FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
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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, 1997
COMMISSION FILE NUMBER 0-5664
ROYAL GOLD, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0835164
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SUITE 1000
1660 WYNKOOP STREET
DENVER, COLORADO 80202-1132
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 573-1660
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90
days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK NOVEMBER 6, 1997
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$.01 PAR VALUE 16,923,076 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 ................................... 13
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 17
SIGNATURES ................................................ 18
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, June 30,
1997 1997
---------- ----------
Current Assets
Cash and equivalents $ 2,227,518 $ 3,333,298
Marketable securities 5,007,820 4,995,370
Trade and other receivables 94,837 77,546
Royalties receivable in gold 2,252,380 2,542,975
Gold inventory 5,389,067 2,872,366
Prepaid expenses and other 91,897 599,091
Deferred income tax benefit,net 0 635,000
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Total current assets 15,063,519 15,055,646
Property and equipment, at cost
Mineral properties 4,184,948 4,070,390
Furniture, equipment and improvements 813,591 814,976
---------- ----------
4,998,539 4,885,366
Less accumulated depreciation
and amortization (996,225) (982,950)
---------- ----------
Net property and equipment 4,002,314 3,902,416
Other Assets 37,767 22,767
Deferred income tax benefit, net 635,000 0
---------- ----------
Total other assets 672,767 22,767
---------- ----------
$19,738,600 $18,980,829
========== ==========
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,
1997 1997
---------- ----------
Current Liabilities
Accounts payable $ 884,744 $ 961,059
Accrued liabilities
Post retirement benefits 26,400 26,400
Other 161,596 126,455
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Total current liabilities 1,072,740 1,113,914
Post retirement benefit liabilities 127,297 133,897
Commitments and contingencies
(Note 5)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 16,095,202 and 15,877,202
shares, respectively 160,952 158,772
Additional paid-in capital 47,746,685 47,447,397
Accumulated deficit (29,293,901) (29,797,978)
---------- ----------
18,613,736 17,808,191
Less treasury stock, at cost
(15,026 shares) (75,173) (75,173)
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Total stockholders' equity 18,538,563 17,733,018
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$19,738,600 $18,980,829
========== ==========
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,
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1997 1996
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Royalty income $ 1,764,532 $ 2,508,685
Consulting revenues 13,400 2,000
Costs and expenses
Costs of operations 142,975 166,967
General and administrative 365,256 400,262
Direct costs of consulting revenues 4,237 0
Exploration 529,928 280,648
Lease maintenance and holding costs 294,886 191,080
Depreciation and depletion 13,275 14,989
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Total costs and expenses 1,350,557 1,053,946
Operating income 281,358 1,456,739
Interest and other income 108,568 100,401
Gain (loss) on marketable securities (31,886) 8,531
Interest expense - -
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Net income $ 504,057 $ 1,565,671
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Net income per share $ 0.03 $ 0.10
========== ==========
Weighted average shares
outstanding 15,997,241 15,469,568
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,
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1997 1996
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Cash flows from operating activities
Net income $ 504,057 $1,565,671
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Depreciation and depletion 13,275 14,989
(Gain) loss on marketable securities 31,886 (8,531)
(Increase) decrease in:
Trade and other receivables (17,291) 227,475
Marketable securities (44,336) 19,156
Royalties receivable in gold 290,595 (907,464)
Inventory (2,516,701) (1,605,279)
Prepaid expenses and other 1,142,192 (2,372)
Increase (decrease) in:
Accounts payable and accrued liabilities (41,174) 299,995
Post retirement liabilities (6,600) (1,400)
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Total Adjustments (1,148,154) (1,963,431)
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Net cash provided by (used in) operating
activities (644,097) (397,760)
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Cash flows from investing activities
Capital expenditures for
property and equipment (113,173) (596,260)
(Increase) decrease in other assets (650,000) 0
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Net cash provided by (used in) investing
activities (763,173) (596,260)
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(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,
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1997 1996
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Cash flows from financing activities
Proceeds from issuance of common stock $ 301,490 $ 6,147
Net cash provided by (used in) financing ---------- ----------
activities 301,490 6,147
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Net increase (decrease) in cash and
equivalents (1,105,780) (987,873)
Cash and equivalents at beginning ---------- ----------
of period 3,333,298 3,308,292
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Cash and equivalents at end of period $ 2,227,518 $ 2,320,419
========== ==========
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, 1997.
1. PROPERTY AND EQUIPMENT
Property and equipment consists of the following components at
September 30, 1997, and June 30, 1997:
September 30, June 30,
1997 1997
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Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
Long Valley 3,789,838 3,675,281
Camp Bird 120,110 120,110
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3,909,948 3,795,391
Office furniture, equipment
and improvements 92,366 107,025
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Net property and equipment $4,002,314 $3,902,416
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As discussed in the following paragraphs, activity is being
conducted on substantially all of the Company's 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 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,
1992, the Company holds a 20% net profits interest in
this project. Cortez Gold Mines ("Cortez") is the
project operator. Heap Leach production is continuing at
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the Crescent Pit portion of the project. The remainder
of the project contains the principal reserves at South
Pipeline and is currently being permitted. Cortez is
also exploring for additional mineralization.
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.
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.
All Crescent Pit mill-grade ore was processed by June 30,
1997, except for work in process material. The net
profits for this production were recorded in the first
quarter of fiscal 1998 and resulted in revenues of
$1,608,856. Additionally the Company's net profits
interest on heap leach material at the Crescent Pit
resulted in revenues of $198,659 for the quarter.
The Company anticipates that production from Crescent Pit
heap leach material will continue through fiscal 1998.
B. 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 can be terminated by the Company at any
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 were made in 1995 and 1996) may be credited
against the option exercise amount.
During the quarter, the Company entered into an agreement
with Amax Gold Inc. This agreement provides that Amax
Gold has an option, exercisable through December 31,
1997, to enter into a lease and become responsible for
further exploration, permitting, and development of Long
Valley, and for construction and operation of any mine
9
that may be developed. If Amax Gold exercises its
option, it will then pay $300,000 to Royal Gold and make
advance minimum royalty payments of $250,000 per year to
Royal Gold until the Long Valley property is in
production. Amax Gold can terminate the agreement at any
time, but would thereby relinquish any interest in the
property. After Long Valley is in production, and upon
payback of the investments made by both Royal Gold and
Amax Gold, Royal Gold will receive 22% of net operating
cash flow from the property or, at Royal Gold's election,
a sliding scale net smelter returns royalty that is
indexed to the price of gold and capped at 5.5%. Upon
execution of this agreement with Amax Gold, the Company
received a payment of $150,000. The Company maintains the
obligation to pay Standard Industrial Minerals the
$900,000 net property purchase price due in December
1997.
C. CAMP BIRD
At September 30, 1997, 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 and the real estate
development potential.
2. INCOME TAXES
At June 30, 1997, the Company had an estimated net operating
loss carryforward for federal income tax purposes of
approximately $25.6 million. If not used, the net operating
loss carryforwards will expire during the years 2001 through
2011.
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
$635,000 deferred tax asset.
3. ROYALTIES RECEIVABLE IN GOLD
At September 30, 1997, 6,959 ounces of gold related to the
September 30 quarterly production is recorded as a receivable.
This gold was received on October 31, 1997. Royal Gold has
10
exposure for any changes in gold price on this receivable
between the end of the quarter and the time of receipt.
4. INVENTORY
Gold inventory on the balance sheet consists of refined gold
bullion held in uninsured accounts. This gold is leased by
gold traders or stored 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, 1997, the Company held 16,155 ounces of gold
bullion in inventory. Substantially all of the Company's gold
inventory was leased by gold traders at quarter end.
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.
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, 1997.
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, 1997 are not
necessarily indicative of the results to be expected for the
full fiscal year.
11
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.
12
ROYAL GOLD, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 exploration and subsequent development and operation by
others of the Company's mineral interests. It can be anticipated,
because of the nature of the business, that exploration on many of
these properties will prove unsuccessful and that the Company will
terminate its interest in such properties. As significant results
are generated at any such property, the Company will reevaluate the
property and may substantially increase or decrease the level of
expenditures on that particular property. The profitability and
reserves of the Company are affected by the prevailing gold price.
LIQUIDITY AND CAPITAL RESOURCES
Royal Gold is engaged in the acquisition and management of gold
royalty interests, and in the exploration, development, and sale of
gold properties.
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, 1997, the Company had a working capital surplus of
$13,990,779. Current assets were $15,063,519, compared to current
liabilities of $1,072,740, for a current ratio of 14 to 1. This
compares to current assets of $15,055,646, and current liabilities
of $1,113,914, at June 30, 1997, resulting in a current ratio of 14
to 1.
The Company's liquidity needs are generally being met from its
available cash resources, royalty income, interest income, gold
leasing income, and the issuance of common stock. During the first
quarter of fiscal 1998, the Company earned $1,807,515 in royalties
from its net profits interest at South Pipeline. This $1,807,515
is comprised of $1,608,856 related to mill-grade material and
$198,659 from heap leach ore from the Crescent Pit. All mill-grade
material from the Crescent Pit has now been processed. Heap leach
production will continue through fiscal 1998. The Company earned
$108,568 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 $4,999,219, and had a market value, at
13
September 30, 1997, of $5,007,820. On November 11, 1997, the gold
price based on the London P.M. fix was $312.65, a decrease of
$19.45 per ounce since September 30, 1997.
On October 20, 1997, the Company sold 800,000 shares of common
stock, to a institutional investor in Canada, resulting in net
proceeds of $6,200,000. The proceeds of this offering will be used
to advance the Company's royalty acquisition program, exploration
activities, and general corporate purposes.
On October 28, 1997, the Company repurchased 8,700 common shares at
a cost of $55,985. This repurchase was made in accordance with the
Company's stock repurchase program announced on May 2, 1997.
Management believes its cash resources will be adequate to fund
planned operations for the foreseeable future. Revenues from the
Company's interest in the South Pipeline project will decrease
versus fiscal 1997. However, the Company has adequate working
capital to maintain planned levels of activities. The Company
continues to discuss the timing of production at South Pipeline
with Placer Dome, who is updating the life-of mine projections and
reviewing various production scenarios.
The Company anticipates total general and administrative expenses
for fiscal 1998 to be approximately $1,400,000, of which $365,000
has been spent to date. The Company also anticipates expenditures
for exploration and property holding costs to be approximately
$1,400,000, of which $825,000 has been spent. Development
expenditures at Long Valley are estimated at $1,200,000
(principally the $900,000 net property payment due in December
1997), of which $265,000 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 does not anticipate any
significant production from the South Pipeline deposit during the
remainder of the fiscal year.
On October 6, 1997, the Company announced that it had optioned its
Buckhorn South project, located in Eureka County, Nevada, to
Independence Mining Company, Inc. ("IMC"). Under the agreement,
IMC will explore Buckhorn South, and, depending upon exploration
results, will take an assignment of Royal Gold's interest in the
property. Royal Gold will retain a 14% net profits interest
royalty on the property if IMC exercises its option. Under the
agreement, Royal Gold will also have the opportunity to acquire
carried interests in two exploration properties of IMC: Carico Lake
and Lone Mountain.
14
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 the 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 issued share
of Series A Junior Participating Preferred Stock of the Company at
an exercise price of $50 per Right.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 1997, COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1996
For the quarter ended September 30, 1996, the Company reported net
income of $504,057, or $.03 per share, as compared to net income of
$1,565,671, or $.10 per share, for the quarter ended September 30,
1996.
Royalty income for the current quarter of $1,764,532, compared to
$2,508,685 for the quarter ended September 30, 1996, relates to
Royal Gold's interest in the South Pipeline property. The decrease
is attributable to the completion of mill production at the
Crescent Pit in fiscal 1997 with the resulting production of in-
process inventory in the current quarter. Heap leach production
decreased to $198,659 due to fewer tons being added to the heap
leach pad in the current quarter as compared with the same quarter
last year. The Company anticipates ongoing heap leach production
through fiscal 1998.
General and administrative costs of $365,265 for the current
quarter have decreased from $400,262 for the quarter ended
September 30, 1996, primarily because of expenditures incurred for
the pending application to relist the Company's common stock on the
Nasdaq National Market System during the quarter last year.
Exploration expenditures of $529,928 for the quarter ended
September 30, 1997, increased from $280,648 for the quarter ended
September 30, 1996, primarily from exploration activity on Royal
High Desert Joint Venture properties, in Nevada, and the State Line
Diamond District of Colorado and Wyoming, and increased
expenditures related to the Company's royalty acquisition program.
In the same quarter last year, the Company focused on development
of the Long Valley project, which is capitalized.
Lease maintenance and holding costs increased from $191,080 for the
quarter ended September 30, 1996, to $294,886 for the quarter ended
September 30, 1997, due to advance minimum royalties at Buckhorn
South.
Depreciation, depletion and amortization remained flat at $13,275
for the quarter ended September 30, 1997, compared with $14,989 for
the quarter ended September 30, 1996.
Interest income remained flat at $108,568 for the quarter ended
September 30, 1997, and $100,401 for the quarter ended September
30, 1996.
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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, 1997.
17
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, 1997 By: /s/ Stanley Dempsey
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Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: November 14, 1997 By: /s/ Thomas A. Loucks
---------------------
Thomas A. Loucks
Treasurer
(chief financial officer)
18