeds of
$6,200,000. The proceeds of this offering were used to advance the
Company's royalty acquisition program, exploration activities, and for
general corporate purposes.
On September 10, 1997, the Company's board of directors adopted a
stockholders' rights plan in which preferred stock purchase rights
("Rights") were distributed as a dividend at the rate of one Right for
each share of common stock held as of close of business on September 11,
1997. The terms of the Rights plan provide that if any person or group
were to announce an intention to acquire or were to acquire 15 percent or
more of the Company's outstanding common stock, then the owners of each
share of common stock (other than the acquiring person or group) would
become entitled to exercise a right to buy one one-hundredth of a newly
38
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued share of Series A Junior Participating Preferred Stock of the
Company at an exercise price of $50 per Right.
Stock Option Plans:
During fiscal 1989, an Employee Stock Option Plan ("Employee Plan") was
adopted. Provisions of the Employee Plan provide for the issuance of
either incentive or non-qualified stock options or stock appreciation
rights. All options were granted at fair market value. In December
1996, shareholders approved the adoption of an Equity Incentive Plan to
replace the Stock Option Plan. The options under the Equity Incentive
Plan are exercisable at prices equal to the market value of the Company's
common stock as of the date of grant and, expire ten years after the date
of grant.
On May 29, 1998, the Board of Directors approved the implementation of a
Stock Option Exchange Program for current employees of Royal Gold. In
effect, the Exchange Program gave employees a period of time to exchange
their options for a lesser number of new options with an exercise price
based on the closing price of the stock on May 29, 1998 ($5.375/share).
Under this Exchange Program, 715,750 options were canceled and 522,498
new options were issued. The new options could not be exercised for six
months from the date of grant. The vesting of the new options is the
same as for the old options.
The new number of options which were offered to each employee were
computed in reliance on the Black-Scholes Option Pricing Model. The net
result of applying this model was that the exercise price for the options
was lower, and the number of shares subject to each such option was
reduced.
39
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options and Warrants:
The following schedules detail activity related to options for the years
ended June 30, 1998, 1999 and 2000:
Weighted
Optioned Average
Shares Option Prices
------------ -------------
Options Outstanding, June 30, 1997 1,425,420 $ 4.63
------------
Granted 804,998 $ 6.38
Exercised (189,400) $ 0.22
Surrendered or expired (728,000) $ 9.59
------------
Options Outstanding, June 30, 1998 1,313,018 $ 3.59
------------
Granted 199,000 $ 4.59
Exercised (251,720) $ 0.20
Surrendered or expired (26,000) $ 4.00
------------
Options Outstanding, June 30, 1999 1,234,298 $ 4.66
------------
Granted 310,000 $ 4.42
Exercised (137,000) $ 0.13
Surrendered or expired (140,966) $ 6.08
------------
Options Outstanding, June 30, 2000 1,266,332 $ 4.67
============
All exercisable options outstanding at June 30, 2000 are exercisable at a
weighted average exercise price of $4.75. Options outstanding at June
30, 2000, consist of: 327,800 options at a strike price of $0.125 and a
remaining contractual life of 1.5 years; 979,532 options at an average
strike price of $4.89 (a range of $2.88 to $5.63), and a weighted average
remaining contractual life of 7.5 years; and 101,000 options at an
average strike price of $11.02 (a range of $7.88 to $14.13), and a
weighted average remaining contractual life of 1.9 years.
The Company measures compensation cost as prescribed by APB Opinion No.
25 ("APB 25"), Accounting for Stock Issued to Employees. No compensation
cost has been recognized in the financial statements as the exercise
price of all options grants is equal to the market price of the Company's
common stock at the date of grant. In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"). SFAS defines a "fair value"
based method of accounting for employee options or similar equity
instruments. Had compensation cost been determined under the provisions
of SFAS 123, the following pro forma net income (loss) and per share
amounts would have been recorded.
40
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 1999 1998
------------ ------------ ------------
Net income (loss)
As reported $ 3,952,979 $ (8,808,173) $ (3,542,729)
Pro Forma $ 3,522,851 $ (9,154,224) $ (4,232,401)
Net income (loss) per
basic share
As reported $ 0.23 $ (0.51) $ (0.21)
Pro Forma $ 0.20 $ (0.53) $ (0.25)
Net income (loss) per
diluted share
As reported $ 0.22 $ (0.51) $ (0.21)
Pro Forma $ 0.20 $ (0.53) $ (0.25)
The pro forma amounts were determined using the Black-Scholes model
with the following assumptions:
2000 1999 1998
------------ ------------ ------------
Weighted average
expected volatility 45.5% 58.9% 64.4%
Weighted average
expected option term 5.5 years 5.5 years 3.8 years
Weighted average
risk free interest rate 5.4% 4.6% 5.5%
Forfeiture rate 5% 5% 5%
Weighted average grant
fair value $2.12 $2.62 $2.28
8. Major Customers
---------------
In each of fiscal years 2000, 1999 and 1998, $8,976,422, $441,102 and
$2,047,142, respectively, of the Company's royalty revenues were received
from the same source.
9. Simplified Employee Pension ("SEP") Plan
----------------------------------------
The Company maintains a SEP Plan in which all employees are eligible to
participate. The Company contributes a minimum of 3% of an employee's
compensation to an account set up for the benefit of the employee. If an
employee also chooses to contribute to the SEP Plan through salary reduction
41
ROYAL GOLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contributions, the Company will match such contributions to a maximum of 7%
of the employee's salary. The Company contributed $82,528, $79,543 and
$75,510, in fiscal years 2000, 1999 and 1998, respectively.
10. Contingencies
- ------------------
Casmalia:
The Company received notice, on March 24, 2000, that the U.S.
Environmental Protection Agency ("EPA") has 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 stems from oil and gas exploration
activities undertaken by Royal Resources in California during 1983-84.
The Company is evaluating its potential for liability in this matter and
is gathering relevant information so that it can respond appropriately to
the EPA's allegations.
42
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stanley Dempsey: Age 61
- -----------------------
Chairman of the Board of Directors and Chief Executive Officer of the
Company since April 4, 1988; term expires 2000. President and Chief
Operating Officer of the Company from July 1, 1987 to April 4, 1988. From
1984 through June 1986, Mr. Dempsey was a partner in the law firm of Arnold
& Porter. During the same period, he was a principal in Denver Mining
Finance Company. From 1960 through 1987, Mr. Dempsey was employed by AMAX,
Inc. serving in various managerial and executive capacities. Mr. Dempsey is
a member of the board of directors of various mining-related associations.
Peter B. Babin: Age 46
- ----------------------
Class I Director since December 1997. Term Expires 2002. President of the
Company since December 10, 1996. Executive Vice President from January 1,
1995 to December 10, 1996. Senior Vice President from July 1, 1993 to
January 1, 1995. From 1989 until 1993, Mr. Babin was a consultant to the
Company. From 1986 through 1989, Mr. Babin was Senior Vice President and
General Counsel of Medserv Corporation, a provider of ancillary health care
services.
John W. Goth: Age 73
- --------------------
Class I Director Since August 1988; term expires 2000. Executive Director
of the Denver Gold Group and past chairman of the Minerals Information
Institute. A consultant to the mining industry since 1985. Mr. Goth was
formerly a Senior Executive of AMAX, Inc. and Director of Magma Copper
Company. He is currently a Director of U.S. Gold Corporation, Qualchem,
Inc. (1) (2)
Pierre Gousseland: Age 78
- -------------------------
Class II Director since June 1992; term expires 2001. Financial Consultant.
From 1977 until January 1986, Mr. Gousseland was Chairman and Chief
Executive Officer of AMAX, Inc. He is presently a Director of Guyanor
Ressources S.A. Formerly, director of the French American Banking Corp. of
New York, the American International Group, Inc., Union Miniere, S.A.
(Belgium), Degussa AG (Germany), IBM World Trade Europe/Middle East Africa
Corporation, and Pancontinental Mining Europe GmbH (Germany). Mr.
Gousseland has served on the Chase Manhattan and Creditanstaldt (Vienna,
Austria) International Advisory Boards and is past president of the French-
American Chamber of Commerce in the United States. (2)
Merritt Marcus: Age 66
- ----------------------
Class II Director since December 1992; term expires 2001. President and
Chief Executive Officer of Marcus Paint Company, a manufacturer of
industrial coatings, and Performance Powders, L.L.C., a manufacturer of
industrial powder coatings since 1983. Mr. Marcus has served several terms
as a director of the National Paint and Coatings Association.
43
James W. Stuckert: Age 62
- -------------------------
Class II Director since September 1989; term expires 2001. Chairman and
Chief Executive Officer of Hilliard, Lyons, Inc., Louisville, Kentucky. Mr.
Stuckert is also a Director of Hilliard, Lyons, Inc. and Thomas
Transportation. He joined Hilliard Lyons in 1962 and served in several
capacities prior to being named Chairman in December 1995. Mr. Stuckert is
a member of the Hilliard Lyons Trust Company Board. (1) (2)
S. Oden Howell, Jr.: Age 60
- ---------------------------
Class III Director since December 1993; term expires 2002. President of
Howell & Howell Painting Contractors, Inc. and owner of Kessinger Service
Industries, LLC. Consultant to H&N Constructors, Inc. From 1972 until
1988, Mr. Howell was Secretary/Treasurer of Howell & Howell, Inc.
Edwin W. Peiker, Jr.: Age 69
- ----------------------------
Class III Director Since May 1987; term expires 2002. President and chief
operating officer of the Company from April 4, 1988 until February 1, 1992.
Vice president of engineering of the Company from May 1987 to April 4, 1988.
Principal in Denver Mining Finance Company from 1984 until 1986. From 1983
to 1986, Mr. Peiker was engaged in mineral consulting activities. During
the period 1966-1983, Mr. Peiker served in a variety of positions with the
Climax Molybdenum division of AMAX involved in exploration activities
worldwide. (1)
Donald Worth: Age 68
- --------------------
Class III Director since April 1999. Term expires 2002. Mr. Worth has
been involved in the mining industry since 1949. He formerly was a mining
specialist and a vice president of Canadian Imperial Bank of Commerce
(Canada). Mr. Worth is a director of Canarc Resource Corporation, Cominco
Ltd., Founders Capital Corporation, and Tiomin Resources Inc. He is also a
trustee of Labrador Iron Ore Royalty Income Fund, and is involved with
several professional associations both in Canada and the United States.
Karen P. Gross: Age 46
- ----------------------
Vice President of the Company since June of 1994 and Corporate Secretary of
the Company since 1989. From 1987 until 1989, Ms. Gross was the Assistant
Secretary to the Company. Ms. Gross is in charge of investor relations,
public relations and ensuring the Company's compliance with various
corporate governance standards.
Donald J. Baker: Age 51
- -----------------------
Vice President of the Company since November 1998. From January 1997 until
1999, Mr. Baker was Manager of Corporate Development. From 1994 until 1997,
he was a consultant to the Company. Mr. Baker was previously employed with
Climax Molybdenum Company and Homestake Mining Company.
John F. Skadow: Age 42
- ----------------------
Controller of the Company since October 1993. Treasurer of the Company
since November 1999. Mr. Skadow was previously employed by Dekalb Energy
where he held various accounting and finance positions.
(1) Member of Audit Committee
(2) Member of Compensation Committee
Three officers of the Company have one-year employment agreements that renew
for an additional year in February each year.
44
ITEMS 11, 12, and 13
The information called for by Item 11, "Executive Compensation," Item 12,
"Security Ownership of Certain Beneficial Owners and Management," and Item
13, "Certain Relationships and Related Transactions," is incorporated by
reference to the Company's definitive proxy statement to be filed with
respect to the upcoming Annual Meeting of Stockholders to be held November
14, 2000, in Denver, Colorado.
45
PART IV
- -------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following is a list of documents filed as part of this report and
are included herewith (*) or have been filed previously:
(1) Financial Statements included in Item 8.
(2) Financial Statement schedules:
All Schedules are omitted because the information called for is not
applicable or is not required or because the required information is
set forth in the financial statements or notes thereto.
(3) The following exhibits are filed with this annual report on Form
10-K. The exhibit numbers correspond to the numbers assigned in
Item 601 of Regulation S-K. Those exhibits that have been marked
with an asterisk are filed herewith; all other exhibits have been
previously filed with the Commission pursuant to the Company's
various reports on Forms 10-K, 10-Q, 8-K, 8-A, S-1 and S-8, and are
incorporated herein by reference.
Exhibit
Number
-------
3 (a) Certificate of Incorporation - Exhibit (b) to the Company's Form
10-K for the fiscal year ended December 31, 1980.
(b) Amendment to Certificate of Incorporation - Exhibit (c) to the
Company's Form 10-K for the fiscal year ended December 31, 1980.
(c) Amendments to Articles of Incorporation dated May 7, 1987 -
Exhibit (xiv) to the Company's Form 10-K for the year ended June
30, 1987.
(d) Amendment to Articles of Incorporation dated February 2, 1988 -
Exhibit 3(f) to the Company's Form 10-K for the year ended June
30, 1990.
(e) By-Laws - Exhibit (d) to the Company's Form 10-K, for the fiscal
year ended December 31, 1980.
4 (a) Shareholders' Rights Agreement Exhibit B to the Company's Form 8-
A dated September 11, 1997.
10 (a) Employee Stock Option Plan - Exhibit 4(a) to the Company's Form
S-8 dated February 6, 1990.
(b) Directors' Stock Option Plan - Exhibit 4(b) to the Company's Form
S-8 dated February 6, 1990.
(c) Equity Incentive Plan - filed as part of Def 14A, filed November
25, 1996.
46
Exhibit
Number
- -------
(d) Private Agreement between Rakov Pty. Ltd., Silver and Baryte Ores
Mining Co., S.A., and Royal Gold, Inc., dated effective March 30,
1998 - Exhibit 10(s) to the Company's Form 10-K for the year
ended June 30, 1998.
(e) Private Agreement between Rakov Pty. Ltd. and Royal Gold, Inc.
dated effective March 28, 1998 - Exhibit 10(t) to the Company's
Form 10-K for the year ended June 30, 1998.
(f) Exploration and Development Option Agreement between Placer Dome
U.S., Inc. and Royal Gold, Inc. dated effective July 1, 1998 -
Exhibit 10(v) to the Company's Form 10-K for the year ended June
30, 1998.
(g) Royalty Agreement between Royal Gold, Inc. and the Cortez Joint
Venture dated April 1, 1999. Item 5 of Form 8-K filed April 12,
1999.
(h) Firm offer to purchase royalty interest of "Idaho Group" between
Royal Gold, Inc. and Idaho Group dated July 22, 1999. Item 5 of
Form 8-K filed September 2, 1999.
(i) Amendment to Equity Incentive Plan - filed as part of Def 14A,
filed October 15, 1999.
(j) * Consent of Independent Accountants
21*(a) The Company and Its Subsidiaries.
* - Filed herewith.
(b) Reports on Form 8-K:
None.
47
EXHIBIT 21
ROYAL GOLD, INC. AND SUBSIDIARIES
Denver Mining Finance Company (1)
Royal Trading Company (1)
Calgom Mining, Inc. (1)(4)
Mono County Mining Company (1)
Royal Camp Bird, Inc. (1)
Royal Crescent Valley, Inc. (1)
Royal Kanaka Creek Corporation (1)
Environmental Strategies, Inc. (2)
GRAMEX LTD (3)
SOMIN LTD (5)
Royal Gold Australia (6)
(1) Owned 100% by Royal Gold, Inc.
(2) Owned 100% by Denver Mining Finance Company
(3) Owned 50% by Royal Gold, Inc.
(4) Owns a 100% interest in the Goldstripe Project.
(5) Owned 25% by Royal Gold, Inc.
(6) Owned 67% by Royal Gold, Inc.
48
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: September 27, 2000 By: /s/Stanley Dempsey
-------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: September 27, 2000 By: /s/Stanley Dempsey
-------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer, and Director
Date: September 27, 2000 By: /s/John Skadow
-------------------------
John Skadow
Treasurer and Controller
Date: September 27, 2000 By: /s/Edwin W. Peiker, Jr.
-------------------------
Edwin W. Peiker, Jr.,
Director
Date: September 27, 2000 By: /s/John W. Goth
-------------------------
John W. Goth,
Director
Date: September 27, 2000 By: /s/James W. Stuckert
-------------------------
James W. Stuckert,
Director
Date: September 27, 2000 By: /s/Pierre Gousseland
-------------------------
Pierre Gousseland,
Director
Date: September 27, 2000 By: /s/Merritt E. Marcus
-------------------------
Merritt E. Marcus
Director
Date: September 27, 2000 By: /s/S. Oden Howell, Jr.
-------------------------
S. Oden Howell, Jr.
Director
Date: September 27, 2000 By: /s/Peter B. Babin
-------------------------
Peter B. Babin
Director
Date: September 27, 2000 By: /s/Donald Worth
-------------------------
Donald Worth
Director
49