FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-5664
ROYAL GOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0835164
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SUITE 1000
1660 WYNKOOP STREET
DENVER, COLORADO 80202-1132
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 573-1660
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90
days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK NOVEMBER 6, 1996
$.01 PAR VALUE 15,480,166 SHARES
ROYAL GOLD, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ................... 3-4
Consolidated Statements of Operations ......... 5
Consolidated Statements of Cash Flows ......... 6-7
Notes to Consolidated Financial
Statements .................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 12
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 15
SIGNATURES ................................................ 16
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
-----------------------
September 30, June 30,
1996 1996
_______________________
Current Assets
Cash and equivalents $ 2,320,419 $ 3,308,292
Marketable securities 5,004,375 5,015,000
Receivables
Trade and other 108,687 336,162
Royalties receivable in gold 2,545,037 1,637,573
Gold inventory 2,810,685 1,205,406
Prepaid expenses and other 134,090 131,718
Deferred income tax benefit 25,000 25,000
Total current assets 12,948,293 11,659,151
---------- ----------
Property and equipment, at cost
Mineral properties 2,414,153 1,832,091
Furniture, equipment and improvements 770,214 756,016
--------- ---------
3,184,367 2,588,107
--------- ---------
Less accumulated depreciation,
depletion and amortization (946,987) (931,997)
----------- ----------
Net property and equipment 2,237,380 1,656,110
----------- ----------
Other Assets
Restricted investments and other 22,767 22,767
Deferred income tax benefit 725,000 725,000
---------- ---------
Total other assets 747,767 747,767
---------- ---------
$15,933,440 $14,063,028
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
3
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1996 1996
-------------------------
Current Liabilities
Accounts payable $ 742,587 $ 487,252
Accrued liabilities
Post retirement benefits 26,400 26,400
Other 60,537 15,877
Total current liabilities 829,524 529,529
----------- -----------
Post retirement benefit liabilities 109,149 110,549
Commitments and contingencies
(Note 4)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 15,496,152 and 15,478,152
shares, respectively 154,962 154,782
Additional paid-in capital 47,206,588 47,200,643
Accumulated deficit (32,286,810) (33,852,502)
------------ ------------
15,074,740 13,502,923
Less treasury stock, at cost
(15,986 and 15,986 shares,
respectively) (79,973) (79,973)
------------ -----------
Total stockholders' equity 14,994,767 13,422,950
------------ ----------
$ 15,933,440 $ 14,063,028
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
4
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
----------------------------
1996 1995
----------------------------
Royalty income $ 2,508,685 $ 710,814
Consulting revenues 2,000 1,000
Costs and expenses
Costs of operations 166,967 48,584
General and administrative 400,262 279,324
Direct costs of consulting revenues 0 942
Exploration 280,648 464,540
Lease maintenance and holding costs 191,080 143,168
Depreciation and depletion 14,989 46,631
---------- ---------
Total costs and expenses 1,053,946 983,189
---------- ---------
Operating income (loss) 1,456,739 (271,375)
Interest and other income 100,401 103,873
Gain (loss) on marketable securities 8,531 (2,301)
Interest expense - -
Net income (loss) $ 1,565,671 $ (169,533)
========= =========
Net income (loss) per share $ 0.10 $ (0.01)
========= =========
Weighted average shares
outstanding 15,469,568 14,481,509
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
5
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
September 30,
--------------------------
1996 1995
--------------------------
Cash flows from operating activities
Net income (loss) $ 1,565,671 $ (169,533)
---------- ---------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and depletion 14,989 46,631
(Gain) loss on marketable securities (8,531) 2,031
(Increase) decrease in:
Trade and other receivables 227,475 (161,204)
Marketable securities 19,156 (25,781)
Royalties receivable in gold (907,464) (475,494)
Inventory (1,605,279) (28,835)
Prepaid expenses and other (2,372) 4,489
Increase (decrease) in:
Accounts payable and accrued liabilities 299,995 387,892
Post retirement liabilities (1,400) (1,600)
---------- --------
Total Adjustments (1,963,431) (251,871)
---------- --------
Net cash provided by (used in) operating
activities (397,760) (421,404)
---------- --------
Cash flows from investing activities
Capital expenditures for
property and equipment (596,260) (450,002)
---------- --------
Net cash provided by (used in) investing
activities (596,260) (450,002)
---------- --------
(Continued)
The accompanying notes are an integral part of
these consolidated financial statements.
6
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the three months ended
September 30,
--------------------------
1996 1995
--------------------------
Cash flows from financing activities
Proceeds from issuance of common stock $ 6,147 $ 1,162,410
---------- ----------
Net cash provided by (used in) financing
activities 6,147 1,162,410
---------- ----------
Net increase (decrease) in cash and
equivalents (987,873) 291,004
---------- ----------
Cash and equivalents at beginning
of period 3,308,292 3,424,094
---------- ----------
Cash and equivalents at end of period $ 2,320,419 $ 3,715,098
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements
7
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For a more complete understanding of the business and operations of Royal
Gold, Inc., please refer to the Report on Form 10-K of Royal Gold, Inc. for
the annual period ended June 30, 1996.
1. PROPERTY AND EQUIPMENT
Property and equipment consists of the following components at
September 30, 1996, and June 30, 1996:
September 30, June 30,
1996 1996
------------- -------------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
South Pipeline-
Capped Royalty - 3,831
Long Valley 2,019,043 1,436,981
Camp Bird 120,110 120,110
---------- ----------
2,139,153 1,560,922
Office furniture, equipment
and improvements 98,227 95,188
---------- ----------
Net property and equipment $2,237,380 $1,616,110
========== ==========
As discussed in the following paragraphs, the Company is conducting
activity on substantially all of its mineral properties. The
results of these activities to date have not resulted in any
conclusions that the carrying value of these properties will or
will not be recoverable by charges against income from future
mining operations or a subsequent sale of the properties.
Realization of these costs is dependent upon the success of
exploration programs resulting in the discovery of economically
mineable deposits and the subsequent development or sale of those
deposits or properties, or the production of gold from existing
resources. The outcome of these matters is contingent upon future
events which cannot be determined at this time.
Presented below is a discussion of the status of each of the
Company's significant mineral properties.
A. SOUTH PIPELINE (CRESCENT VALLEY)
The South Pipeline property is a claim block containing
sediment-hosted gold deposits located in Lander County,
Nevada. Pursuant to an agreement dated September 18,
8
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1992, the Company holds a 20% net profits interest in
this project. Production is continuing at the Crescent
Pit portion of the project, while the remainder of the
project is in the exploration and development stage.
Cortez Gold Mines ("Cortez") is the project operator.
Cortez began mining at the Crescent Pit, which is located
on a small portion of the South Pipeline property, in
June 1994. In September 1994, sufficient quantities of
mill-grade oxide ore had been accumulated to start
processing and gold production. Mill-grade oxide ore
from the Crescent Pit is being processed at the Cortez
Mill.
Production of heap leach material from the Crescent Pit
began in August 1995. This heap leach material consists
of oxide ore averaging 0.022 ounces per ton. Additionally,
ore is being stockpiled for future processing.
During the quarter ended September 30, 1996, Cortez
milled 189,000 tons of oxide material from the Crescent
Pit. This material had an average grade of 0.202 ounces
of gold per ton and yielded 34,902 ounces of gold.
Additionally 10,286 ounces of gold were produced from the
Crescent Pit heap leach operation.
B. SOUTH PIPELINE - CAPPED ROYALTY
In October 1994, the Company purchased an additional
royalty interest on the South Pipeline project from
Western Mining Corporation for $275,000. The royalty
interest was equivalent to a 0.75 percent net smelter
return production royalty, capped at $375,000. During
the quarter, the Company received its final $5,200 on
this royalty and has now received all amounts payable
from this royalty.
C. LONG VALLEY
The Long Valley Property, in Mono County, California, is
subject to an agreement between the Company and Standard
Industrial Minerals, Inc. Pursuant to the agreement, the
Company is entitled, through December 31, 1997, to
acquire Standard Industrial Minerals' interest in the
property, upon payment of $1,000,000. The Option
Agreement, which is terminable by the Company at any
9
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
time, involves annual option consideration payments which
would total $125,000, if all four such payments were
made. Up to $100,000 of the payments (namely, the
payments that would be made in 1995 and 1996) may be
credited against the option exercise amount.
D. CAMP BIRD
At September 30, 1996, capitalized costs of $120,000
represent the Company's ownership of patented mining
claims. Management believes that these claims have
value for their mineral potential as well as the real
estate.
2. INCOME TAXES
At June 30, 1996, the Company had an estimated net operating
loss carryforward for federal income tax purposes of
approximately $25.1 million. If not used, the net operating
loss carryforwards will expire during the years 2001 through
2011.
During the current quarter, the Company sustained a tax loss
from operations which added to its net operating loss
carryforward position.
Based upon the determination of proven gold reserves at the
Crescent Pit of the South Pipeline Project, management has
estimated that is more likely than not that the Company will
have some net future taxable income within the net operating
loss carryforward period and has established a $750,000
deferred tax asset.
3. ROYALTIES RECEIVABLE IN GOLD
At September 30, 1996, 6,617 ounces of gold related to the
September 30 quarterly production is recorded as a receivable.
This gold was received on November 1, 1996. Royal Gold has
exposure for any changes in gold price on this receivable
between the end of the quarter and the time of receipt.
10
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INVENTORY
Gold inventory on the balance sheet consists of refined gold
bullion stored in safekeeping by the Company's refiner in
Utah. The inventory is carried at market value with
unrealized gains or losses included in the results of
operations for the period. At September 30, 1996, the Company
held 13,996 ounces of gold bullion in inventory.
5. CONTINGENCIES
The operations and activities conducted on the properties in
which the Company holds various interests are subject to
various federal, state, and local laws and regulations
governing protection of the environment. These laws are
continually changing, and are generally becoming more
restrictive. Management believes that the Company is in
material compliance with all applicable laws and regulations.
The U.S. Forest Service has advised the Company that all
outstanding reclamation at its Goldstripe project site, except
for post-reclamation groundwater monitoring, has been
satisfied.
6. GENERAL
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
Therefore, it is suggested that these financial statements be
read in connection with the financial statements and the notes
included in the Company's audited consolidated financial
statements as of June 30, 1996.
The information in this report reflects all adjustments which,
in the opinion of management, are necessary to express a fair
statement of results for the periods presented. All such
adjustments are of a normal recurring nature. The results of
operations for the period ended September 30, 1996 are not
necessarily indicative of the results to be expected for the
full fiscal year.
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.
11
ROYAL GOLD, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Royal Gold is engaged in the acquisition, exploration, development,
and sale of gold properties and in the acquisition of gold royalty
interests.
The Company's primary business strategy is to create and acquire
royalty and other carried ownership interests in gold mining
properties through exploration and development activity (and
subsequent transfer of the operating interest in the subject
properties to other firms), and through the direct acquisition of
such interests. 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.
At September 30, 1996, the Company had a working capital surplus of
$12,118,769. Current assets were $12,948,293, compared to current
liabilities of $829,524, for a current ratio of 16 to 1. This
compares to current assets of $11,659,151, and current liabilities
of $529,529, at June 30, 1996, resulting in a current ratio of 22
to 1. The Company is now receiving its full 20% net profits
royalty interest from both mining units at the Crescent Pit.
The Company's liquidity needs are generally being met from its
available cash resources, royalty income, interest income, and the
issuance of common stock. During the first quarter of fiscal 1997,
the Company earned $2,545,037 in royalties from its net profits
interest at South Pipeline. This $2,545,037 is comprised of
$1,840,715 related to mill-grade material and $704,322 from heap
leach ore from the Crescent Pit. The Company earned $100,401 in
interest income on its cash and marketable securities portfolio.
This marketable securities portfolio is invested in U.S. treasury
notes with maturities of up to fifteen months, has an adjusted cost
basis of $5,004,718, and had a market value, at September 30, 1996,
of $5,004,375.
Management believes its cash resources will be adequate to fund
planned operations for the foreseeable future. The Company has
continued to explore its properties and anticipates continued
exploration activities for the remainder of the year. The
Company's long-term viability is ultimately dependent upon the
successful development and operation of the Company's mineral
interests. It can be anticipated, because of the nature of the
business, that exploration on many of these properties will prove
unsuccessful and that the Company will terminate its interest in
such properties. As significant results are generated at any such
property, the Company will reevaluate the property and may
12
substantially increase or decrease the level of expenditures on
that particular property.
Based on current rates of production at the Crescent Pit and
Cortez' mine plan, production at the Crescent Pit will continue
through calendar year 1997. The mining that is currently underway
has been designed to remove the higher grade material first and
some stockpiling of mill ore has occurred. Based on this approach
to mining, the average production grade at the Crescent Pit will
decrease over its life.
The Company anticipates total general and administrative expenses
for fiscal 1997 for to be approximately $1,200,000, of which
$400,000 has been spent to date. The Company also anticipates
expenditures for exploration and property holding costs to be
approximately $1,225,000, of which $472,000 has been spent.
Development expenditures at Long Valley are estimated at
$1,000,000, of which $596,0000 has been spent. Because of the
seasonal nature of the Company's activities, development,
exploration and holding costs are disproportionately incurred
during the quarter ended September 30. On a prospective basis
these amounts could increase or decrease significantly, based on
exploration results and decisions about releasing or acquiring
additional properties, among other factors.
The Company anticipates utilizing its $750,000 net deferred tax
asset during fiscal 1997, based on the operator's current
projection of production at the Crescent Pit.
13
ROYAL GOLD, INC
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996, COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1995
For the quarter ended September 30, 1996, the Company reported net
income of $1,565,671, or $.10 per share, as compared to a net loss
of $169,533, or $.01 per share, for the quarter ended September 30,
1995.
Royalty income for the current quarter of $2,508,685, compared to
$710,814 for the quarter ended September 30, 1995, relates to Royal
Gold's interest in the South Pipeline property. The increase is
attributable to higher throughput at the mill and Royal received
its full 20% net profits interest on heap leach ore in the current
quarter. The heap leach mining unit was in payback during this
quarter, last year.
General and administrative costs of $400,262 for the current
quarter have increased from $279,324 for the quarter ended
September 30, 1995, primarily because of expenditures incurred for
the pending application to relist the Company's common stock on the
Nasdaq National Market System, and increased compensation and
office expenses.
Exploration expenditures of $280,648 for the quarter ended
September 30, 1996, decreased from $464,540 for the quarter ended
September 30, 1995, primarily because during the quarter last year,
the Company drilled extensively at Buckhorn South. In the current
quarter, the Company's focused on developing the Long Valley
project, which is capitalized.
Lease maintenance and holding costs increased from $143,168 for the
quarter ended September 30, 1995, to $191,080 for the quarter ended
September 30, 1996, due to increased advance minimum royalties on
two properties.
Depreciation, depletion and amortization decreased from $46,631 for
the quarter ended September 30, 1995, to $14,989 for the quarter
ended September 30, 1996, primarily due to depletion expense
related to the South Pipeline Project capped royalty.
Interest income remained flat at $103,873 for the quarter ended
September 30, 1995, and $100,401 for the quarter ended September
30, 1996.
14
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-
month period ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ROYAL GOLD, INC.
(Registrant)
Date: November 14, 1996 By: /s/ Stanley Dempsey
-------------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: November 14, 1996 By: /s/ Thomas A. Loucks
-------------------------
Thomas A. Loucks
Treasurer
(chief financial officer)