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, 1999
COMMISSION FILE NUMBER 0-5664
ROYAL GOLD, INC.
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(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
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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 MAY 4, 1999
--------------------- -----------------
$.01 PAR VALUE 17,082,596 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 ............................... 16
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............... 23
SIGNATURES ................................................. 24
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
--------------------------------
March 31, June 30,
1999 1998
--------------------------------
Current Assets
Cash and equivalents $ 5,158,525 $ 8,462,083
Marketable securities 4,018,098 3,007,505
Trade and other receivables 218,108 516,186
Royalties receivable in gold 106,011 83,194
Inventory 0 69,101
Prepaid expenses and other 46,136 70,065
--------- ---------
Total current assets 9,546,878 12,208,134
--------- ---------
Property and equipment, at cost
Mineral properties 7,597,376 6,949,655
Furniture, equipment and improvements 691,649 681,073
--------- ---------
8,289,025 7,630,728
--------- ---------
Less accumulated depreciation,
depletion and amortization (1,324,196) (981,625)
--------- ---------
Net property and equipment 6,964,829 6,694,103
--------- ---------
Other assets
Noncurrent marketable securities 1,006,875 2,012,500
Other 57,767 57,567
--------- ---------
Total other assets 1,064,642 2,070,067
--------- ---------
$ 17,576,349 $ 20,927,304
========== ==========
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,
1999 1998
---------------------------------
Current Liabilities
Accounts payable $ 687,934 $ 548,904
Taxes payable 0 45,280
Accrued compensation 95,000 140,000
Post retirement benefits 26,400 26,400
Other 12,225 10,190
--------- ---------
Total current liabilities 821,559 770,774
--------- ---------
Post retirement benefit liabilities 87,697 107,497
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
issued 17,255,602 and 17,069,602
shares, respectively 172,556 170,696
Additional paid-in capital 54,019,593 53,978,827
Accumulated deficit (36,491,686) (33,340,707)
--------- ---------
17,700,463 20,808,816
Less treasury stock, at cost
(204,726 and 143,726 shares,
respectively) (1,033,370) (759,783)
Total stockholders' equity 16,667,093 20,049,033
$ 17,576,349 $ 20,927,304
========== ==========
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,
-----------------------------
1999 1998
-----------------------------
Royalty income $ 139,466 $ 128,509
Gain on gold inventory 1,215 174,054
Consulting revenues 3,000 5,940
Costs and expenses
Costs of operations 132,419 112,925
General and administrative 391,462 430,493
Direct costs of consulting revenues 0 1,450
Exploration 699,568 368,136
Lease maintenance and holding costs 52,365 253,991
Depreciation and depletion 44,517 47,664
--------- ---------
Total costs and expenses 1,320,331 1,214,659
--------- ---------
Operating loss (1,176,650) (906,156)
Interest and other income 131,415 305,271
Loss on marketable securities (8,845) 0
--------- ---------
Net loss $ (1,054,080) $ (600,885)
========== =========
Basic and diluted loss per share $ (0.06) $ (0.04)
========== =========
Basic and diluted weighted average
shares outstanding 17,012,787 16,875,109
========== ==========
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,
----------------------------
1999 1998
----------------------------
Royalty income $ 774,418 $ 2,007,373
Gain (loss) on gold inventory 634 (774,568)
Consulting revenues 12,575 28,291
Costs and expenses
Costs of operations 273,654 324,893
General and administrative 1,208,084 1,209,478
Direct costs of consulting revenues 1,625 6,585
Exploration 2,245,118 1,474,960
Lease maintenance and holding costs 379,699 612,466
Depreciation and depletion 342,571 76,359
--------- ---------
Total costs and expenses 4,450,751 3,704,741
--------- ---------
Operating loss (3,663,124) (2,443,645)
Interest and other income 538,401 643,898
Loss on marketable securities (26,256) (35,083)
--------- ---------
Net loss $ (3,150,979) $ (1,834,830)
========== ==========
Basic and diluted loss per share $ (0.19) $ (0.11)
========== ==========
Basic and diluted weighted average
shares outstanding 17,007,727 16,517,397
========== ==========
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,
-----------------------------
1999 1998
-----------------------------
Cash flows from operating activities
Net loss $ (3,150,979) $ (1,834,830)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and depletion 342,571 76,359
Unrealized (gain) loss
on marketable securities 26,256 35,083
Unrealized (gain) loss on
gold inventory (634) 774,568
(Increase) decrease in:
Trade and other receivables 298,078 (230,240)
Marketable securities (31,224) (58,738)
Royalties receivable in gold (22,817) 2,532,541
Inventory 69,735 (4,878,804)
Prepaid expenses and other (2,327) 511,040
Increase (decrease) in:
Accounts payable and accrued liabilities 50,785 (493,515)
Post retirement liabilities (19,800) (19,800)
--------- ---------
Total Adjustments 741,847 (1,751,506)
--------- ---------
Net cash used in operating
activities (2,409,132) (3,586,336)
--------- ---------
Cash flows from investing activities
Maturity (purchase) of marketable
securities (4,968) 0
Capital expenditures for
property and equipment (658,297) (2,868,570)
Increase in other assets (200) (34,800)
--------- ---------
Net cash used in investing
activities (663,465) (2,903,370)
--------- ---------
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,
---------------------------
1999 1998
---------------------------
Cash flows from financing activities
Proceeds from issuance of common stock $ 42,626 $ 6,538,752
Purchases of common stock (273,587) (646,210)
--------- ---------
Net cash provided by (used in) financing
activities (230,961) 5,892,542
--------- ---------
Net decrease in cash and
equivalents (3,303,558) (597,164)
--------- ---------
Cash and equivalents at beginning
of period 8,462,083 3,333,298
--------- ---------
Cash and equivalents at end of period $ 5,158,525 $ 2,736,134
========== =========
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, 1998.
1. PROPERTY AND EQUIPMENT
Property and equipment consists of the following components at March 31,
1999, and June 30, 1998:
March 31, June 30,
1999 1998
--------- ---------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
Bald Mountain Royalty 2,068,052 2,369,353
Inyo Gold Project
(formerly Long Valley) 4,375,735 4,086,233
Other 478,329 120,110
--------- ---------
6,922,116 6,575,696
Office furniture, equipment
and improvements 42,713 73,407
--------- ---------
Net property and equipment $ 6,964,829 $ 6,649,103
========= =========
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 capitalized projects is
evaluated based upon undiscounted estimated future net cash flows from
each property's proven and probable reserves. 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,
9
the Company held a 20% net profits interest in this project.
Cortez Gold Mines ("Cortez") is the project operator.
On April 1, 1999, the Company announced that it has agreed
to convert its 20% net profits interest at South Pipeline
into several gross smelter return royalties extending over
the mining complex that includes the Pipeline and South
Pipeline deposits. Pipeline is owned by Cortez Gold Mines,
a joint venture between Placer Dome U.S. Inc. and Kennecott
Exploration (Australia) Ltd., a subsidiary of Rio Tinto Ltd.
Total ore reserves for the complex covered by the new
royalties are approximately 174 million tons, at an average
grade of 0.048 ounces per ton of gold.
The royalty interests that Royal Gold holds as of April 1,
1999, include:
A) A sliding scale gross smelter returns ("GSR") royalty
for all gold produced from the "Reserve Claims" (some 52
claims that encompass all of the Pipeline and South
Pipeline deposits). This royalty will cover, from July 1,
1999, proven and probable ore reserves containing
approximately 8.3 million contained ounces of gold. The GSR
on the Reserve Claims is tied to the gold price, with a
floor of 0.40% GSR below $210 per ounce gold, and is capped
at a 5% GSR for a $470 per ounce or higher gold price. At a
$285 gold price, the GSR on the Reserve Claims is 2.25%.
B) A sliding scale GSR for all gold produced from the
remaining GAS Claims (some 296 claims immediately south and
east of the Reserve Claims). At present, there are no ore
reserves on the GAS Claims. The GSR on the GAS Claims is
tied to the gold price, with a floor of 0.72% GSR below $210
per ounce gold, and is capped at a 9% GSR for a $470 per
ounce or higher gold price. At a gold price of $285, the
GSR on the GAS Claims is 4.05%.
C) A 10% GSR on all gold and silver produced from any of
the GAS Claims from January 1, 1999 until the commencement
of commercial production from the South Pipeline deposit
(this interest relates primarily to stockpiled material from
the Crescent Pit and from the "saddle area," at South
Pipeline).
10
D) A 7% GSR on all silver produced from any of the Reserve
Claims or GAS Claims, commencing July 1, 1999.
B. 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.
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.
C. INYO GOLD PROJECT (FORMERLY LONG VALLEY)
On January 13, 1999, Royal Gold announced that it had
renamed the Long Valley gold project as the Inyo Gold
Project.
The Inyo Gold Project, 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. This agreement was extended through
December 31, 2003, as described below.
In November 1997, the Company announced an increase in the
reserve estimate for Inyo Gold Project. Based on Royal
Gold's drilling results through August 1997, the Inyo Gold
Project contains proven and probable reserves, at a gold
price of $350 per ounce, of approximately 39.1 million tons,
averaging 0.018 opt (at a cut-off grade of 0.008 opt). The
11
Company has recalculated these reserves, at $300 gold, to be
34.1 million tons, averaging 0.019 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 Inyo Gold Project. Under the terms of the extension of
the option, Mono County Mining Company (formerly Royal Long
Valley) was required to pay $900,000 to Standard Industrial
Minerals, on or before December 31, 1998, or else it would
forfeit the right to acquire all of Standard Industrial's
interest in the Inyo Gold Project.
In November 1998, Royal Gold announced that it had secured a
further five-year extension of its option to acquire all of
the interest of Standard Industrial Minerals in the Inyo
Gold Project. Under the terms of the extension agreement,
Mono County Mining Company may acquire all of Standard
Industrial's interest in the property, at any time prior to
December 31, 2003, upon payment of $900,000, plus accrued
interest at 6% per year. Mono County Mining Company must
pay Standard Industrial a minimum of $100,000 per year, over
the five-year extension period, which is then credited
against the option purchase amount.
2. INCOME TAXES
At June 30, 1998, the Company had an estimated net operating loss
carryforward for federal income tax purposes of approximately
$22.8 million. If not used, the net operating loss carryforwards
will expire during the years 2001 through 2016. The Company is
not recognizing any benefit from its current losses, due to the
uncertainty as to their ultimate realization.
3. ROYALTIES RECEIVABLE IN GOLD
At March 31, 1999, 327 ounces of gold related to the March 31
quarterly production from the Crescent Pit is recorded as a
receivable. This gold was received on April 27, 1999. 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.
12
4. INVENTORY
Gold inventory on the balance sheet consists of refined gold
bullion held in uninsured accounts. This gold is 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. During the
quarter ended March 31, 1999, all gold inventory was sold and at
March 31, 1999, the Company held no gold bullion in inventory.
5. EARNINGS PER SHARE COMPUTATION
At March 31, 1999, options to purchase 423,520 shares of common
stock at an average price of $0.40 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 820,498 shares of
common stock at an average price of $6.13 per share were
outstanding at March 31, 1999, 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.
At March 31, 1998, 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, 1998, 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.
13
7. 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, 1998.
14
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.
On April 1, 1999, the Company announced that it has agreed to convert
its 20% net profits interest at South Pipeline into several gross
smelter return royalties extending over the mining complex that
includes the Pipeline and South Pipeline deposits. The royalty on the
Pipeline operation is effective July 1, 1999 and is anticipated by
management to bring significant cash flow to the Company in fiscal
year 2000.
YEAR 2000 IMPACT
The Year 2000 issue relates to equipment that contains hardware and/or
software programmed to read the year based on its last two digits.
This equipment will not be able to differentiate between years at the
turn of the Century and, if this problem is left uncorrected, may
result in malfunctions of the equipment.
15
Throughout the Company, the use of computers is limited to Windows
operating systems on computers linked to Local Area Networks.
Software consists of standardized packages from major developers. The
Year 2000 issue also relates to other office equipment, such as
telephones, voice mail and the office security system. The Company is
in the process of contacting all relevant vendors and manufacturers to
determine whether any updates of replacements will be required. The
cost of this project, to date, has not been material and the Company
does not expect future costs of the project to be material. An entire
system replacement of all computers and software would total
approximately $75,000. Many components have been certified by the
vendor as Year 2000 compliant. Those companies that provide banking,
insurance and other administrative services to the Company are also
being contacted for Year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had a working capital surplus of
$8,725,319. Current assets were $9,546,878, compared to current
liabilities of $821,559, for a current ratio of 12 to 1. This
compares to current assets of $12,208,134, and current liabilities of
$770,774, at June 30, 1998, resulting in a current ratio of 17 to 1.
The Company's liquidity needs are generally being met from its
available cash resources, royalty income, interest income, and the
issuance of common stock. During the first nine months of fiscal
1999, the Company earned $376,884 from heap leach production at the
Crescent Pit, and $397,534 on its royalty interest at Bald Mountain.
The Company also earned $538,401 in interest income on its cash and
marketable securities portfolio during the nine month period. This
marketable securities portfolio is invested in U.S. treasury notes
with maturities of up to fourteen, has an adjusted cost basis of
$5,021,157, and had a market value, at March 31, 1999, of $5,032,315.
16
During the first nine months of fiscal 1999, the Company repurchased
61,000 of its common shares at a cost of $273,587. 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. Under this plan, the Company has repurchased 189,700
shares of its common stock for $958,197 through March 31, 1999.
Management believes its cash resources will be adequate to fund
planned operations for the foreseeable future. The Company's royalty
on the Pipeline deposit, effective July 1, 1999, is expected to yield
approximately $6.4 million to the Company in fiscal year 2000 at a
$290 gold price. 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 $290 per ounce, which will
contribute approximately $75,000 to earnings annually over the
estimated mine life. Revenues from the Company's interest in the
Crescent Pit will continue to decrease versus production levels
obtained in fiscal 1998.
The Company anticipates total general and administrative expenses for
fiscal 1999 to be approximately $1,800,000 (revised from $2,000,000),
of which $1,208,084 has been spent to date. The Company also
anticipates expenditures for exploration and property holding costs to
be approximately $3,000,000 (revised from $2,400,000) of which
$2,624,817 has been spent. Development expenditures at Inyo Gold are
estimated at $400,000, of which $317,489 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.
RESERVES
Set forth below is a chart showing the projected reserves reported by
Placer Dome Inc. for the Pipeline and South Pipeline properties as of
June 30, 1999:
17
Pipeline / South Pipeline
Projected Proven and Probable Reserves (1)(4)
June 30, 1999
Tons Average Grade Contained
(millions) (oz Au/ton) Oz Au (2)
---------- ------------- ---------
Pipeline (3) 52.1 0.071 3,700,000
South Pipeline (3) 122.3 0.037 4,590,000
- ------------------------
(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 and before losses in recovery. The assumed
recovery rates are 90% for Pipeline mill-grade ore, 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 sliding scale GSR royalty on the properties. At gold prices from
$270 to $310, the Company receives 2.25% of revenues from these
properties.
(4) These reserves are the projected reserves on the GAS Claims based
on December 31, 1998 reserves adjusted for estimated six months of
production.
18
EXPLORATION
On January 5, 1999, the Company announced that substantial gold
mineralization has been discovered at the Milos Gold Project, on the
island of Milos, Greece. The project encompasses a gold exploration
license area covering Milos and three neighboring islands in the
Aegean Sea. As part of an ongoing exploration program managed by
Royal Gold, more than 32,800 feet of reverse circulation drilling have
now been completed. Since the drilling program began in August 1998,
sixty reverse circulation drill holes have been completed, testing six
target areas within a 3.5 square mile area in the southwestern portion
of the island of Milos.
ROYALTY ACQUISITIONS
On February 10, 1999, the Company announced that it has agreed to
finance the underground development of International Skyline Gold
Corporation's Bronson Slope High claims. For its investment of
approximately $150,000, Royal Gold will receive the greater of 22% of
net operating profits or 2% of net smelter returns from High claim
production until payback, and the greater of 8.25% of net operating
profits or 1% of net smelter returns after payback. Royal Gold may
extend additional funds to Skyline, up to a total of approximately
$331,000, to finance additional development and reserve definition.
"Payback" is defined as 125% of Royal Gold's total investment in the
High claims, together with the costs to Royal Gold of diligence and
documentation of the financing transaction, with Payback estimated not
to exceed approximately $447,000.
Effective as of January 20, 1999, Royal Gold also acquired, for
$175,000 in cash, from a private individual, a 5% net smelter returns
royalty interest on a portion of the Mule Canyon mine, operated by
Newmont Gold Company, in Lander County, Nevada. The portion of the
mine subject to this royalty interest is projected to be in production
during 2001 and 2002, and is expected to produce some 24,000 ounces of
gold.
19
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999, COMPARED TO THE QUARTER ENDED
MARCH 31, 1998
For the quarter ended March 31, 1999, the Company reported a net loss
of $1,054,080 or $0.06 per share, as compared to net loss of $600,885,
or $0.04 per share, for the quarter ended March 31, 1998.
Royalty income for the current quarter of $139,466, compared to
$128,509 for the quarter ended March 31, 1998, relates to Royal Gold's
interests in the South Pipeline property and at Bald Mountain. The
increase in royalty income is primarily attributable to increased
royalty income at South Pipeline. The Company anticipates modest
royalties from heap leach production from the Crescent Pit through
fiscal 1999.
The decrease in the gain on gold inventory in the current quarter
versus the same quarter last year relates to a substantial decrease in
gold inventory at March 31, 1999, versus March 31, 1998. Last year's
gain related to an increase in the gold price on 23,150 ounces of
gold. At March 31, 1999, the Company held no gold in inventory.
Costs of operations increased to $132,419 for the quarter ended March
31, 1999, compared to $112,925 for the quarter ended March 31, 1998,
primarily because of the increase in expenditures related to the
renegotiation of the royalty agreement with Placer Dome Inc.
General and administrative costs of $391,462 for the current quarter
have decreased from $430,493 for the quarter ended March 31, 1998,
primarily because of decreased expenditures related to overall cost
containment somewhat offset by fees related to listing on the Toronto
Stock Exchange.
Exploration expenditures of $699,568 for the quarter ended March 31,
1999, increased from $368,136 for the quarter ended March 31, 1998,
primarily from exploration activity at Milos, offset by decreased
expenditures in two properties in Nevada.
Lease maintenance and holding costs decreased from $253,991 for the
quarter ended March 31, 1998, to $52,365 for the quarter ended March
31, 1999, due to the cessation of advance minimum royalty payments on
two properties in Nevada.
20
Depreciation, depletion, and amortization costs decreased from $47,664
for the quarter ended March 31, 1998, to $44,517 for the quarter ended
March 31, 1999, primarily from a lower depletion rate related to the
Company's royalty interest at Bald Mountain.
Interest income decreased from $305,271 for the quarter ended March
31, 1998, to $131,415 for the quarter ended March 31, 1999, primarily
due to decreased return on cash investments and decreased funds
available for investing.
FOR THE NINE MONTHS MARCH 31, 1999, COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1998
For the nine months ended March 31, 1999, the Company reported a net
loss of $3,150,979, or $0.19 per share, as compared to a net loss of
$1,834,830, or $0.11 per share, for the nine months ended March 31,
1998.
Year to date royalty income was $774,418 compared to $2,007,373 for
the prior year. The decrease primarily relates to Royal Gold's
interest in the South Pipeline property, from which the Company was
receiving royalty payments on the final production of mill-grade ore
from the Crescent Pit in fiscal 1998. During fiscal 1999, royalty
income includes $397,533 from the Company's royalty at Bald Mountain,
and the balance is from heap leach production of Crescent Pit ore.
The gain on gold inventory in the current nine month period versus the
loss in the same quarter last year relates to a substantial decrease
in gold inventory at March 31, 1999, versus March 31, 1998. Last
year's loss related to a substantial decline in the gold price on
23,150 ounces of gold. At March 31, 1999, the Company held no gold in
inventory.
Costs of operations decreased to $273,654 for the nine months ended
March 31, 1999, compared to $324,893 for the nine months ended March
31, 1998, primarily because of decreased expenditures from Nevada Net
Proceeds Tax due to lower royalty revenues.
General and administrative costs of $1,208,084 for the nine months
ended March 31, 1999 were comparable with expenditures of $1,209,478
for the nine months ended March 31, 1998.
Exploration expenditures of $2,245,118 for the nine months ended March
31, 1999, increased from $1,474,960 for the nine months ended March
21
31, 1998, primarily due to a higher level of exploration activity at
three properties, including two properties in Nevada and exploration
on the island of Milos, in Greece. This is offset by the cessation of
expenditures on properties that were under exploration by the Company
last year, but have now been dropped.
Lease maintenance and holding costs decreased from $612,466 for the
nine months ended March 31, 1998, to $379,699 for the nine months
ended March 31, 1999, primarily due to decreased advance minimum
royalties paid on two properties in Nevada.
Depreciation, depletion, and amortization costs increased from $76,359
for the nine month period ended March 31, 1998, to $342,571 for the
nine month period ended March 31, 1999, primarily from the depletion
expense related to the Company's royalty interest at Bald Mountain.
Interest and other income decreased from $643,898 for the nine months
ended March 31, 1998, to $538,401 for the nine months ended March 31,
1999, primarily due to the decreased 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, 1998.
22
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Item 5, Other Events filed on April 12, 1999
23
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 14, 1999 By: /s/ Stanley Dempsey
--------------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1999 By: /s/ Thomas A. Loucks
-------------------------
Thomas A. Loucks
Treasurer
(chief financial officer)
23