FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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 MAY 4, 1998
--------------------- -----------------
$.01 PAR VALUE 16,913,876 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 ................................... 17
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 24
SIGNATURES ................................................ 25
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.
2
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, June 30,
1998 1997
------------ ------------
Current Assets
Cash and equivalents $ 2,736,134 $ 3,333,298
Marketable securities 5,019,025 4,995,370
Receivables
Trade and other 307,786 77,546
Royalties receivable in gold 10,434 2,542,975
Gold inventory 6,976,602 2,872,366
Prepaid expenses and other 88,049 599,091
Deferred income tax benefit 635,000 635,000
------------ ------------
Total current assets 15,773,030 15,055,646
Property and equipment, at cost
Mineral properties 6,921,668 4,070,390
Furniture, equipment and improvements 675,646 814,976
------------ ------------
7,597,314 4,885,366
Less accumulated depreciation,
depletion and amortization (902,687) (982,950)
------------ ------------
Net property and equipment 6,694,627 3,902,416
Other assets 57,567 22,767
------------ ------------
$ 22,525,224 $ 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
March 31, June 30,
1998 1997
------------ ------------
Current Liabilities
Accounts payable $ 514,751 $ 961,059
Accrued liabilities
Post retirement benefits 26,400 26,400
Other 79,248 126,455
------------ ------------
Total current liabilities 620,399 1,113,914
Post retirement benefit liabilities 114,097 133,897
Commitments and contingencies
(Note 6)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 17,032,602 and 15,877,202
shares, respectively 170,326 158,772
Additional paid-in capital 53,974,573 47,447,397
Accumulated deficit (31,632,788) (29,797,978)
------------ ------------
22,512,111 17,808,191
Less treasury stock, at cost
(135,726 and 15,026 shares,
respectively) (721,383) (75,173)
------------ ------------
Total stockholders' equity 21,790,728 17,733,018
------------ ------------
$22,525,224 $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
March 31,
--------------------------------
1998 1997
------------ ------------
Royalty income $ 128,509 $ 1,115,929
Gain (loss) on gold inventory 174,054 (105,425)
Consulting revenues 5,940 3,000
Costs and expenses
Costs of operations 112,925 107,689
General and administrative 430,493 375,650
Direct costs of consulting revenues 1,450 1,065
Exploration 368,136 282,830
Lease maintenance and holding costs 253,991 58,668
Depreciation and depletion 47,664 12,035
------------ ------------
Total costs and expenses 1,214,659 837,937
Operating income (loss) (906,156) 175,567
Interest and other income 305,271 118,955
Gain (loss) on marketable securities 0 0
------------ ------------
Net income (loss) $ (600,885) $ 290,907
============ ============
Basic earnings (loss) per share $ (0.04) $ 0.02
============ ============
Basic weighted average shares
outstanding 16,875,109 15,688,623
Diluted earnings (loss) per share $ (0.04) $ 0.02
============ ============
Diluted weighted average shares
outstanding 16,875,109 16,802,161
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 nine months ended
March 31,
--------------------------------
1998 1997
------------ ------------
Royalty income $ 2,007,373 $ 6,121,021
Gain (loss) on gold inventory (774,568) (500,248)
Consulting revenues 28,291 15,585
Costs and expenses
Costs of operations 324,893 447,696
General and administrative 1,209,478 1,167,336
Direct costs of consulting revenues 6,585 5,796
Exploration 1,474,960 1,041,625
Lease maintenance and holding costs 612,466 263,450
Depreciation and depletion 76,359 38,362
------------ ------------
Total costs and expenses 3,704,741 2,964,265
------------ ------------
Operating income (loss) (2,443,645) 2,672,093
Interest and other income 643,898 295,232
Gain (loss) on marketable securities (35,083) 4,197
------------ ------------
Net income (loss) $ (1,834,830) $ 2,971,522
============ ============
Basic earnings (loss) per share $ (0.11) $ 0.19
============ ============
Basic weighted average shares
outstanding 16,517,397 15,557,314
Diluted earnings (loss) per share $ (0.11) $ 0.18
============ ============
Diluted weighted average shares
outstanding 16,517,397 16,670,852
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 nine months ended
March 31,
--------------------------------
1998 1997
------------ ------------
Cash flows from operating activities
Net income (loss) $ (1,834,830) $ 2,971,522
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and depletion 76,359 38,362
Unrealized (gain) loss
on marketable securities 35,083 (4,197)
Unrealized (gain) loss on
gold inventory 774,568 500,248
Noncash exploration expense 0 13,520
(Increase) decrease in:
Trade and other receivables (230,240) 248,728
Marketable securities (58,738) 21,062
Royalties receivable in gold 2,532,541 626,580
Inventory (4,878,804) (1,292,493)
Prepaid expenses and other 511,040 (317,142)
Increase (decrease) in:
Accounts payable and accrued liabilities (493,515) (72,507)
Post retirement liabilities (19,800) (4,800)
Total Adjustments (1,751,506) (242,639)
------------ ------------
Net cash provided by (used in) operating
activities (3,586,336) 2,728,883
------------ ------------
Cash flows from investing activities
Capital expenditures for
property and equipment (2,868,570) (1,825,180)
(Increase) decrease in other assets (34,800) 0
------------ ------------
Net cash provided by (used in) investing
activities (2,903,370) (1,825,180)
------------ ------------
(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 nine months ended
March 31,
--------------------------------
1998 1997
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock $ 6,538,752 $ 170,682
Purchases of common stock (646,210) 0
------------ ------------
Net cash provided by (used in) financing
activities 5,892,542 170,682
------------ ------------
Net increase (decrease) in cash and
equivalents (597,164) 1,074,385
Cash and equivalents at beginning
of period 3,333,298 3,308,292
------------ ------------
Cash and equivalents at end of period $ 2,736,134 $ 4,382,677
============ ============
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
March 31, 1998, and June 30, 1997:
March 31, June 30,
1998 1997
------------ ------------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
Bald Mountain Royalty 2,434,908 -
Long Valley 4,058,246 3,675,281
Camp Bird 120,110 120,110
------------ ------------
6,613,264 3,795,391
Office furniture, equipment
and improvements 81,363 107,025
------------ ------------
Net property and equipment $ 6,694,627 $ 3,902,416
============ ============
As discussed in the following paragraphs, activity is being
conducted on substantially all of the Company's mineral
properties. The recoverability of the carrying value of
development projects is evaluated based upon estimated future net
cash flows from each property using estimates of contained
mineralization expected to be classified as proven and probable
reserves upon completion of a feasibility study. Reductions in
the carrying value of each property are recorded to the extent
that the Company's carrying value in each property exceeds its
estimated future discounted cash flows.
Presented below is a discussion of the status of each of the
Company's significant mineral 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
9
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 $355,093 for the first nine
months of fiscal 1998.
The Company anticipates that production from stockpiled
and on-pad heap leach material from the Crescent Pit
will continue through calendar 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
were made in 1995 and 1996) are creditable against the
option exercise amount. This agreement was extended
through December 31, 1998, as described below.
In August 1997, the Company entered into an agreement
with Amax Gold Inc. This agreement provided that Amax
10
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 if Amax exercised its option on the property.
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 of the
option, 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.
C. BALD MOUNTAIN
On March 13, 1998, Royal Gold acquired, from private
parties, a 50% undivided interest in a sliding-scale
net smelter return royalty that burdens approximately
81% of the current reserves at the Bald Mountain Mine,
White Pine County, Nevada. Bald Mountain is owned and
operated by Placer Dome U.S. Inc.
11
The Company anticipates that the royalty interest will
pay, on a 100% basis, at the level of 3.5% net smelter
returns for the balance of the mine life at Bald
Mountain, accordingly, the Company anticipates that its
receipts from royalty-burdened production at Bald
Mountain will be at the level of 1.75% net smelter
returns.
Incorporating all costs of acquisition, and certain
prospective credits to the producer, which are required
to offset historic excess payments, the Company has
capitalized this royalty interest at $2,468,312.
Bald Mountain is a heap leach operation, and production
may be affected by seasonal weather conditions. On May
1, 1998, the Company was allocated $43,424 relating to
its 1.75% NSR share of production during the quarter
ended March 31, 1998; pursuant to an agreement with the
operator, 50% of this allocation was retained by the
operator as a credit against prior overpayments
totaling $218,312.
D. CAMP BIRD
At March 31, 1998, 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.
12
3. ROYALTIES RECEIVABLE IN GOLD
At March 31, 1998, thirty-five ounces of gold related to the
March 31 quarterly production from the Crescent Pit is
recorded as a receivable. This gold was received on May 1,
1998. Royal Gold has exposure for any changes in the 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 at the end of the
period with unrealized gains or losses included in the
results of operations for the period. At March 31, 1998,
the Company held 23,115 ounces of gold bullion in inventory.
The Company is exposed to the risk of 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. During March 1998, the
Company sold forward 5,000 ounces of gold at a price of $302
per ounce for delivery on May 29, 1998. During March 1998,
the Company purchased put options at a strike price of $295
per ounce, expiring June 26, 1998, on 18,000 ounces of gold.
5. EARNINGS PER SHARE COMPUTATION
For the nine months ended 3/31/98
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ---------- ------
BASIC EPS
Income available
to common
stockholders $(1,834,830) 16,517,397 (0.11)
Effect of
dilutive
securities 0
------------ ---------- ------
DILUTED EPS $(1,834,830) 16,517,397 (0.11)
13
For the three months ended 3/31/98
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ---------- ------
BASIC EPS
Income available
to common
stockholders $ (600,885) 16,875,109 (0.04)
Effect of
dilutive
securities 0
----------- ---------- ------
DILUTED EPS $ (600,885) 16,875,109 (0.04)
Options to purchase 646,520 shares of common stock at an
average price of $0.28 per share were not included in the
computation of diluted EPS because the Company experienced a
net loss in both the quarter and nine month periods and
these options are anti-dilutive. Options to purchase
884,000 shares of common stock at an average price of $9.57
per share were outstanding at March 31, 1997, but were not
included in the computation of diluted EPS because the
options' exercise price was greater than the average market
price of the common shares.
For the nine months ended 3/31/97
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ---------- ------
BASIC EPS
Income available
to common
stockholders $ 2,971,522 15,557,314 0.19
Effect of
dilutive
securities
Options 875,150
Warrants 238,388
------------ ---------- ------
DILUTED EPS $ 2,971,522 16,670,852 0.18
14
For the three months ended 3/31/97
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ---------- ------
BASIC EPS
Income available
to common
stockholders $ 290,907 15,688,623 0.02
Effect of
dilutive
securities
Options 875,150
Warrants 238,388
------------ ---------- ------
DILUTED EPS $ 290,907 16,802,161 0.02
Options to purchase 204,000 shares of common stock at an
average price of $14.13 per share were outstanding at March
31, 1997, but were not included in the computation of
diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
6. CONTINGENCIES AND COMMITMENTS
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 Company is committed to pay 1/2 of the first year's $1.7
million expenditure at Milos, of which $375,000 has been
spent.
7. GENERAL
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
15
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
March 31, 1998, 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.
16
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 March 31, 1998, the Company had a working capital surplus of
$15,152,631. Current assets were $15,773,030, compared to
current liabilities of $620,399, for a current ratio of 25 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 nine months of fiscal 1998, the Company earned $1,604,856
from mill-grade ore production at the Crescent Pit, $359,093 from
heap leach production at the Crescent Pit, and $43,424 on its
recently acquired royalty interest at Bald Mountain. The Company
also earned $643,898 in interest income on its cash and
marketable securities portfolio and from gold leasing during the
nine month period. This marketable securities portfolio is
invested in U.S. treasury notes with maturities of up to fifteen
17
months, has an adjusted cost basis of $5,013,621, and had a
market value, at March 31, 1998, of $5,019,848.
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 first nine months of fiscal 1998, the Company
repurchased 120,700 of its common shares at a cost of $646,210.
This repurchase was made in accordance with the Company's stock
repurchase program announced on May 2, 1997, in which the Board
of Directors authorized the repurchase of up to $5 million of the
Company's common stock, from time-to-time, in the open market or
in privately negotiated transactions.
Management believes its cash resources will be adequate to fund
planned operations for the foreseeable future. The Company
anticipates receiving $350,000 to $450,000 per year in revenues
from its interest at Bald Mountain, assuming a constant gold
price of $300 per ounce. This will contribute approximately
$75,000 to earnings annually over the estimated mine life.
Revenues from the Company's interest in the Crescent Pit will
decrease versus production levels obtained in fiscal 1997. More
extensive production from the South Pipeline deposit is expected
to commence shortly after environmental permitting is completed,
which is expected in 1999. Cortez is currently reviewing life of
mine scenarios and, during the March 31, 1998 quarter, embarked
on a new exploration program at South Pipeline that is budgeted
at $3.345 million.
The Company anticipates total general and administrative expenses
for fiscal 1998 to be approximately $1,600,000, of which
$1,209,478 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, due to
exploration expenditures anticipated on the island of Milos), of
which $1,474,960 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 $382,966 has been spent. Because of the seasonal nature of
the Company's activities, development, exploration and holding
costs are disproportionately incurred throughout the year. 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.
On January 30, 1998, Placer Dome U.S. Inc. ("PDUS"), the 60%
owner and operator of Cortez Gold Mines, notified the Company
18
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:
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.
19
On March 17, 1998, the Company announced that it had acquired a
50% undivided interest in a sliding-scale, net smelter returns
royalty that burdens approximately 81% of the current reserves at
the Bald Mountain Mine, White Pine County, Nevada. Bald Mountain
is an open pit, heap leach mine operated by Placer Dome U.S.,
Inc. The mine has been in production since 1984, and has a
current projected mine life of approximately seven years, based
on proven and probable reserves of 921,000 contained ounces, as
of December 31, 1997, as reported by Placer Dome Inc. The
Company acquired the interest for a cash payment of $2,250,000
and assumption of $218,312 in debt to the operator of the mine.
On March 18, 1998, the Company announced that it had reached
agreements with Athens-based Silver & Baryte Ores Mining Company
S.A., and with an Australian investor group, to explore for and
mine gold and other minerals in the public mine areas on the
Greek island of Milos, and on other islands in the Cyclades
chain, in the south Aegean Sea.
Under the agreements, Royal Gold and the Australian investors
will jointly fund not less than $5.0 million in exploration and
development expense on the Milos project, over a period of three
years, at a rate of at least $1.7 million per year, of which
$375,000 has been expended. Royal Gold is the operator of the
project. Royal Gold and the Australian investors may terminate
their interest, vis a vis Silver & Baryte, at any time after $1.7
million has been expended.
Upon completion of the $5.0 million in expenditures, Royal Gold
and the Australian investors will have earned a 50% interest in
Midas, S.A., and the 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% net smelter returns interest,
in any mining project on Milos.
20
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1998, COMPARED TO THE QUARTER
ENDED MARCH 31, 1997
For the quarter ended March 31, 1998, the Company reported a net
loss of $600,885 or $0.04 per share, as compared to net income of
$290,907, or $0.02 per share, for the quarter ended March 31,
1997.
Royalty income for the current quarter of $128,509, compared to
$1,115,929 for the quarter ended March 31, 1997, primarily
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. Production in the
current quarter is attributable to $85,085 of heap leach
production from the Crescent Pit and royalty income of $43,424 on
the recently acquired interest at Bald Mountain. Production at
Bald Mountain is from heap leach operations and is therefore
seasonal in nature, with the winter months producing less gold
than the summer months. The Company anticipates modest heap
leach production from the Crescent Pit through fiscal 1998.
The gain on gold inventory relates to a $10.80 increase in gold
price since December 31, 1997. The Company holds 23,198 ounces
of gold inventory, which has some exposure to changes in the gold
price. The Company has sold forward 5,000 ounces of gold at $302
per ounce for delivery on May 29, 1998, and has purchased put
options, with a strike price of $295 per ounce, which expire June
26, 1998.
Costs of operations increased to $112,925 for the quarter ended
March 31, 1998, compared to $107,689 for the quarter ended
December 31, 1996, primarily because of the increased analysis
costs related to the South Pipeline stand alone study, offset by
decreased costs associated with Nevada Net Proceeds Tax on the
lower revenues from the Crescent Pit.
General and administrative costs of $430,493 for the current
quarter have increased from $375,650 for the quarter ended March
31, 1997, primarily because of increased expenditures incurred
related to investor communications.
Exploration expenditures of $368,136 for the quarter ended March
31, 1998, increased from $282,830 for the quarter ended March 31,
1997, primarily from exploration activity related to a new
project in Nevada and the exploration on Milos Island.
21
Lease maintenance and holding costs increased from $58,668 for
the quarter ended March 31, 1997, to $253,991 for the quarter
ended March 31, 1998, due to increased advance minimum royalties
in Nevada.
Interest income increased from $118,955 for the quarter ended
March 31, 1997, to $305,271 for the quarter ended March 31, 1998
primarily due to increased cash and gold available for
investment.
FOR THE NINE MONTHS MARCH 31, 1998, COMPARED TO THE NINE MONTHS
ENDED MARCH 31, 1997
For the nine months ended March 31, 1998, the Company reported a
net loss of $1,834,830, or $0.11 per share, as compared to
earnings of $2,971,522, or $0.19 per share, for the nine months
ended March 31, 1997.
Year to date royalty income of $2,007,373, compared to $6,121,021
for the prior year, primarily relates to Royal Gold's interest in
the South Pipeline property, from which the Company was receiving
its 20% net profits interest for the nine months ended March 31,
1997. The decrease is attributable to the completion of mill-
grade production at the Crescent Pit in fiscal 1997 versus the
resulting production of in-process inventory in the first month
of the current nine month period, heap leach production from the
Crescent Pit and the newly acquired royalty at Bald Mountain.
The increased loss on gold inventory relates to a $33.55 decline
in gold price since September 30, 1997. The Company holds 23,198
ounces of gold inventory, which has some exposure to changes in
the gold price. The Company has sold forward 5,000 ounces of
gold at $302 per ounce for delivery on May 29, 1998, and has
purchased $295 put options which expire June 26, 1998.
Costs of operations decreased to $324,893 for the nine months
ended March 31, 1998, compared to $447,696 for the nine months
ended March 31, 1997, primarily because of the levy of Nevada Net
Proceeds Tax on the lower revenues from the Crescent Pit offset
by increased expenditures of analysis of various mining scenarios
at South Pipeline.
General and administrative costs of $1,209,478 for the nine
months ended March 31, 1998 remained comparable with $1,167,336
for the nine months ended March 31, 1997.
22
Exploration expenditures of $1,474,960 for the nine months ended
March 31, 1998, increased from $1,041,625 for the nine months
ended March 31, 1997, primarily due to a higher level of
exploration activity at five properties, including a new property
in Nevada, the State Line Diamond District and exploration on the
island of Milos, in Greece.
Lease maintenance and holding costs increased from $263,450 for
the nine months ended March 31, 1997, to $612,466 for the nine
months ended March 31, 1998, due to the escalating holding costs
at the Company's exploration properties and advance minimum
royalties paid on a new property in Nevada.
Interest and other income increased from $295,232 for the nine
months ended March 31, 1997, to $643,898 for the nine months
ended March 31, 1998, primarily due to the increased level of
cash and gold 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.
23
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ROYAL GOLD, INC.
(Registrant)
Date: May 15, 1998 By: /s/ Stanley Dempsey
-------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1998 By: /s/ Thomas A. Loucks
--------------------
Thomas A. Loucks
Treasurer
(chief financial officer)
25