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 DECEMBER 31, 1997
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 FEBRUARY 12, 1998
--------------------- -----------------
$.01 PAR VALUE 16,824,876 SHARES
ROYAL GOLD, INC.
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ................... 3-4
Consolidated Statements of Operations ......... 5-6
Consolidated Statements of Cash Flows ......... 7-8
Notes to Consolidated Financial
Statements .................................. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 21
SIGNATURES ................................................ 22
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995. With the exception of historical matters, the matters
discussed in this report are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
projections or estimates contained herein. Such forward-looking statements
include statements regarding planned levels of exploration and other
expenditures, anticipated mine lives, timing of production and schedules for
development. Factors that could cause actual results to differ materially
include, among others, decisions and activities of Cortez regarding the Pipeline
and South Pipeline deposits, unanticipated grade, geological, metallurgical,
processing or other problems, conclusions of feasibility studies, changes in
project parameters as plans continue to be refined, the timing of receipt of
governmental permits, the failure of plant, equipment or processes to operate in
accordance with specifications or expectations, results of current exploration
activities, accidents, delays in start-up dates, environmental costs and risks,
changes in gold prices, as well as other factors. Most of these factors are
beyond the Company's ability to predict or control. The Company disclaims any
obligation to update any forward-looking statement made herein. Readers are
cautioned not to put undue reliance on forward-looking statements.
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, June 30,
1997 1997
----------- -----------
Current Assets
Cash and equivalents $ 6,649,947 $ 3,333,298
Marketable securities 5,015,316 4,995,370
Receivables
Trade and other 212,539 77,546
Royalties receivable in gold 0 2,542,975
Gold inventory 6,727,856 2,872,366
Prepaid expenses and other 90,972 599,091
Deferred income tax benefit 635,000 635,000
----------- -----------
Total current assets 19,331,630 15,055,646
----------- -----------
Property and equipment, at cost
Mineral properties 4,403,605 4,070,390
Furniture, equipment and improvements 674,041 814,976
----------- -----------
5,077,646 4,885,366
Less accumulated depreciation,
depletion and amortization (855,023) (982,950)
----------- -----------
Net property and equipment 4,222,623 3,902,416
Other assets 57,567 22,767
----------- -----------
$23,611,820 $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
December 31, June 30,
1997 1997
----------- -----------
Current Liabilities
Accounts payable $ 653,684 $ 961,059
Accrued liabilities
Post retirement benefits 26,400 26,400
Other 354,551 126,455
----------- -----------
Total current liabilities 1,034,635 1,113,914
Post retirement benefit liabilities 120,698 133,897
Commitments and contingencies
(Note 5)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 16,945,602 and 15,877,202
shares, respectively 169,456 158,772
Additional paid-in capital 53,964,567 47,447,397
Accumulated deficit (31,031,903) (29,797,978)
----------- -----------
23,102,120 17,808,191
Less treasury stock, at cost
(120,726 and 15,026 shares,
respectively) (645,633) (75,173)
----------- -----------
Total stockholders' equity 22,456,487 17,733,018
----------- -----------
$23,611,820 $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
December 31,
---------------------------
1997 1996
----------- -----------
Royalty income $ 75,349 $ 2,271,652
Gain (loss) on gold inventory (909,639) (170,068)
Consulting revenues 8,951 10,585
Costs and expenses
Costs of operations 68,992 173,040
General and administrative 413,729 391,424
Direct costs of consulting revenues 899 4,731
Exploration 576,896 478,147
Lease maintenance and holding costs 63,589 13,702
Depreciation and depletion 15,420 11,338
----------- -----------
Total costs and expenses 1,139,525 1,072,382
----------- -----------
Operating income (loss) (1,964,864) 1,039,787
Interest and other income 230,059 75,876
Gain (loss) on marketable securities (3,197) (719)
----------- -----------
Net income (loss) $(1,738,002) $ 1,114,944
=========== ===========
Basic earnings (loss) per share $ (0.10) $ 0.07
=========== ===========
Basic weighted average shares
outstanding 16,689,616 15,516,606
Diluted earnings (loss) per share $ (0.10) $ 0.07
=========== ===========
Diluted weighted average shares
outstanding 16,689,616 16,888,871
The accompanying notes are an integral part of
these consolidated financial statements.
5
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended
December 31,
---------------------------
1997 1996
----------- -----------
Royalty income $ 1,878,864 $ 4,821,112
Gain (loss) on gold inventory (948,621) (210,843)
Consulting revenues 22,351 12,585
Costs and expenses
Costs of operations 211,968 340,007
General and administrative 778,985 791,686
Direct costs of consulting revenues 5,135 4,731
Exploration 1,106,825 758,795
Lease maintenance and holding costs 358,475 204,782
Depreciation and depletion 28,695 26,327
----------- -----------
Total costs and expenses 2,490,083 2,126,328
----------- -----------
Operating income (loss) (1,537,489) 2,496,526
Interest and other income 338,627 176,277
Gain (loss) on marketable securities (35,083) 7,812
----------- -----------
Net income (loss) $(1,233,945) $ 2,680,615
=========== ===========
Basic earnings (loss) per share $ (0.08) $ 0.17
=========== ===========
Basic weighted average shares
outstanding 16,342,469 15,493,087
Diluted earnings (loss) per share $ (0.08) $ 0.16
=========== ===========
Diluted weighted average shares
outstanding 16,342,469 16,865,352
The accompanying notes are an integral part of
these consolidated financial statements.
6
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
December 31,
---------------------------
1997 1996
----------- -----------
Cash flows from operating activities
Net income (loss) $(1,233,945) $2,680,615
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and depletion 28,695 26,327
Unrealized (gain) loss
on marketable securities 35,083 (7,812)
Unrealized (gain) loss on
gold inventory 948,621 210,843
Noncash exploration expense 0 13,520
(Increase) decrease in:
Trade and other receivables (134,993) 244,714
Marketable securities (55,031) 19,390
Royalties receivable in gold 2,542,975 (438,035)
Inventory (4,804,119) (2,718,568)
Prepaid expenses and other 508,117 6,762
Increase (decrease) in:
Accounts payable and accrued liabilities (79,279) 375,695
Post retirement liabilities (13,199) (3,200)
----------- -----------
Total Adjustments (1,023,120) (2,270,363)
----------- -----------
Net cash provided by (used in) operating
activities (2,257,065) 415,052
----------- -----------
Cash flows from investing activities
Capital expenditures for
property and equipment (348,902) (1,648,676)
(Increase) decrease in other assets (34,800) 0
Net cash provided by (used in) investing ----------- -----------
activities (383,702) (1,648,676)
----------- -----------
(Continued)
The accompanying notes are an integral part of
these consolidated financial statements.
7
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the six months ended
December 31,
---------------------------
1997 1996
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock $ 6,527,876 $ 76,072
Purchases of common stock (570,460) 0
Net cash provided by (used in) financing ----------- -----------
activities 5,957,416 76,072
----------- -----------
Net increase (decrease) in cash and
equivalents 3,316,649 (1,162,352)
----------- -----------
Cash and equivalents at beginning
of period 3,333,298 3,308,292
----------- -----------
Cash and equivalents at end of period $ 6,649,947 $ 2,145,940
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements
8
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For a more complete understanding of the business and operations of
Royal Gold, Inc., please refer to the Report on Form 10-K of Royal
Gold, Inc. for the annual period ended June 30, 1997.
1.PROPERTY AND EQUIPMENT
Property and equipment consists of the following components at December
31, 1997, and June 30, 1997:
December 31 June 30,
1997 1997
----------- ----------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
Long Valley 4,008,495 3,675,281
Camp Bird 120,110 120,110
----------- ----------
4,222,623 3,795,391
Office furniture, equipment
and improvements 94,018 107,025
----------- ----------
Net property and equipment $4,222,623 $3,902,416
=========== ==========
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
9
production is continuing on stockpiled material from
the Crescent Pit portion of the project. The
remainder of the South Pipeline project contains the
principal reserves and is currently being permitted.
Cortez is also exploring for additional
mineralization on project ground.
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 $270,008 for the
first six months of fiscal 1998. The life-of-mine
production at the Crescent Pit totaled 340,000 ounces
of gold from both mill-grade and heap leach
production. Royal Gold received royalties totaling
$14,900,000. This royalty amount was based on
$125,100,000 of revenues, $40,900,000 of operating
costs, and $2,000,000 as Royal Gold's share of
recoupable costs.
The Company anticipates that production from
stockpiled and on-pad 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 was entitled, through December
31, 1997, to acquire Standard Industrial Minerals'
interest in the property, upon payment of $1,000,000.
The Option Agreement, which was terminable by the
Company at any time, involved four annual option
consideration payments which totaled $125,000. Up to
$100,000 of the payments (namely, the payments that
10
were made in 1995 and 1996) are creditable against
the option exercise amount. This agreement was
extended as described below.
In August 1997, the Company entered into an agreement
with Amax Gold Inc. This agreement provided that
Amax Gold had 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 that may be developed. Amax
Gold could terminate the agreement at any time, but
would thereby relinquish any interest in the
property. Upon execution of this agreement with Amax
Gold, the Company received a payment of $150,000. The
Company maintained the obligation to pay Standard
Industrial Minerals the $900,000 net property
purchase price due in December 1997.
In November 1997, Amax Gold Inc. terminated its
option to explore the Long Valley property.
In November 1997, the Company announced an increase
in the reserve estimate for Long Valley. Based on
Royal Gold's drilling results through August 1997,
Long Valley contains proven and probable reserves, at
a gold price of $350 per ounce, of approximately 39.1
million tons, averaging 0.018 ounces of gold per ton
("opt") (at a cut-off grade of 0.008 opt). The
reserves are contained within a mineralized deposit
that includes approximately 47.0 million tons of
oxidized material, averaging 0.018 opt (using a cut-
off of 0.01 opt).
In December 1997, Royal Gold announced that it had
secured, for $100,000, a one-year extension of its
option to acquire all of the interest of Standard
Industrial Minerals, Inc. in the Long Valley Gold
project. Under the terms of the extension, Royal
Gold is required to pay $900,000 to Standard
Industrial Minerals, on or before December 31, 1998,
or else it will forfeit the right to acquire all of
Standard Industrial's interest in the Long Valley
project.
11
C. CAMP BIRD
At December 31, 1997, capitalized costs of $120,000
represents 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 December 31, 1997, there were no royalties receivable
in gold. The royalty payment of $75,349 was credited
against the $150,000 advance minimum royalty received in
September 1997.
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 at the
end of the period with unrealized gains or losses included
in the results of operations for the period. At December
31, 1997, the Company held 23,115 ounces of gold bullion
in inventory. The Company is exposed to the risk of
continued declines in the gold price and will benefit from
increases in the gold price. Substantially all of the
Company's gold inventory was leased by gold traders at
quarter end.
12
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
December 31, 1997, 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.
13
ROYAL GOLD, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 royalties 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.
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 acquisitions of gold royalties and the
successful exploration and subsequent development and
operation by others of the Company's mineral interests. It
can be anticipated, because of the nature of the business,
that exploration on many of these properties will prove
unsuccessful and that the Company will terminate its interest
in such properties. As significant results are generated at
any such property, the Company will re-evaluate the property
and may substantially increase or decrease the level of
expenditures on that particular property. The profitability
and reserves of the Company are affected by the prevailing
gold price.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had a working capital
surplus of $18,276,995. Current assets were $19,331,630,
compared to current liabilities of $1,034,635, for a current
ratio of 19 to 1. This compares to current assets of
$15,063,519, and current liabilities of $1,072,740, at
September 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 second quarter of fiscal 1998, the Company earned $75,349
in royalties on heap leach material from its net profits
interest at South Pipeline. Modest heap leach production will
continue through fiscal 1998. The Company earned $230,059 in
interest income on its cash and marketable securities
portfolio and from gold leasing. This marketable securities
portfolio is invested in U.S. treasury notes with maturities
14
of up to fifteen months, has an adjusted cost basis of
$5,009,912, and had a market value, at December 31, 1997, of
$5,015,315.
On October 20, 1997, the Company sold 800,000 shares of common
stock, to an 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 for general corporate
purposes.
During the second quarter of fiscal 1998, the Company
repurchased 105,700 common shares at a cost of $570,460. 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 Crescent Pit will decrease
versus production levels obtained in fiscal 1997. However,
the Company has adequate working capital to maintain planned
levels of activities. More extensive production from the
South Pipeline deposit is expected to commence shortly after
environmental permitting is completed. Cortez is currently
reviewing life of mine scenarios.
The Company anticipates total general and administrative
expenses for fiscal 1998 to be approximately $1,400,000, of
which $778,985 has been spent to date. The Company also
anticipates expenditures for exploration and property holding
costs to be approximately $1,900,000 (revised from
$1,400,000), of which $1,465,300 has been spent. Development
expenditures at Long Valley are estimated at $400,000 (revised
from $1,200,000, principally due to the extension related to
the $900,000 net property payment which was previously due in
December 1997), of which $114,557 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 December 31. 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
15
opportunity to acquire carried interests in two exploration
properties of IMC: Carico Lake and Lone Mountain.
On December 17, 1997, the Company announced that it has
entered into exploration and lease purchase option agreements
with each of New Concept Mining, Inc. and Nevada Manhattan
Mining, Inc. regarding exploration properties in the Manhattan
District, Nye County, Nevada, comprised of four separate
parcels of land consisting of a total of 31 patented and 233
unpatented mining claims.
Under its agreement with New Concept, Royal Gold will be
responsible for the underlying landowner payments totaling
$875,000 over a three- to four-year period, and annual work
commitments of $250,000 on 3 of the patented and 155 of the
unpatented mining claims. New Concept will retain a 4% net
smelter returns royalty. Royal Gold has an option,
exercisable until November 30, 2001, to acquire all of New
Concept's interests in the properties upon payment of $3.475
million. Subject to its satisfaction of any work commitment,
Royal Gold may terminate the agreement upon written notice.
The agreement with Nevada Mining is for a three-year period
and is extendable for an additional period of three years,
subject to continued exploration or production and covers 28
of the patented and 65 of the unpatented mining claims. Royal
Gold will be responsible for underlying property maintenance
obligations of $100,000. Nevada Manhattan will retain a 4%
net smelter returns royalty. Royal Gold has the option to
acquire all of Nevada Manhattan's interest in the property
upon payment of $5 million. Subject to its satisfaction of
any work commitment, Royal Gold may terminate the agreement
upon written notice.
On December 22, 1997, the Company announced the results of
continued exploration on the South Pipeline Project by Cortez.
From the ongoing exploration and development drilling by
Cortez at South Pipeline, Royal Gold has calculated an updated
manual estimate for the deposit of 117 million tons of
mineralized material with an average grade of 0.047 ounces of
gold per ton. This manual estimate was calculated using a
0.010 opt global cutoff grade. This estimate does not factor
in any mining dilution or processing losses, but does account
for all material mined at the Crescent Pit.
On January 30, 1998, Placer Dome U.S. Inc. ("PDUS"), the 60%
owner and operator of Cortez Gold Mines, notified the Company
that it has updated the reserves and mineralization at South
Pipeline. Set forth below is a chart showing the reserves
that have been defined at the South Pipeline property as of
December 31, 1997:
16
Proven and Probable Reserves (1)
December 31, 1997
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
South Pipeline Property
Crescent Pit:
Heap Leach Stockpile (3) 0.58 0.023 13,000
South Pipeline Deposit:
Mill Grade Ore (3) 32.70 0.077 2,504,000
Heap Leach Ore (3) 33.89 0.019 654,000
(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) Contained ounces shown are before an allowance for
dilution of ore in the mining process. The assumed recovery
rates are 86% for South Pipeline mill-grade ore, and 60% for
heap leach material.
(3) Amounts shown represent 100% of the reserves. The
Company holds a 20% net profits interest in this property.
17
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED DECEMBER 31, 1997, COMPARED TO THE
QUARTER ENDED DECEMBER 31, 1996
For the quarter ended December 31, 1997, the Company reported
a net loss of $1,738,002 or $0.10 per share, as compared to
net income of $1,114,944, or $0.07 per share, for the quarter
ended December 31, 1996.
Royalty income for the current quarter of $75,349, compared to
$2,271,652 for the quarter ended December 31, 1996, relates to
Royal Gold's interest in the South Pipeline property. The
decrease is attributable to the completion of mill-grade
production at the Crescent Pit in fiscal 1997. All production
in the current quarter is attributable to heap leach material,
resulted in gold royalties of $75,349. The Company
anticipates modest heap leach production from the Crescent Pit
through fiscal 1998.
The increased loss on gold inventory relates to a $39.35
decline in gold price since September 30,1997. The Company
holds 23,225 ounces of gold inventory, which is exposed to
changes in the gold price.
Costs of operations decreased to $68,992 for the quarter ended
December 31, 1997, compared to $173,040 for the quarter ended
December 31, 1996, primarily because of the levy of Nevada Net
Proceeds Tax on the lower revenues from the Crescent Pit.
General and administrative costs of $413,729 for the current
quarter have increased from $391,424 for the quarter ended
December 31, 1996, primarily because of increased expenditures
incurred related to investor communications.
Exploration expenditures of $576,896 for the quarter ended
December 31, 1997, increased from $478,147 for the quarter
ended December 31, 1996, primarily from exploration activity
on two exploration properties that have subsequently been
dropped and on exploration in Europe.
Lease maintenance and holding costs increased from $13,702 for
the quarter ended December 31, 1996, to $63,589 for the
quarter ended December 31, 1997, due to advance minimum
royalties at the recently acquired Manhattan project in
Nevada.
18
Interest income increased from $75,876 for the quarter ended
December 31, 1996, to $230,059 for the quarter ended December
31, 1997 primarily due to increased cash available for
investment.
FOR THE SIX MONTHS DECEMBER 31, 1997, COMPARED TO THE SIX
MONTHS ENDED DECEMBER 31, 1996
For the six months ended December 31, 1997, the Company
reported a net loss of $1,233,945, or $0.08 per share, as
compared to earnings of $2,680,615, or $0.17 per share, for
the six months ended December 31, 1996.
Year to date royalty income of $1,878,864, compared to
$4,821,112 for the prior year, relates to Royal Gold's
interest in the South Pipeline property, from which the
Company was receiving its full 20% net profits interest for
the six months ended December 31, 1996. The decrease is
attributable to the completion of mill-grade production at the
Crescent Pit in fiscal 1997 with the resulting production of
in-process inventory in the first month of the current six
month period.
The increased loss on gold inventory relates to a $44.35
decline in gold price since September 30,1997. The Company
holds 23,225 ounces of gold inventory, which is exposed to
changes in the gold price.
Costs of operations decreased to $211,968 for the six months
ended December 31, 1997, compared to $340,007 for the six
months ended December 31, 1996, primarily because of the levy
of Nevada Net Proceeds Tax on the lower revenues from the
Crescent Pit.
General and administrative costs of $778,985 for the six
months ended December 31, 1997 remained comparable with
$791,686 for the six months ended December 31, 1996.
Exploration expenditures of $1,106,825 for the six months
ended December 31, 1997, increased from $758,795 for the six
months ended December 31, 1996, primarily due to a higher
level of exploration activity at five properties, including
the new Manhattan project, the State Line Diamond District and
activities in Europe.
Lease maintenance and holding costs increased from $204,782
for the six months ended December 31, 1996, to $358,475 for
the six months ended December 31, 1997, due to the escalating
19
holding costs at the Company's exploration properties and a
$50,000 advance minimum royalty paid at the Manhattan project.
Interest and other income increased from $176,277 for the six
months ended December 31, 1996, to $338,627 for the six months
ended December 31, 1997, primarily due to the increased level
of funds available for investment.
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.
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 December 31, 1997 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.
20
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
21
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: February 13, 1998 By: /s/ Stanley Dempsey
-------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: February 13, 1998 By: /s/ Thomas A. Loucks
---------------------
Thomas A. Loucks
Treasurer
(chief financial officer)
22