e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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54-0835164 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation)
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Identification No.) |
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|
1660 Wynkoop Street, Suite 1000 |
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Denver, Colorado
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80202 |
(Address of Principal Executive Office)
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(Zip Code) |
Registrants telephone number, including area code (303) 573-1660
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 (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practical date: 30,069,673 shares of the Companys common stock, par value $0.01 per
share, were outstanding as of October 26, 2007.
ROYAL GOLD, INC.
Consolidated Balance Sheets
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|
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September 30, |
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|
|
|
|
|
2007 |
|
|
June 30, |
|
|
|
(Unaudited) |
|
|
2007 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
90,812,323 |
|
|
$ |
82,841,861 |
|
Royalty receivables |
|
|
11,135,438 |
|
|
|
12,470,451 |
|
Deferred tax assets |
|
|
164,035 |
|
|
|
154,050 |
|
Prepaid expenses and other |
|
|
753,894 |
|
|
|
216,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
102,865,690 |
|
|
|
95,683,219 |
|
|
|
|
|
|
|
|
|
|
Royalty interests in mineral properties, net (Note 2) |
|
|
213,872,250 |
|
|
|
215,839,441 |
|
Restricted cash compensating balance |
|
|
15,750,000 |
|
|
|
15,750,000 |
|
Inventory restricted (Note 11) |
|
|
11,017,262 |
|
|
|
10,611,562 |
|
Equity investment in Battle Mountain Gold Exploration |
|
|
8,549,259 |
|
|
|
|
|
Note receivable Battle Mountain Gold Exploration (Note 6) |
|
|
15,051,823 |
|
|
|
14,493,878 |
|
Available for sale securities (Note 3) |
|
|
1,696,393 |
|
|
|
1,995,041 |
|
Other assets |
|
|
2,987,772 |
|
|
|
2,276,049 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
371,790,449 |
|
|
$ |
356,649,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Current liabilities |
|
|
|
|
|
|
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Accounts payable |
|
$ |
3,396,145 |
|
|
$ |
2,342,330 |
|
Income taxes payable |
|
|
3,186,591 |
|
|
|
5,064 |
|
Dividends payable |
|
|
1,885,409 |
|
|
|
1,868,594 |
|
Accrued compensation |
|
|
516,750 |
|
|
|
344,500 |
|
Other |
|
|
143,375 |
|
|
|
128,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
9,128,270 |
|
|
|
4,688,527 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
|
5,404,070 |
|
|
|
5,910,697 |
|
Note payable (Note 5) |
|
|
15,750,000 |
|
|
|
15,750,000 |
|
Other long-term liabilities |
|
|
91,573 |
|
|
|
98,173 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
30,373,913 |
|
|
|
26,447,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
Minority interest in subsidiary |
|
|
11,304,899 |
|
|
|
11,120,797 |
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, authorized 40,000,000 shares; and issued 29,154,872 and
28,892,980 shares, respectively |
|
|
291,548 |
|
|
|
288,929 |
|
Additional paid-in capital |
|
|
317,777,484 |
|
|
|
310,439,112 |
|
Accumulated other comprehensive income |
|
|
272,048 |
|
|
|
458,298 |
|
Accumulated earnings |
|
|
12,867,429 |
|
|
|
8,991,529 |
|
Less treasury stock, at cost (229,224 shares) |
|
|
(1,096,872 |
) |
|
|
(1,096,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
330,111,637 |
|
|
|
319,080,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
371,790,449 |
|
|
$ |
356,649,190 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
3
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
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|
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|
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|
For The Three Months Ended |
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|
September 30, |
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|
September 30, |
|
|
|
2007 |
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|
2006 |
|
Royalty revenues |
|
$ |
12,817,001 |
|
|
$ |
9,928,642 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Costs of operations (exclusive of depreciation,
depletion and
amortization shown separately below) |
|
|
864,366 |
|
|
|
667,659 |
|
General and administrative |
|
|
1,556,948 |
|
|
|
1,133,656 |
|
Exploration and business development |
|
|
629,657 |
|
|
|
418,541 |
|
Depreciation, depletion and amortization |
|
|
2,402,083 |
|
|
|
1,074,912 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
5,453,054 |
|
|
|
3,294,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
7,363,947 |
|
|
|
6,633,874 |
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
1,879,946 |
|
|
|
971,185 |
|
Interest and other expense |
|
|
(373,856 |
) |
|
|
(66,314 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,870,037 |
|
|
|
7,538,745 |
|
|
|
|
|
|
|
|
|
|
Current tax expense |
|
|
(3,263,948 |
) |
|
|
(2,650,944 |
) |
Deferred tax benefit |
|
|
414,655 |
|
|
|
243,346 |
|
Minority interest in income of consolidated subsidiary |
|
|
(220,140 |
) |
|
|
(171,010 |
) |
Loss from equity investment |
|
|
(38,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,762,320 |
|
|
$ |
4,960,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to comprehensive income |
|
|
|
|
|
|
|
|
Unrealized change in market value of available for sale securities, net of tax |
|
|
(186,250 |
) |
|
|
77,745 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
5,576,070 |
|
|
$ |
5,037,882 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.20 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
28,729,541 |
|
|
|
23,587,416 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.20 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
28,861,324 |
|
|
|
23,822,846 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
4
ROYAL GOLD, INC.
Consolidated Statement of Stockholders Equity for the Three Months Ended September 30, 2007
(Unaudited)
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common Shares |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Treasury Stock |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
Balance at June 30, 2007 |
|
|
28,892,980 |
|
|
$ |
288,929 |
|
|
$ |
310,439,112 |
|
|
$ |
458,298 |
|
|
$ |
8,991,529 |
|
|
|
229,224 |
|
|
$ |
(1,096,872 |
) |
|
$ |
319,080,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity offering (April 2007) |
|
|
|
|
|
|
|
|
|
|
(28,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,508 |
) |
Exercise of stock options |
|
|
36,250 |
|
|
|
363 |
|
|
|
424,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425,291 |
|
Vesting of restricted stock |
|
|
9,000 |
|
|
|
90 |
|
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAMGOLD Corporation and
Repadre International
Corporation (Note 7) |
|
|
216,642 |
|
|
|
2,166 |
|
|
|
6,343,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,345,444 |
|
Tax benefit of stock-based compensation exercises |
|
|
|
|
|
|
|
|
|
|
60,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of non-cash compensation expense for
stock-based compensation |
|
|
|
|
|
|
|
|
|
|
538,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive loss for the quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,250 |
) |
|
|
5,762,320 |
|
|
|
|
|
|
|
|
|
|
|
5,576,070 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,886,420 |
) |
|
|
|
|
|
|
|
|
|
|
(1,886,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007 |
|
|
29,154,872 |
|
|
$ |
291,548 |
|
|
$ |
317,777,484 |
|
|
$ |
272,048 |
|
|
$ |
12,867,429 |
|
|
|
229,224 |
|
|
$ |
(1,096,872 |
) |
|
$ |
330,111,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
5
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,762,320 |
|
|
$ |
4,960,137 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
2,402,083 |
|
|
|
1,074,912 |
|
Deferred tax benefit |
|
|
(414,655 |
) |
|
|
(243,346 |
) |
Non-cash employee stock compensation expense |
|
|
538,621 |
|
|
|
412,839 |
|
Loss on available for sale securities |
|
|
10,440 |
|
|
|
|
|
Note receivable Battle Mountain Gold Exploration |
|
|
(557,945 |
) |
|
|
|
|
Tax benefit of stock-based compensation exercises |
|
|
(60,143 |
) |
|
|
|
|
Loss from equity investment |
|
|
38,284 |
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Royalty receivables |
|
|
1,335,013 |
|
|
|
(1,044,714 |
) |
Prepaid expenses and other assets |
|
|
(351,462 |
) |
|
|
(174,827 |
) |
Accounts payable |
|
|
1,137,667 |
|
|
|
481,237 |
|
Income taxes payable |
|
|
3,241,670 |
|
|
|
2,161,697 |
|
Accrued liabilities and other current liabilities |
|
|
187,586 |
|
|
|
200,857 |
|
Other long-term liabilities |
|
|
(6,600 |
) |
|
|
(6,600 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
13,262,879 |
|
|
$ |
7,822,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
$ |
(10,965 |
) |
|
$ |
(34,602 |
) |
Equity investment in Battle Mountain Gold Exploration |
|
|
(2,242,099 |
) |
|
|
|
|
Acquisition of royalty interests in mineral properties |
|
|
(400,000 |
) |
|
|
(11,635,000 |
) |
Deferred acquisition costs |
|
|
(826,331 |
) |
|
|
|
|
Purchase of available for sale securities |
|
|
|
|
|
|
(81,046 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(3,479,395 |
) |
|
$ |
(11,750,648 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Tax benefit of stock-based compensation exercises |
|
$ |
60,143 |
|
|
$ |
|
|
Debt issuance costs |
|
|
24,948 |
|
|
|
|
|
Dividends paid |
|
|
(1,869,605 |
) |
|
|
(1,300,623 |
) |
Equity offering costs |
|
|
(28,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(1,813,022 |
) |
|
$ |
(1,300,623 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents |
|
|
7,970,462 |
|
|
|
(5,229,079 |
) |
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
82,841,861 |
|
|
|
78,449,383 |
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
90,812,323 |
|
|
$ |
73,220,304 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
6
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
1. |
|
OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS |
Operations
Royal Gold, Inc. (Royal Gold, the Company, we, us, or our), together with its
subsidiaries, is engaged in the business of acquiring and managing precious metals royalties.
Royalties are passive (non-operating) interests in mining projects that provide the right to
revenue or production from the project after deducting specified costs, if any.
We seek to acquire existing royalties or to finance projects that are in production or near
production in exchange for royalty interests. We also fund exploration on properties thought to
contain precious metals and seek to obtain royalties and other carried ownership interests in such
properties through the subsequent transfer of operating interests to other mining companies.
Substantially all of our revenues are and will be expected to be derived from royalty interests.
We do not conduct mining operations at this time.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by U.S. generally accepted accounting principles for
annual financial statements. In the opinion of management, all adjustments which are of a normal
recurring nature considered necessary for a fair statement have been included in this Form 10-Q.
Operating results for the three months ended September 30, 2007, are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 2008. These interim unaudited
financial statements should be read in conjunction with the Companys Annual Report on Form 10-K
for the fiscal year ended June 30, 2007.
Recently Issued Accounting Pronouncements
On July 13, 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109, was
issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a companys
financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company adopted FIN 48 on July 1, 2007. Refer to Note 9 for a discussion regarding the effect
of adopting FIN 48.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement No. 157
provides guidance for using fair value to measure assets and liabilities. Statement No. 157
applies whenever other accounting standards require (or permit) assets or liabilities to be
measured at fair value but does not expand the use of fair value in any new circumstances. Under
Statement No. 157, fair value refers to the price that would be received to sell an asset or paid
to transfer a liability between participants in the market in which the reporting entity transacts.
In this standard, the FASB clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing the asset or liability. The provisions of
Statement No. 157 are effective for our fiscal year beginning
7
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
July 1, 2008, and interim periods within the fiscal year. The Company is evaluating the impact, if
any, the adoption of Statement No. 157 could have on our financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, which allows entities to choose to measure many financial instruments
and certain other items at fair value. Statement No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2007. The Company is evaluating the
impact, if any, the adoption of Statement No. 159 could have on our financial statements.
8
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
2. ROYALTY INTERESTS IN MINERAL PROPERTIES
The following table summarizes the net book value of each of our royalty interests in mineral
properties as of September 30, 2007 and June 30, 2007.
As of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Depletion & |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline Mining Complex |
|
|
|
|
|
|
|
|
|
|
|
|
GSR1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
GSR2 |
|
|
|
|
|
|
|
|
|
|
|
|
GSR3 |
|
|
8,105,020 |
|
|
|
(6,584,472 |
) |
|
|
1,520,548 |
|
NVR1 |
|
|
2,525,107 |
|
|
|
(1,999,798 |
) |
|
|
525,309 |
|
Bald Mountain |
|
|
1,978,547 |
|
|
|
(1,833,278 |
) |
|
|
145,269 |
|
SJ Claims |
|
|
20,788,445 |
|
|
|
(7,557,081 |
) |
|
|
13,231,364 |
|
Robinson mine |
|
|
17,824,776 |
|
|
|
(2,552,527 |
) |
|
|
15,272,249 |
|
Mulatos mine |
|
|
7,441,779 |
|
|
|
(796,925 |
) |
|
|
6,644,854 |
|
Troy mine GSR royalty |
|
|
7,250,000 |
|
|
|
(3,518,295 |
) |
|
|
3,731,705 |
|
Troy mine Perpetual royalty |
|
|
250,000 |
|
|
|
|
|
|
|
250,000 |
|
Taparko mine |
|
|
|
|
|
|
|
|
|
|
|
|
TB-GSR1 |
|
|
25,977,472 |
|
|
|
(215,022 |
) |
|
|
25,762,450 |
|
TB-GSR2 |
|
|
7,592,157 |
|
|
|
(63,779 |
) |
|
|
7,528,378 |
|
Leeville South |
|
|
1,775,808 |
|
|
|
(1,775,808 |
) |
|
|
|
|
Leeville North |
|
|
15,085,824 |
|
|
|
(1,883,708 |
) |
|
|
13,202,116 |
|
Martha |
|
|
172,810 |
|
|
|
(172,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,767,745 |
|
|
|
(28,953,503 |
) |
|
|
87,814,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
99,171,761 |
|
|
|
|
|
|
|
99,171,761 |
|
Taparko mine |
|
|
|
|
|
|
|
|
|
|
|
|
TB-GSR3 |
|
|
1,071,203 |
|
|
|
|
|
|
|
1,071,203 |
|
Pascua-Lama |
|
|
20,445,480 |
|
|
|
|
|
|
|
20,445,480 |
|
Gold Hill |
|
|
3,340,384 |
|
|
|
|
|
|
|
3,340,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,028,828 |
|
|
|
|
|
|
|
124,028,828 |
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Taparko mine |
|
|
|
|
|
|
|
|
|
|
|
|
TB-GSR3 |
|
|
217,390 |
|
|
|
|
|
|
|
217,390 |
|
TB-MR1 |
|
|
141,778 |
|
|
|
|
|
|
|
141,778 |
|
Pascua-Lama |
|
|
410,643 |
|
|
|
|
|
|
|
410,643 |
|
Leeville North |
|
|
1,460,439 |
|
|
|
(271,187 |
) |
|
|
1,189,252 |
|
Buckhorn South |
|
|
70,117 |
|
|
|
|
|
|
|
70,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,300,367 |
|
|
|
(271,187 |
) |
|
|
2,029,180 |
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
243,096,940 |
|
|
$ |
(29,224,690 |
) |
|
|
213,872,250 |
|
|
|
|
|
|
|
|
|
|
|
9
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
As of June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Depletion & |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline Mining Complex |
|
|
|
|
|
|
|
|
|
|
|
|
GSR1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
GSR2 |
|
|
|
|
|
|
|
|
|
|
|
|
GSR3 |
|
|
8,105,020 |
|
|
|
(6,443,575 |
) |
|
|
1,661,445 |
|
NVR1 |
|
|
2,525,107 |
|
|
|
(1,978,185 |
) |
|
|
546,922 |
|
Bald Mountain |
|
|
1,978,547 |
|
|
|
(1,832,865 |
) |
|
|
145,682 |
|
SJ Claims |
|
|
20,788,444 |
|
|
|
(7,158,738 |
) |
|
|
13,629,706 |
|
Robinson mine |
|
|
17,824,776 |
|
|
|
(2,053,267 |
) |
|
|
15,771,509 |
|
Mulatos mine |
|
|
7,441,779 |
|
|
|
(663,287 |
) |
|
|
6,778,492 |
|
Troy mine GSR royalty |
|
|
7,250,000 |
|
|
|
(3,035,551 |
) |
|
|
4,214,449 |
|
Troy mine Perpetual royalty |
|
|
250,000 |
|
|
|
|
|
|
|
250,000 |
|
Leeville South |
|
|
1,775,809 |
|
|
|
(1,775,809 |
) |
|
|
|
|
Leeville North |
|
|
15,085,824 |
|
|
|
(1,472,223 |
) |
|
|
13,613,601 |
|
Martha |
|
|
172,810 |
|
|
|
(172,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,198,116 |
|
|
|
(26,586,310 |
) |
|
|
56,611,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
99,171,760 |
|
|
|
|
|
|
|
99,171,760 |
|
Taparko mine
TB-GSR1 |
|
|
25,680,747 |
|
|
|
|
|
|
|
25,680,747 |
|
TB-GSR2 |
|
|
7,505,516 |
|
|
|
|
|
|
|
7,505,516 |
|
TB-GSR3 |
|
|
1,058,906 |
|
|
|
|
|
|
|
1,058,906 |
|
Pascua-Lama |
|
|
20,445,480 |
|
|
|
|
|
|
|
20,445,480 |
|
Gold Hill |
|
|
3,340,384 |
|
|
|
|
|
|
|
3,340,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,202,793 |
|
|
|
|
|
|
|
157,202,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Taparko mine |
|
|
|
|
|
|
|
|
|
|
|
|
TB-GSR3 |
|
|
214,765 |
|
|
|
|
|
|
|
214,765 |
|
TB-MR1 |
|
|
140,065 |
|
|
|
|
|
|
|
140,065 |
|
Pascua-Lama |
|
|
410,643 |
|
|
|
|
|
|
|
410,643 |
|
Leeville North |
|
|
1,460,439 |
|
|
|
(271,187 |
) |
|
|
1,189,252 |
|
Buckhorn South |
|
|
70,117 |
|
|
|
|
|
|
|
70,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,296,029 |
|
|
|
(271,187 |
) |
|
|
2,024,842 |
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
242,696,938 |
|
|
$ |
(26,857,497 |
) |
|
$ |
215,839,441 |
|
|
|
|
|
|
|
|
|
|
|
10
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
Discussed below is a status of each of our royalty interests in mineral properties.
Pipeline Mining Complex
We own two sliding-scale gross smelter return (GSR) royalties (GSR1 ranging from 0.40% to 5.0%
and GSR2 ranging from 0.72% to 9.0%), a 0.71% fixed GSR royalty (GSR3), and a portion of a 1.25%
net value return (NVR) royalty (NVR1) at the Pipeline Mining Complex which includes the Pipeline,
South Pipeline, Gap and Crossroads gold deposits in Lander County, Nevada. The Company owns 31.6%
of the 1.25% NVR (or 0.39%) while our consolidated minority interest owns 68.4% of the 1.25% NVR.
The Pipeline Mining Complex is an open pit gold mine with heap leach and mill processing facilities
owned by the Cortez Joint Venture, a joint venture between Barrick Cortez Inc., a subsidiary of
Barrick Gold Corporation (Barrick) (60%), and Kennecott Explorations (Australia) Ltd. (40%), a
subsidiary of Rio Tinto plc.
Bald Mountain
We own a 1.75% to 3.5% sliding-scale net smelter return (NSR) royalty that covers a portion of
the Bald Mountain mine, in White Pine County, Nevada. Bald Mountain is an open pit, heap leach
mine operated by a subsidiary of Barrick. The sliding-scale royalty increases or decreases with
the gold price, adjusted by the 1986 Producer Price Index.
SJ Claims
We own a 0.9% NSR on the SJ Claims that cover a portion of the Betze-Post mine, in Eureka County,
Nevada. Betze-Post is an open pit gold mine operated by a subsidiary of Barrick at its Goldstrike
property.
Robinson Mine
We own a 3.0% NSR royalty on the Robinson mine, located in eastern Nevada. The Robinson mine is an
open pit copper mine with significant gold production. The mine is owned and operated by a
subsidiary of Quadra Mining Ltd.
Mulatos Mine
We own a sliding-scale NSR royalty on the Mulatos mine, located in Sonora, Mexico. The Mulatos
mine, owned and operated by a subsidiary of Alamos Gold, Inc., is an open pit, heap leach gold
mine. The Mulatos mine sliding-scale royalty, capped at two million ounces of gold production,
ranges from 0.30% for gold prices below $300 up to 1.50% for gold prices above $400 per ounce.
Troy Mine
We own a production payment equivalent to a 7.0% GSR royalty from all metals and products produced
and sold from the Troy underground silver and copper mine, located in northwestern Montana and
operated by Revett Minerals Inc. (Revett). The GSR royalty will extend until either cumulative
11
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
production of approximately 9.9 million ounces of silver and 84.6 million pounds of copper, or the
Company receives $10.5 million in cumulative payments, whichever occurs first. As of September 30, 2007, we have received payments associated with the GSR royalty totaling $6.1
million, which is attributable to cumulative production of approximately 2.6 million ounces of
silver and approximately 23.0 million pounds of copper.
We also own a GSR royalty which begins at 6.1% on any production in excess of 11.0 million ounces
of silver and 94.1 million pounds of copper and steps down to a perpetual 2.0% after cumulative
production has exceeded 12.7 million ounces of silver and 108.2 million pounds of copper.
Taparko Mine
We hold a production payment equivalent to a 15.0% GSR (TB-GSR1) royalty on all gold produced from
the Taparko open pit gold mine, located in Burkina Faso, West Africa, and operated by Societe des
Mines de Taparko (Somita), a subsidiary of High River Gold Mines Ltd. (High River). TB-GSR1
will remain in-force until cumulative production of 804,420 ounces of gold is achieved or until
cumulative payments of $35 million have been made to Royal Gold, whichever is earlier. We also
hold a production payment equivalent to a sliding-scale GSR royalty (TB-GSR2 ranging from 0% to
10%) on all gold produced from the Taparko mine. TB-GSR2 is effective concurrently with TB-GSR1,
and will remain in-force from completion of the funding commitment until the termination of
TB-GSR1. As of September 30, 2007, we have received payments associated with the TB-GSR1 royalty
totaling $297,422, which is attributable to cumulative production of 2,866 ounces of gold.
During our first fiscal quarter of 2008, High River commenced production at the Taparko mine.
Accordingly, during our first fiscal quarter of 2008, we reclassified our cost basis in TB-GSR1 and TB-GSR2 from development stage royalty interests to production stage royalty interests. As such,
we began depleting our cost basis using the units of production method during our first fiscal
quarter of 2008.
We also hold a perpetual 2.0% GSR royalty (TB-GSR3) on all gold produced from the Taparko mine
area. TB-GSR3 will commence upon termination of the TB-GSR1 and TB-GSR2 royalties. A portion of
the TB-GSR3 royalty is associated with existing proven and probable reserves and has been
classified as a development stage royalty interest, which is not subject to periodic amortization
at this time. The remaining portion of the TB-GSR3 royalty, which is not currently associated with
proven and probable reserves, is classified as an exploration stage royalty interest, which is also
not subject to amortization at this time.
In addition, we hold a 0.75% milling fee royalty (TB-MR1) on all gold processed through the Taparko
mine processing facilities that is mined from any area outside of the Taparko mine area. TB-MR1 is
classified as an exploration stage royalty interest and is not subject to amortization at this
time.
Our royalties on the Taparko mine were subject to completion of our $35 million funding commitment
to Somita and the royalty documents for the forgoing royalties had been signed but held pending the
completion of the funding commitment. We completed the remaining $400,000 of our funding
commitment on September 27, 2007, and recorded our royalty interests. See Note 10 for further
discussion.
12
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
Leeville Mining Complex
We own a 1.8% carried working interest, equal to a 1.8% NSR royalty, which covers the Leeville
South and the majority of the Leeville North underground mines (Leeville Mining Complex), in
Eureka County, Nevada. The Leeville Mining Complex is operated by a subsidiary of Newmont Mining
Corporation (Newmont).
We carry our interest in the non-reserve portion of Leeville North as an exploration stage royalty
interest, which is not subject to periodic amortization. In the event that future proven and
probable reserves, associated with our royalty interest, are developed at Leeville North, the cost
basis of our exploration stage royalty interest will be reclassified as a development stage royalty
interest or a production stage royalty interest in future periods, as appropriate. In the event
that future circumstances indicate that the non-reserve portion of Leeville North will not be
converted into proven and probable reserves, we will evaluate our carrying value in the exploration
stage interest for impairment.
Martha Mine
We own a 2.0% NSR royalty on the Martha mine located in the Santa Cruz Province of Argentina,
operated by a subsidiary of Coeur dAlene Mines Corporation. The Martha mine is a high grade
underground silver mine.
Peñasquito
We hold a 2.0% NSR royalty interest on the Peñasquito project located in the State of Zacatecas,
Mexico. The Peñasquito project is under development by a subsidiary of Goldcorp Inc. and hosts one
of the worlds largest silver, gold and zinc reserves while also containing large lead reserves.
We carry our interest in the proven and probable reserves at the Peñasquito project as a
development stage royalty interest, which is not currently subject to amortization.
Pascua-Lama
We hold a sliding-scale NSR royalty on gold which is derived from certain mineral concessions at
the Pascua-Lama project in Chile, which is operated by a subsidiary of Barrick. The sliding-scale
NSR royalty ranges from 0.16%, when the average quarterly gold price is $325 per ounce or less, to
1.08%, when the average quarterly gold price is $800 per ounce or more. We also hold a 0.216%
fixed rate copper royalty that applies to 100% of the Pascua-Lama copper reserves in Chile but does
not take effect until after January 1, 2017. We carry our interest in the proven and probable
reserves at the Pascua-Lama project as a development stage royalty interest, which is not currently
subject to amortization.
We carry our interest in the non-reserve portion of Pascua-Lama project as an exploration stage
royalty interest, which is not subject to periodic amortization. In the event that future proven
and probable reserves are developed at the Pascua-Lama project associated with our royalty
interest, the cost basis of our exploration stage royalty interest will be reclassified as a
development stage royalty interest or a production stage royalty interest in future periods, as
appropriate. In the event that future circumstances indicate that the non-reserve portion of the
Pascua-Lama project will not be converted into proven and probable reserves, we will evaluate our
carrying value in the exploration stage interest for impairment.
13
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
Gold Hill
We hold a sliding-scale NSR royalty on the Gold Hill deposit, located just north of the Round
Mountain gold mine in Nye County, Nevada. The sliding-scale NSR royalty on the Gold Hill deposit
will pay 2.0% when the price of gold is above $350 per ounce and 1.0% when the price of gold falls
to $350 per ounce or below. The Gold Hill deposit is controlled by Round Mountain Gold
Corporation, a joint venture between subsidiaries of Kinross Gold Corporation, the operator, and
Barrick. We carry our interest in the Gold Hill deposit as a development stage royalty interest,
which is not currently subject to amortization.
Buckhorn South
We hold a 16.5% net profits interest royalty on the Buckhorn South property, located in Eureka
County, Nevada, and controlled by the Cortez Joint Venture. The Buckhorn South interest is
classified as an exploration stage royalty interest.
3. AVAILABLE FOR SALE SECURITIES
We hold 1.3 million shares of Revett common stock that are recorded as an investment in available
for sale securities on the consolidated balance sheets. The market value for our investment in the
shares of Revett was approximately $1.2 million and $1.5 million as of September 30, 2007 and June
30, 2007, respectively. Our cost basis in the Revett shares is $1.0 million.
We hold 1,037,500, 468,750, and 100,000 shares of common stock, warrants and stock options,
respectively, in Taranis Resources Inc. (Taranis). The market value for our investment in
Taranis common stock, warrants and stock options was $476,656 and $504,820 as of September 30,
2007 and June 30, 2007, respectively. Our cost basis in the Taranis common stock, warrants and
stock options is $275,321.
4. REVOLVING CREDIT FACILITY PAYABLE
On January 5, 2007, the Company and a wholly-owned subsidiary entered into the Second Amended and
Restated Loan Agreement (Amendment) with HSBC Bank USA, National Association (HSBC Bank). The
Amendment increased our current revolving credit facility from $30 million to $80 million and
extended the maturity date of the credit facility to December 31, 2010. The facility bears
interest at LIBOR plus 1.5% and includes both affirmative and negative covenants, as defined, so
long as any portion of the facility is outstanding and unpaid. The Companys borrowing base will
be calculated based on our GSR1, GSR3, and NVR1 royalties at the Pipeline Mining Complex and its SJ
Claims, Leeville, Bald Mountain and Robinson royalties. Additional royalties may be added to the
borrowing base calculation with the lenders approval.
The Company and the wholly-owned subsidiary granted HSBC Bank security interests in the following:
the Companys GSR1, GSR3, and NVR1 royalties at the Pipeline Mining Complex; the Companys SJ
Claims, Leeville Mining Complex, Bald Mountain and Robinson royalties; and the Companys debt
reserve account at HSBC Bank. The initial availability under the borrowing base was the full $80
million under the credit facility. As of October 15, 2007, the total availability under the
borrowing base was decreased to $59.5 million, reflecting an updated borrowing base calculation, as
defined, based upon the
14
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
future cash flows from the royalties included in the borrowing base calculation. Per the
Amendment, the borrowing base calculation will be recalculated April 15, 2008.
5. NOTE PAYABLE
On March 1, 2007, Royal Gold Chile Limitada (RGCL), a wholly-owned subsidiary of Royal Gold,
entered into a $15.75 million term loan facility bearing interest at LIBOR plus 0.25% pursuant to a
Term Loan Agreement between RGCL and HSBC Bank. Pursuant to the terms of the Term Loan Agreement,
Royal Gold must maintain a restricted interest-bearing securities account (the Collateral
Account) on deposit at HSBC Securities (USA) Inc. with a balance equal to or in excess of the
outstanding amounts on the $15.75 million term loan. In connection with the Term Loan Agreement,
Royal Gold entered into a Guarantee (the Guarantee) for the life of the Term Loan, for the
benefit of HSBC Bank to guaranty RGCLs obligations under the Term Loan Agreement and a security
agreement granting HSBC Bank a security interest in the Collateral Account to secure RGCLs
obligations under the Term Loan Agreement and its obligations under the Guarantee. The loan will
mature on March 1, 2012.
The $15.75 million balance in the Collateral Account as of September 30, 2007, is recorded as
Restricted cash compensating balance on the Companys consolidated balance sheets. RGCLs $15.75
million principal obligation under the Term Loan Agreement is recorded as Note payable on the
Companys consolidated balance sheets.
6. NOTE RECEIVABLE
In connection with the proposed merger with Battle Mountain Gold Exploration (Battle Mountain),
on March 28, 2007, Royal Gold entered into a Bridge Finance Facility Agreement (as amended) with
Battle Mountain and its wholly-owned subsidiary BMGX (Barbados) Corporation, as borrowers, whereby
Royal Gold has agreed to make available to the borrowers a bridge facility of up to $20 million.
In April 2007, the maximum availability under the bridge facility was reduced to $15 million
pursuant to the terms of the facility. Outstanding principal, interest and expenses under the
bridge facility may be converted at Royal Golds option into Battle Mountain common stock, at a
conversion price per share of $0.60, at any time during the term of the bridge facility, provided
that Royal Gold notifies Battle Mountain of its election to convert on or before April 4, 2008.
The bridge facility will mature on June 6, 2008.
The conversion option has been accounted for as an embedded derivative instrument with the
conversion option bifurcated from the host contract, the bridge facility, and recorded as a
separate asset on the balance sheet. The conversion option asset is marked to market each period
with a charge or credit to interest expense and other in the consolidated statement of operations.
The corresponding discount to the carrying value of the bridge facility note receivable is being
accreted to face value as additional interest income and other each reporting period.
As of September 30, 2007, an approximate $14.5 million aggregate principal amount has been advanced
to Battle Mountain under the bridge facility and is recorded as Note receivable Battle Mountain
Gold Exploration on the consolidated balance sheets. Interest on advances under the bridge
facility accrues at the LIBOR Rate plus 3.0% per annum. Accrued interest on the $14.5 million
aggregate principal amount advanced under the bridge facility was approximately $613,000 as of
September 30, 2007, and is recorded within Note receivableBattle Mountain Gold Exploration on the
consolidated balance sheets.
On October 24, 2007, the Company completed the merger with Battle Mountain. The principal and
accrued interest due to Royal Gold as part of the bridge facility made available to Battle Mountain
will be
15
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
reflected as part of the purchase consideration upon the closing date. Please refer to Note 12 for
further discussion of the merger transaction.
7. STOCKHOLDERS EQUITY AND STOCK-BASED COMPENSATION
2004 Omnibus Long-Term Incentive Plan
In November 2004, the Company adopted an Omnibus Long-Term Incentive Plan (2004 Plan). The 2004
Plan replaces the Companys Equity Incentive Plan. Under the 2004 Plan, 900,000 shares of Common
Stock are available for future grants to officers, directors, key employees and other persons. The
Plan provides for the grant of stock options, unrestricted stock, restricted stock, dividend
equivalent rights, stock appreciation rights, and cash awards. Any of these awards may, but need
not, be made as performance incentives. Stock options granted under the 2004 Plan may be
non-qualified stock options or incentive stock options.
For the three months ended September 30, 2007 and 2006, we recorded total non-cash stock
compensation expense related to our equity compensation plans of $538,621 and $412,839,
respectively. Non-cash stock compensation is allocated among cost of operations, general and
administrative, and exploration and business development in our consolidated statements of
operations and comprehensive income as summarized below:
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Non-cash compensation allocation: |
|
|
|
|
|
|
|
|
Cost of operations |
|
$ |
70,765 |
|
|
$ |
57,429 |
|
General and administrative |
|
|
263,073 |
|
|
|
233,430 |
|
Exploration and business development |
|
|
204,783 |
|
|
|
121,980 |
|
|
|
|
|
|
|
|
Total non-cash compensation expense |
|
$ |
538,621 |
|
|
$ |
412,839 |
|
|
|
|
|
|
|
|
The total income tax benefit associated with non-cash stock compensation expense was approximately
$194,000 and $146,000 for the three months ended September 30, 2007 and 2006, respectively.
As of September 30, 2007, there are 316,567 shares of common stock reserved for future issuance
under our 2004 Plan.
Stock Options
Stock option awards are granted with an exercise price equal to the closing market price of the
Companys common stock at the date of grant. Stock option awards granted to officers, key
employees and other persons vest based on one to three years of continuous service. Any stock
option awards that are granted to directors vest immediately with respect to 50% of the shares
granted and after one year with respect to the remaining 50% granted. Stock option awards have 10
year contractual terms.
16
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
A summary of stock option activity under our 2004 Plan for the three months ended September 30,
2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
Options |
|
Shares |
|
|
Price |
|
|
(Years) |
|
|
Value |
|
Outstanding at July 1, 2007 |
|
|
579,214 |
|
|
$ |
17.57 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(36,250 |
) |
|
|
11.73 |
|
|
|
|
|
|
|
|
|
Forfeited and Expired |
|
|
(1,250 |
) |
|
|
29.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September
30, 2007 |
|
|
541,714 |
|
|
$ |
17.93 |
|
|
|
6.3 |
|
|
$ |
8,026,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September
30, 2007 |
|
|
398,280 |
|
|
$ |
14.81 |
|
|
|
3.9 |
|
|
$ |
7,144,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the period ended September 30, 2007 and 2006,
was $763,398 and $0, respectively.
A summary of the status of the Companys non-vested stock options for the three months ended
September 30, 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Grant Date Fair Value |
|
Non-vested at July 1, 2007 |
|
|
138,434 |
|
|
$ |
13.00 |
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(1,250 |
) |
|
$ |
13.94 |
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2007 |
|
|
137,184 |
|
|
$ |
12.99 |
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007 and 2006, we recorded non-cash stock compensation
expense associated with stock options of $310,342 and $238,922, respectively. As of September 30,
2007, there was $633,649 of total unrecognized non-cash stock compensation expense related to
non-vested stock options granted under our equity compensation plans, which is expected to be
recognized over a weighted-average period of 1.9 years. The total fair value of shares vested
during the three months ended September 30, 2007 and 2006, was $0.
Other Stock-based Compensation
As defined in the 2004 Plan, officers and certain employees may be granted shares of restricted
common stock that can be earned only if defined multi-year performance goals are met within five
years of the date of grant (Performance Shares). If the performance goals are not earned by the
end of this five year period, the Performance Shares will be forfeited. Vesting of Performance
Shares is subject to certain performance measures being met and can be based on interim earn outs
of 25%, 50%, 75% or 100%.
17
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
A summary of the status of the Companys non-vested Performance Shares for the three months ended
September 30, 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Grant Date Fair Value |
|
Non-vested at July 1, 2007 |
|
|
27,000 |
|
|
$ |
28.78 |
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
9,000 |
|
|
$ |
28.78 |
|
Forfeited |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2007 |
|
|
18,000 |
|
|
$ |
28.78 |
|
|
|
|
|
|
|
|
|
We measure the fair value of the Performance Shares based upon the market price of our common stock
as of the date of grant. At such time that it is probable that a performance condition will be
achieved, compensation expense will be measured by the number of shares that will ultimately be
earned based on the grant date market price of our common stock. Interim recognition of
compensation expense will be made at such time as management can reasonably estimate the number of
shares that will be earned. As of September 30, 2007, our estimates indicated that it is probable
that 100% of our non-vested Performance Shares will be earned by September 30, 2008. For the
quarter ended September 30, 2007 and 2006, we recorded non-cash stock compensation expense
associated with our Performance Shares of $101,305 and $89,179, respectively. As of September 30,
2007, total unrecognized non-cash stock compensation expense related to our Performance Shares was
$278,590.
As also defined in the 2004 Plan, directors, officers, and certain employees may be granted shares
of restricted common stock, which vest by continued service alone (Restricted Stock). For
officers and certain employees, the vesting period for Restricted Stock begins after a three-year
holding period from the date of grant, with one-third of the shares vesting in years four, five and
six, respectively. Restricted Stock awards granted to directors vest immediately with respect to
50% of the shares granted and after one year with respect to the remaining 50% granted. Shares of
Restricted Stock represent issued and outstanding shares of common stock, with dividend and voting
rights. Unvested shares of Restricted Stock are subject to forfeiture upon termination of
employment with the Company.
A summary of the status of the Companys non-vested Restricted Stock for the three months ended
September 30, 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Grant Date Fair Value |
|
Non-vested at July 1, 2007 |
|
|
117,000 |
|
|
$ |
24.73 |
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(625 |
) |
|
$ |
29.20 |
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2007 |
|
|
116,375 |
|
|
$ |
24.70 |
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007 and 2006, we recorded non-cash stock compensation
expense associated with the Restricted Stock of $126,974 and $84,738, respectively. As of September 30, 2007, total unrecognized non-cash stock compensation expense related to Restricted
Stock was $2,114,201, which is expected to be recognized over the remaining average vesting period
of 5.0 years.
18
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
Stock Issuances
On September 4, 2007, we issued 216,642 shares of our common stock to IAMGOLD Corporation
(IAMGOLD) and Repadre International Corporation (Repadre) in connection with our acquisition
from IAMGOLD and Repadre of all of their issued and outstanding shares Battle Mountain common
stock. We had the option to acquire the shares of Battle Mountain common stock from IAMGOLD and
Repadre pursuant to an option and support agreement we entered into with IAMGOLD in connection with
the proposed merger with Battle Mountain. See Note 12 for further discussion of the merger
transaction.
During the quarter ended September 30, 2007, options to purchase 36,250 shares were exercised,
resulting in proceeds of $425,291.
8. EARNINGS PER SHARE (EPS) COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended September 30, 2007 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
5,762,320 |
|
|
|
28,729,541 |
|
|
$ |
0.20 |
|
Effect of dilutive securities |
|
|
|
|
|
|
131,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
5,762,320 |
|
|
|
28,861,324 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 105,600 shares of common stock, at a weighted average purchase price of $28.89
per share, were outstanding at September 30, 2007, but were not included in the computation of
diluted EPS because the exercise price of these options was greater than the average market price
of the common shares for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended September 30, 2006 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
4,960,137 |
|
|
|
23,587,416 |
|
|
$ |
0.21 |
|
Effect of dilutive securities |
|
|
|
|
|
|
235,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
4,960,137 |
|
|
|
23,822,846 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006, all outstanding options were included in the computation of diluted EPS
because the exercise price of all the options was less than the average market price of our common
shares for the period.
19
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
9. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
Current income tax expense |
|
$ |
(3,263,948 |
) |
|
$ |
(2,650,944 |
) |
Deferred income tax benefit |
|
|
414,655 |
|
|
|
243,346 |
|
|
|
|
|
|
|
|
Income tax expense reported |
|
$ |
(2,849,293 |
) |
|
$ |
(2,407,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
33.11 |
% |
|
|
32.7 |
% |
|
|
|
|
|
|
|
The Company adopted the provisions of FIN 48 on July 1, 2007. The provisions of FIN 48 had no
impact on the Company upon adoption. As such, there were no changes to the unrecognized tax
benefits during the three months ended September 30, 2007.
The material income tax returns the Company files are the U.S. federal income tax return, which has
a three year statute of limitations, and the Colorado state income tax return, which has a four
year statute of limitations. The U.S. federal return for tax years ended on or after June 30,
2004, and the Colorado state return for tax years ended on or after June 30, 2003, are subject to
examination by the relevant taxing authority.
There are no amounts related to interest and penalties associated with unrecognized benefits at
September 30, 2007. These amounts will be disclosed should they arise.
10. COMMITMENTS AND CONTINGENCIES
Taparko Mine
On March 1, 2006, Royal Gold entered into an Amended and Restated Funding Agreement with Somita
related to the Taparko mine in Burkina Faso, West Africa. We had a $35 million funding commitment
pursuant to the Amended and Restated Funding Agreement, of which $34.6 million had been funded by
June 30, 2007. The remaining $400,000 under the funding commitment was funded during the period
ended September 30, 2007. Our royalties were subject to completion of our funding commitment.
Taranis
On November 4, 2005, we entered into a strategic alliance with Taranis for exploration on the
Kettukuusikko project located in Finland. During our fiscal year 2006, we funded exploration
totaling $500,000 in return for a 2.0% NSR royalty. We also have an option to fund up to an
additional $600,000. The Company elected to exercise this option in April 2006. If we fund the
entire additional amount, we will earn a 51% joint venture interest in the Kettukuusikko project,
and we will release our 2.0% NSR royalty. In the event that Royal Gold does not fully fund the
$600,000 to earn the joint venture interest, we would retain our 2.0% NSR royalty. As of September
30, 2007, we had funded $506,404 of the additional $600,000 option, which has been expensed as
incurred.
20
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
Revett
Under the terms of the Revett purchase agreement relating to the Troy mine, the Company has the
right, but not the obligation, to cure any default by Revett under their obligations pursuant to an
existing mortgage payable, secured by a promissory note, to Kennecott Montana Company, a third
party and prior joint venture interest owner of the Troy mine. If the Company elects to exercise
its right, it would have the subsequent right to reimbursement from Revett for any amounts
disbursed in curing such defaults. The principal and accrued interest under the promissory note
owed to Kennecott Montana Company as of September 30, 2007, was approximately $6.0 million with a
maturity date of February 2008.
Casmalia
On March 24, 2000, the United States Environmental Protection Agency (EPA) notified Royal Gold
and 92 other entities that they were considered potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
(Superfund), at the Casmalia Resources Hazardous Waste Disposal Site (the Site) in Santa
Barbara County, California. EPAs allegation that Royal Gold was a PRP was based on the disposal
of allegedly hazardous petroleum exploration wastes at the Site by Royal Golds predecessor, Royal
Resources, Inc., during 1983 and 1984.
After extensive negotiations, on September 23, 2002, Royal Gold, along with 35 members of the PRP
group targeted by EPA, entered into a Partial Consent Decree with the United States of America
intending to settle their liability for the United States of Americas past and future clean-up
costs incurred at the Site. Based on the minimal volume of allegedly hazardous waste that Royal
Resources, Inc. disposed of at the Site, our share of the $25.3 million settlement amount was
$107,858, which we deposited into the escrow account that the PRP group set up for that purpose in
January 2002. The funds were paid to the United States of America on May 9, 2003. The United
States of America may only pursue Royal Gold and the other PRPs for additional clean-up costs if
the United States of Americas total clean-up costs at the Site significantly exceed the expected
cost of approximately $272 million. We believe our potential liability with the United States of
America to be a remote possibility.
At present, Royal Gold is considering entering into a de minimis settlement with the State of
California. The date for accepting a settlement was extended indefinitely by the State of
California pending preparation of settlement documentation by the State. Such settlement will
result in a final conclusion regarding the Companys responsibility to address the Casmalia Site
matter.
11. RELATED PARTY
Crescent Valley Partners, L.P. (CVP) was formed as a limited partnership in April 1992. It owns
a 1.25% net value royalty on production of minerals from a portion of the Pipeline Mining Complex.
Denver Mining Finance Company, our wholly-owned subsidiary, is the general partner and holds a 2.0%
interest in CVP. In addition, Royal Gold holds a 29.6% limited partner interest in the
partnership, while our Executive Chairman, the Chairman of our Audit Committee, and two other
members of our board of directors hold an aggregate 41.69% limited partner interest. The general
partner performs administrative services for CVP in receiving and processing the royalty payments
received from the operator including the disbursement of royalty payments and record keeping for
in-kind distributions to the limited partners, including our directors and Executive Chairman.
21
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Unaudited)
CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain
other limited partners, sells its pro-rata share of such gold immediately and receives
distributions in cash, while CVP holds gold for certain other limited partners. Such gold
inventories, which totaled 27,967 ounces of gold as of September 30, 2007, are held by a third
party refinery in Utah for the account of the limited partners of CVP. The inventories are carried
at historical cost and are classified as Inventory restricted on the consolidated balance sheets.
The carrying value of the gold in inventory was $11,017,262 as of September 30, 2007, while the
fair value of such ounces was $20,779,481 as of September 30, 2007. None of the gold currently
held in inventory as of September 30, 2007, is attributed to Royal Gold, as the gold allocated to
Royal Gold is typically sold within five days of receipt.
12. SUBSEQUENT EVENT
Acquisition of Battle Mountain Gold Exploration Corp.
On July 30, 2007, we entered into an Amended and Restated Agreement and Plan of Merger (the Merger
Agreement) with Battle Mountain and Royal Battle Mountain, Inc. (Merger Sub), a newly-formed and
wholly-owned subsidiary of Royal Gold, pursuant to which the Merger Sub will be merged into Battle Mountain with Battle Mountain
surviving as a wholly-owned subsidiary of Royal Gold.
On
October 24, 2007, we completed the merger pursuant to the Merger
Agreement and acquired 100% of the issued and outstanding capital stock of Battle
Mountain for aggregate consideration consisting of 1.14 million shares
of our common stock and approximately $3.4 million in cash.
Subject to settlement of the Battle Mountain litigation discussed below, additional consideration
of up to an aggregate of 37,418 shares of Royal Gold common stock or approximately $112,000 in cash
may be paid to Battle Mountain stockholders. On September 13, 2006, an action was filed against
Battle Mountain and its Chairman and Chief Executive Officer, Mark Kucher, by James E. McKay, a
former officer and director of Battle Mountain, in the second Judicial Court of the State of
Nevada. The action seeks to enforce alleged rights to certain shares of Battle Mountain common
stock and options to purchase shares of Battle Mountain common stock pursuant to a stock option
agreement and a stock option plan, and unspecified damages. Royal Gold may pay the additional
consideration described above to Battle Mountain stockholders depending upon the cost of settling
this litigation.
As discussed in Note 6, the principal and accrued interest due to Royal Gold as part of the bridge
facility made available to Battle Mountain will be reflected as part of the purchase consideration
upon the closing of the merger date. The Company will account for the Battle Mountain acquisition
as a business combination and will complete the required accounting during the second quarter of
fiscal 2008.
22
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to provide information to assist you in better understanding and evaluating our financial
condition and results of operations. We recommend that you read this MD&A in conjunction with our
consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well
as our 2007 Annual Report on Form 10-K.
This MD&A contains forward-looking information. You should review our important note about
forward-looking statements following this MD&A.
We refer to GSR, NSR, and other types of royalty interests throughout this MD&A. These terms
are defined in our 2007 Annual Report on Form 10-K.
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing
precious metals royalties. Royalties are passive (non-operating) interests in mining projects that
provide the right to revenue or production from the project after deducting specified costs, if
any.
We seek to acquire existing royalties or to finance projects that are in production or near
production in exchange for royalty interests. We also fund exploration on properties thought to
contain precious metals and seek to obtain royalties and other carried ownership interests in such
properties through the subsequent transfer of operating interests to other mining companies.
Substantially all of our revenues are and will be expected to be derived from royalty interests.
We do not conduct mining operations at this time. During the quarter ended September 30, 2007, we
focused on the management of our existing royalty interests, the acquisition of royalty interests,
and the creation of royalty interests through financing and strategic exploration alliances.
Our financial results are primarily tied to the price of gold and other metals, as well as
production from our royalty properties. For the quarter ended September 30, 2007, the price of
gold averaged $681 per ounce compared with an average price of $621 per ounce for the quarter ended
September 30, 2006. The increase in the average gold price, increased production at the Pipeline
Mining Complex, Robinson, Leeville and SJ Claims, and the commencement of gold production at the
Taparko mine, contributed to royalty revenue of $12.8 million during the quarter ended September
30, 2007, compared to royalty revenue of $9.9 million during the quarter ended September 30, 2006.
23
Our Producing Royalty Interests
Our principal producing royalty interests are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Operator |
|
(Gold unless otherwise stated) |
Pipeline Mining Complex
|
|
Lander County, NV
|
|
Barrick Gold
Corporation
(Barrick)
|
|
GSR1: 0.40%-5.0% sliding-
scale GSR |
|
|
|
|
|
|
GSR2: 0.72%-9.0% sliding-
scale GSR |
|
|
|
|
|
|
GSR3: 0.71% GSR |
|
|
|
|
|
|
NVR1(1):
0.39% NVR |
|
|
|
|
|
|
|
Robinson
|
|
White Pine, NV
|
|
Quadra Mining Ltd.
(Quadra)
|
|
3.0% NSR (copper, gold,
silver, molybdenum) |
|
|
|
|
|
|
|
SJ Claims Goldstrike
|
|
Eureka County, NV
|
|
Barrick
|
|
0.9% NSR |
|
|
|
|
|
|
|
Troy
|
|
Lincoln County, MT
|
|
Revett Minerals,
Inc. (Revett)
|
|
7.0% GSR (silver and copper) |
|
|
|
|
|
|
|
Leeville Mining Complex
(Leeville North and Leeville
South)
|
|
Eureka County, NV
|
|
Newmont Mining
Corporation
(Newmont)
|
|
1.8% NSR |
|
|
|
|
|
|
|
Taparko
|
|
Burkina Faso
|
|
High River Gold
Mines Ltd. (High
River)
|
|
15% GSR (TB-GSR1) and a
0%-10% sliding-scale GSR
(TB-GSR2) |
|
|
|
|
|
|
|
Bald Mountain
|
|
White Pine County, NV
|
|
Barrick
|
|
1.75%-3.5% sliding-scale NSR |
|
|
|
|
|
|
|
Mulatos
|
|
Sonora, Mexico
|
|
Alamos Gold, Inc.
(Alamos)
|
|
0.30%-1.5% sliding-scale NSR |
|
|
|
|
|
|
|
Martha
|
|
Santa Cruz Province,
Argentina
|
|
Coeur dAlene Mines
Corporation
(Coeur dAlene)
|
|
2.0% NSR (silver) |
|
|
|
(1) |
|
The NVR1 royalty is a 1.25% NVR royalty. The Company owns 31.6% of the 1.25% NVR
(or 0.39%), while our consolidated minority interest owns the remaining portion of the 1.25%
NVR. |
24
Our Development Stage Royalty Interests
We also own the following royalty interests that are currently in development stage and are not yet
in production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Operator |
|
(Gold unless otherwise stated) |
Taparko
|
|
Burkina Faso
|
|
High River
|
|
2.0% GSR (TB-GSR3) |
|
Peñasquito
|
|
Zacatecas, Mexico
|
|
Goldcorp Inc. (Goldcorp)
|
|
2.0% NSR (also covers silver,
lead and zinc) |
|
Pascua-Lama
|
|
Atacama, Chile
|
|
Barrick
|
|
0.16%-1.08% sliding-scale NSR |
|
Gold Hill
|
|
Nye County, NV
|
|
Kinross Gold Corporation
(Kinross)
|
|
1.0%-2.0% sliding-scale NSR |
Our Exploration Stage Royalty Interests
In addition, we own royalty interests in the following exploration stage projects. None of these
exploration stage projects contains proven and probable reserves as of December 31, 2006.
|
|
|
|
|
|
|
Property |
|
Location |
|
Royalty |
|
Controlled By |
|
Santa Cruz Province
|
|
Argentina
|
|
2.0% NSR
|
|
Hidefield Gold PLC |
Long Valley
|
|
California
|
|
1.0% NSR
|
|
Vista Gold Corporation |
Kettukuusikko
|
|
Finland
|
|
2.0% NSR
|
|
Taranis Resources, Inc. (Taranis) |
Rock Creek
|
|
Montana
|
|
1.0% NSR
|
|
Revett |
Mule Canyon
|
|
Nevada
|
|
5.0% NSR
|
|
Newmont |
Buckhorn South
|
|
Nevada
|
|
16.5% Net Profits Interest
|
|
Cortez JV |
Ferris/Cooks Creek
|
|
Nevada
|
|
1.5% NVR
|
|
Cortez JV |
Horse Mountain
|
|
Nevada
|
|
0.2% NVR
|
|
Cortez JV |
Simon Creek
|
|
Nevada
|
|
1.0% NSR
|
|
Barrick |
Rye
|
|
Nevada
|
|
0.5% NSR
|
|
Barrick |
BSC
|
|
Nevada
|
|
2.5% NSR
|
|
Nevada Pacific Gold |
ICBM
|
|
Nevada
|
|
0.75% NSR
|
|
BH Minerals |
Long Peak
|
|
Nevada
|
|
0.75% NSR
|
|
BH Minerals |
Dixie Flats
|
|
Nevada
|
|
0.75% NSR
|
|
BH Minerals |
Svetloye
|
|
Russia
|
|
1.0% NSR
|
|
Fortress Minerals Corporation |
Operators Production Estimates by Royalty for Calendar 2007
The following table shows estimates received from the operators of our producing mines during the
first quarter of calendar 2007 and the production attributable to our royalty interests for
calendar year 2007. The estimates are prepared by the operators of the mining properties. We do
not participate in the preparation or verification of the operators estimates and have not
independently assessed or verified the accuracy of such information.
25
Operators Production Estimate by Royalty for Calendar 2007 and Reported Production for the period
January 1, 2007 through September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported Production |
|
|
|
|
|
|
Calendar 2007 Operators |
|
through |
Royalty |
|
Operator |
|
Metal |
|
Production Estimate |
|
September 30, 2007(1) |
|
Pipeline GSR1
|
|
Barrick
|
|
Gold
|
|
478,543
|
|
oz.
|
|
362,174
|
|
oz. |
Pipeline GSR2
|
|
Barrick
|
|
Gold
|
|
12,762
|
|
oz.
|
|
12,673
|
|
oz. |
Pipeline GSR3
|
|
Barrick
|
|
Gold
|
|
491,305
|
|
oz.
|
|
374,847
|
|
oz. |
Pipeline NVR1
|
|
Barrick
|
|
Gold
|
|
264,843
|
|
oz.
|
|
186,278
|
|
oz. |
Robinson(2,3)
|
|
Quadra
|
|
Gold
|
|
90,000
|
|
oz.
|
|
80,912
|
|
oz. |
SJ Claims
|
|
Barrick
|
|
Gold
|
|
799,160
|
|
oz.
|
|
712,667
|
|
oz. |
Leeville
|
|
Newmont
|
|
Gold
|
|
337,000
|
|
oz.
|
|
159,275
|
|
oz. |
Taparko
|
|
High River
|
|
Gold
|
|
N/A(4)
|
|
|
|
2,866
|
|
oz. |
Bald Mountain
|
|
Barrick
|
|
Gold
|
|
90,811
|
|
oz.
|
|
62,883
|
|
oz. |
Mulatos
|
|
Alamos
|
|
Gold
|
|
150,397(5)
|
|
oz.
|
|
78,981
|
|
oz. |
Troy(2)
|
|
Revett
|
|
Silver
|
|
2.0 million
|
|
oz.
|
|
859,308
|
|
oz. |
Martha(6)
|
|
Coeur dAlene
|
|
Silver
|
|
2.7 million
|
|
oz.
|
|
2.1 million
|
|
oz. |
Troy(2)
|
|
Revett
|
|
Copper
|
|
15.9 million
|
|
lbs.
|
|
8.2 million
|
|
lbs. |
Robinson(2)
|
|
Quadra
|
|
Copper
|
|
136.3 million
|
|
lbs.
|
|
105.3 million
|
|
lbs. |
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the period January 1, 2007 through September 30, 2007, as reported to us by the
operators of the mines. |
|
(2) |
|
Sold metal contained in concentrate. |
|
(3) |
|
In July 2007, Quadra revised its production estimate for calendar 2007 from 68,058
ounces of gold to 90,000 ounces of gold. The reported increase in estimated production was
due to higher than planned grade and recovery. |
|
(4) |
|
In July 2007, High River announced that they expect to produce approximately 35,000
ounces of gold during calendar 2007. |
|
(5) |
|
In August 2007, Alamos announced that they do not expect to meet their original
calendar 2007 production estimate but they did not provide any revised production guidance. |
|
(6) |
|
Recovered metal contained in concentrate. |
Recent Developments
Acquisition of Battle Mountain Gold Exploration Corp.
On October 24, 2007, we acquired 100% of the issued and outstanding capital stock of Battle
Mountain Gold Exploration Corp. (Battle Mountain) in a transaction whereby our wholly-owned
subsidiary, Royal Battle Mountain, Inc., was merged with and into Battle Mountain for aggregate
consideration consisting of 1.14 million shares of our common stock and approximately $3.4 million
in cash.
Subject to settlement of the Battle Mountain litigation discussed below, additional consideration
of up to an aggregate of 37,418 shares of Royal Gold common stock or approximately $112,000 in cash
may be paid to Battle Mountain stockholders. On September 13, 2006, an action was filed against
Battle Mountain and its Chairman and Chief Executive Officer, Mark Kucher, by James E. McKay, a
former officer and director of Battle Mountain, in the second Judicial Court of the State of
Nevada. The action
26
seeks to enforce alleged rights to certain shares of Battle Mountain common stock and options to
purchase shares of Battle Mountain common stock pursuant to a stock option agreement and a stock
option plan, and unspecified damages. Royal Gold may pay the additional consideration described
above to Battle Mountain stockholders depending upon the cost of settling this litigation.
As part of the acquisition of Battle Mountain, we acquired the following thirteen royalty interests
in various stages of production, development or exploration. No royalty revenues associated with
the acquired Battle Mountain producing royalty interests are recognized within the Companys
royalty revenue of $12.8 million for the period ended September 30, 2007.
Battle Mountain Production Stage Royalty Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Owner |
|
(Gold unless otherwise stated) |
|
Williams(1)
|
|
Ontario, Canada
|
|
Teck Cominco
Limited (50%) and
Barrick (50%)
|
|
0.72% NSR |
|
|
|
|
|
|
|
El Limon(2)
|
|
Northwestern Nicaragua
|
|
Glencairn Gold
Corporation (95%)
and Inversiones
Mineras S.A. (5%)
|
|
3.0% NSR |
|
|
|
|
|
|
|
Don Mario(3)
|
|
Eastern Bolivia
|
|
Orvana Minerals
Corporation
|
|
3.0% NSR |
|
|
|
|
|
|
|
Joe Mann(4)
|
|
Quebec, Canada
|
|
Campbell Resources
Incorporated
|
|
1.0% NSR |
|
|
|
(1) |
|
The Williams mine is an open-pit and underground operation, which produced
approximately 290,000 ounces of gold during calendar 2006. With existing proven and probable
reserves, the remaining mine life is estimated at five years. |
|
(2) |
|
El Limon is a fully mechanized underground mine and produced approximately 34,000
ounces of gold during calendar 2006. With existing proven and probable reserves, the
remaining mine life is estimated at five years. |
|
(3) |
|
The Don Mario mine is an open-pit and underground mine in eastern Bolivia that
produced approximately 80,000 ounces of gold in calendar 2006. With existing proven and
probable reserves, the remaining mine life is estimated at five years. |
|
(4) |
|
The Joe Mann mine produced approximately 14,100 ounces of gold in calendar 2006.
The mine is expected to exhaust reserves in calendar 2007. In September 2007, Campbell
Resources Incorporated entered into a memorandum of understanding with Gold Bullion
Development Corp. for the sale of the Joe Mann Mine Property. The existing 1.0% NSR would
remain in-force upon completion of the sale. |
27
Battle Mountain Development Stage Royalty Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Owner |
|
(Gold unless otherwise stated) |
|
Dolores(1)
|
|
Chihuahua, Mexico
|
|
Minefinders
Corporation Ltd.
|
|
1.25% NSR (gold) and 2.0% NSR
(gold and silver) |
|
|
|
|
|
|
|
La India(2)
|
|
Northwestern Nicaragua
|
|
Glencairn Gold
Corporation (95%)
and Inversiones
Mineras S.A. (5%)
|
|
3.0% NSR |
|
|
|
|
|
|
|
Sega(3)
|
|
Northern Burkina Faso
|
|
Orezone Resources
Incorporated
|
|
3.0% NSR |
|
|
|
|
|
|
|
Relief Canyon(4)
|
|
Western Nevada
|
|
Firstgold
Incorporated
|
|
4.0% NSR |
|
|
|
(1) |
|
In February 2006, Minefinders Corporation Ltd. received an optimized bankable
feasibility study and approved the mine construction on the Dolores project. Mine
construction is proceeding and the mine is expected to achieve commercial production early in
the second quarter of calendar 2008. The mine plan estimates a 12 year mine life. |
|
(2) |
|
The La India project is located approximately 25 miles east of the El Limon property
in northwestern Nicaragua. |
|
(3) |
|
The Sega project is an advanced exploration project in northern Burkina Faso. |
|
(4) |
|
Firstgold Incorporated is exploring plans to restart the mine at Relief Canyon. |
Battle Mountain Exploration Stage Royalty Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine/Property |
|
Location |
|
Owner |
|
(Gold) |
|
Marmato Properties(1)
|
|
Colombia
|
|
Mineros Nacionales S.A.
|
|
5.0% NSR |
|
|
|
|
|
|
|
Fletcher Junction(2)
|
|
Mineral County, Nevada
|
|
Pediment Gold LLC
|
|
1.25% NSR |
|
|
|
|
|
|
|
Hot Pot(2)
|
|
Mineral County, Nevada
|
|
Pediment Gold LLC
|
|
1.25% NSR |
|
|
|
|
|
|
|
Night Hawk Lake(2)
|
|
Ontario, Canada
|
|
Selkirk Metals
Corporation (40%),
East West Resource
Corporation (40%),
Canadian Golden Dragon
Resources Limited
(20%)
|
|
2.5% NSR |
|
|
|
(1) |
|
A collection of properties located in the Marmato district, an established mining
district in Colombia. |
|
(2) |
|
Fletcher Junction, Hot Pot and Night Hawk Lake Property are all early stage
exploration properties. |
In addition to the above properties, Battle Mountain acquired a 3.0% NSR royalty on the Lluvio de
Oro property in Mexico. The property is believed to be owned by Tara Gold Resources, who may not
acknowledge Battle Mountains royalty interest. This former open pit gold and silver mine is not
currently in production.
28
Results of Operations
Quarter Ended September 30, 2007, Compared to Quarter Ended September 30, 2006
For the quarter ended September 30, 2007, we recorded net earnings of $5.8 million, or $0.20 per
basic and diluted share, as compared to net earnings of $5.0 million, or $0.21 per basic and
diluted share, for the quarter ended September 30, 2006.
For the quarter ended September 30, 2007, we recognized total royalty revenue of $12.8 million, at
an average gold price of $681 per ounce, compared to royalty revenue of $9.9 million, at an average
gold price of $621 per ounce for the quarter ended September 30, 2006. Royalty revenue and the
corresponding production, attributable to our royalty interests, for the quarter ended September
30, 2007 compared to the quarter ended September 30, 2006 is as follows:
Royalty Revenue and Production Subject to Our Royalty Interests
Quarter Ended September 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
|
|
|
|
Royalty |
|
|
Reported |
|
|
Royalty |
|
|
Reported |
|
Royalty |
|
Metal(s) |
|
|
Revenue |
|
|
Production(1) |
|
|
Revenue |
|
|
Production(1) |
|
Pipeline |
|
Gold |
|
$ |
5,682,001 |
|
|
|
128,272 |
|
|
oz. |
|
$ |
4,715,459 |
|
|
|
125,365 |
|
|
oz. |
|
|
|
|
Robinson |
|
|
|
|
|
$ |
3,552,855 |
|
|
|
|
|
|
|
|
|
|
$ |
2,709,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
26,067 |
|
|
oz. |
|
|
|
|
|
|
10,159 |
|
|
oz. |
|
|
|
|
|
|
Copper |
|
|
|
|
|
32.5 million |
|
lbs. |
|
|
|
|
|
19.9 million |
|
lbs. |
|
|
|
|
SJ Claims |
|
Gold |
|
$ |
1,154,624 |
|
|
|
187,473 |
|
|
oz. |
|
$ |
823,432 |
|
|
|
149,300 |
|
|
oz. |
|
|
|
|
Troy |
|
|
|
|
|
$ |
558,149 |
|
|
|
|
|
|
|
|
|
|
$ |
569,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver |
|
|
|
|
|
|
181,562 |
|
|
oz. |
|
|
|
|
|
|
204,269 |
|
|
oz. |
|
|
|
|
|
|
Copper |
|
|
|
|
|
1.7 million |
|
lbs. |
|
|
|
|
|
1.7 million |
|
lbs. |
|
|
|
|
Leeville |
|
Gold |
|
$ |
841,861 |
|
|
|
61,915 |
|
|
oz. |
|
$ |
212,462 |
|
|
|
19,254 |
|
|
oz. |
|
|
|
|
Taparko(2) |
|
Gold |
|
$ |
434,738 |
|
|
|
2,866 |
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Bald Mountain |
|
Gold |
|
$ |
200,000 |
|
|
|
16,779 |
|
|
oz. |
|
$ |
531,662 |
|
|
|
48,883 |
|
|
|
|
|
|
|
|
|
Mulatos |
|
Gold |
|
$ |
222,778 |
|
|
|
22,022 |
|
|
oz. |
|
$ |
185,983 |
|
|
|
19,643 |
|
|
|
|
|
|
|
|
|
Martha |
|
Silver |
|
$ |
169,995 |
|
|
|
672,448 |
|
|
oz. |
|
$ |
180,639 |
|
|
|
775,851 |
|
|
oz. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
12,817,001 |
|
|
|
|
|
|
|
|
|
|
$ |
9,928,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the three months ended September 30, 2007 and September 30, 2006, as reported
to us by the operators of the mines. |
|
(2) |
|
In July 2007, High River announced initial gold production at the Taparko mine.
Receipt of royalty revenue commenced during the quarter ended September 30, 2007. |
The increase in royalty revenue for the quarter ended September 30, 2007, compared with the quarter
ended September 30, 2006, resulted from an increase in metal
prices and increased production at the
Pipeline Mining Complex, Robinson, SJ Claims and Leeville. The commencement of gold production at
the
29
Taparko mine during the first fiscal quarter of 2008 also contributed to an increase in royalty
revenue over the prior period.
Cost of operations increased to $0.9 million for the quarter ended September 30, 2007, compared to
$0.7 million for the quarter ended September 30, 2006. The increase was primarily due to an
increase in the Nevada Net Proceeds Tax expense, which resulted primarily from an increase in
royalty revenue from Robinson, the Pipeline Mining Complex and Leeville.
General and administrative expenses increased to $1.5 million for the quarter ended September 30,
2007, from $1.1 million for the quarter ended September 30, 2006. The increase was primarily due
to an increase in accounting and legal expenses of approximately $161,000. An increase in general
corporate costs and employee related costs of approximately $131,000 also contributed to the
overall increase.
Exploration and business development expenses increased to $0.6 million for the quarter ended
September 30, 2007, from $0.4 million for the quarter ended September 30, 2006. The increase is
primarily due to an increase in the amount of non-cash stock compensation allocated to exploration
and business development during the period.
The Company recorded total non-cash stock compensation expense related to our equity compensation
plans of $0.5 million for the three months ended September 30, 2007, compared to $0.4 million for
the three months ended September 30, 2006. Our non-cash stock compensation is allocated among cost
of operations, general and administrative, and exploration and business development in our
consolidated statements of operations and comprehensive income. Please refer to Note 7 of the
notes to consolidated financial statements for further discussion of the allocation of non-cash
stock compensation for the three months ended September 30, 2007 and 2006.
Depreciation, depletion and amortization increased to $2.4 million for the quarter ended
September 30, 2007, from $1.1 million for the quarter ended September 30, 2006. Increased
production at Leeville and Robinson resulted in additional depletion of approximately $0.6 million,
while an increase in depletion rates at Revett resulted in additional depletion of approximately
$0.3 million. Initial gold production at the Taparko mine during the period also contributed to an
increase in depletion of approximately $0.3 million.
Interest and other income increased to $1.9 million for the quarter ended September 30, 2007, from
$1.0 for the quarter ended September 30, 2006. The increase is primarily due to an increase in
funds available for investing over the prior period.
During the three months ended September 30, 2007, we recognized current and deferred tax expense
totaling $2.8 million compared with $2.4 million during the three months ended September 30, 2006.
This resulted in an effective tax rate of 33.1% in the current period, compared with 32.7% in the
prior period. The increase in our effective tax rate is the result of a decrease in our estimated
deductions associated with percentage depletion.
Liquidity and Capital Resources
At September 30, 2007, we had current assets of $102.9 million compared to current liabilities of
$9.1 million for a current ratio of 11 to 1. This compares to current assets of $95.7 million and
current liabilities of $4.7 million at June 30, 2007, resulting in a current ratio of approximately
20 to 1. The decrease in our current ratio is due primarily to an increase in cash and equivalents
of approximately $8.0 million, an increase in our income taxes payable of approximately $3.2
million and an increase in our accounts payable of approximately $1.1 million.
30
For the three months ended September 30, 2007, our available cash increased primarily due to cash
received from royalty income of approximately $12.5 million. This increase was partially offset by
cash paid for dividends of approximately $1.9 million, our equity investment in Battle Mountain of
approximately $2.2 million and our final funding of the Taparko mine commitment of $400,000 during
the period.
During the three months ended September 30, 2007, liquidity needs were met from $12.8 million in
royalty revenues (including $233,474 of minority interest), our available cash resources and
interest and other income of $1.9 million.
We believe that our current financial resources and funds generated from operations will be
adequate to cover anticipated expenditures for general and administrative expense costs,
exploration and business development costs, and capital expenditures for the foreseeable future.
Our current financial resources are also available for royalty acquisitions and to fund dividends.
Our capital requirements are primarily affected by our ongoing acquisition activities. We have
used both cash and our common stock as consideration in our acquisitions. We currently, and
generally at any time, have acquisition opportunities in various stages of active review and may
enter into one or more acquisition transactions at any time. In the event we enter into a
significant royalty or other acquisition, we may need to seek substantial additional debt or equity
financing. This could have a dilutive effect on our existing shareholders and impose substantial
debt burdens on the Company.
Recently Issued Accounting Pronouncements
On July 13, 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109, was
issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a companys
financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company adopted FIN 48 on July 1, 2007. Refer to Note 9 of the notes to consolidated financial
statements for a discussion regarding the effect of adopting FIN 48.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement No. 157
provides guidance for using fair value to measure assets and liabilities. Statement No. 157
applies whenever other accounting standards require (or permit) assets or liabilities to be
measured at fair value but does not expand the use of fair value in any new circumstances. Under
Statement No. 157, fair value refers to the price that would be received to sell an asset or paid
to transfer a liability between participants in the market in which the reporting entity transacts.
In this standard, the FASB clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing the asset or liability. The provisions of
Statement No. 157 are effective for our fiscal year beginning
July 1, 2008, and interim periods within the fiscal year. The Company is evaluating the impact, if
any, the adoption of Statement No. 157 could have on our financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, which allows entities to choose to measure many financial instruments
and certain other items at fair value. Statement No. 159 is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2007. The Company is evaluating the
impact, if any, the adoption of Statement No. 159 could have on our financial statements.
31
Forward-Looking Statements
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 projected production estimates and estimates of timing of commencement of
production from the operators of our royalty properties; the adequacy of financial resources and
funds to cover anticipated expenditures for general and administrative expenses as well as costs
associated with exploration and business development and capital expenditures; settlement of the
Casmalia matter; the potential need for additional debt or equity financing for acquisitions, and
our expectation that substantially all our revenues will be derived from royalty interests.
Factors that could cause actual results to differ materially from these forward-looking statements
include, among others:
|
|
|
changes in gold and other metals prices; |
|
|
|
|
the performance of our producing royalty properties; |
|
|
|
|
decisions and activities of the operators of our royalty properties; |
|
|
|
|
the ability of operators to bring projects into production and operate in accordance
with feasibility studies; |
|
|
|
|
unanticipated grade, geological, metallurgical, processing or other problems at the
royalty properties; |
|
|
|
|
changes in project parameters as plans of the operators are refined; |
|
|
|
|
changes in estimates of reserves and mineralization by the operators of our royalty
properties; |
|
|
|
|
economic and market conditions; |
|
|
|
|
future financial needs; |
|
|
|
|
foreign, federal, or state legislation governing us or the operators; |
|
|
|
|
the availability of royalties for acquisition or other acquisition opportunities and the
availability of debt or equity financing necessary to complete such acquisitions; |
|
|
|
|
our ability to make accurate assumptions regarding the valuation and timing and amount
of royalty payments when making acquisitions; |
|
|
|
|
risks associated with conducting business in foreign countries, including application of
foreign laws to contract and other disputes, environmental laws and enforcement and
uncertain political and economic environments; |
32
|
|
|
risks associated with issuances of additional common stock or other; and |
|
|
|
|
incurrence of additional indebtedness if we take such actions in connection with
acquisitions or otherwise. |
as well as other factors described elsewhere in our Annual Report on Form 10-K and other reports
filed with the Securities and Exchange Commission (SEC). Most of these factors are beyond our
ability to predict or control. Future events and actual results could differ materially from those
set forth in, contemplated by or underlying the forward-looking statements. We disclaim any
obligation to update any forward-looking statement made herein. Readers are cautioned not to put
undue reliance on forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flow are significantly impacted by changes in the market price of gold and
other metals. Gold and other metal prices can fluctuate widely and are affected by numerous
factors, such as demand, production levels, economic policies of central banks, producer hedging,
world political and economic events, and the strength of the U.S. dollar relative to other
currencies. Please see Volatility in gold and other metal prices may have an adverse impact on
the value of our royalty interests and reduce our royalty revenues, under Part I, Item 1A of our
2007 Annual Report on Form 10-K for more information that can affect gold and other prices as well
as historical gold, silver and copper prices.
During the three month period ended September 30, 2007, we reported royalty revenues of $12.8
million, with an average gold price for the period of $681 per ounce and an average copper price of
$3.50 per pound. Approximately 70% of our total recognized revenues for the three months ended
September 30, 2007, were attributable to gold sales from our gold producing royalty interests, as
shown within the MD&A. For the three months ended September 30, 2007, if the price of gold had
averaged higher or lower by $20 per ounce, we would have recorded an increase or decrease in
revenues of approximately $240,000, respectively. Approximately 27% of our total recognized
revenues for the three months ended September 30, 2007, were attributable to copper sales at
Robinson and Revett. For the three months ended September 30, 2007, if the price of copper had
averaged higher or lower by $0.25 per pound, we would have recorded an increase or decrease in
revenues of approximately $192,000, respectively.
ITEM 4. CONTROLS AND PROCEDURES
During the three months ended September 30, 2007, the Companys management, with the participation
of the President and Chief Executive Officer and Chief Financial Officer and Treasurer of the
Company, carried out an evaluation of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on such evaluation, the
Companys President and Chief Executive Officer and Chief Financial Officer and Treasurer have
concluded that, as of the three months ended September 30, 2007, the Companys disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the required time periods and are designed to ensure that information required to
be disclosed in its reports is accumulated and communicated by the Companys management, including
the President and Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate
to allow timely decisions regarding required disclosure.
33
Even an effective internal control system, no matter how well designed, has inherent limitations,
including the possibility of the circumvention or overriding of controls. Therefore, the Companys
internal control over financial reporting can provide only reasonable assurance with respect to the
reliability of the Companys financial reporting and financial statement preparation.
There has been no change in the Companys internal control over financial reporting during the
three months ended September 30, 2007, that has materially affected, or that is reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Item 2 MD&A Forward-Looking Statements, and
various risks faced by us are also discussed elsewhere in Item 2 MD&A of this Quarterly Report
on Form 10-Q. In addition, risk factors are included in Part I, Item 1A of our 2007 Annual Report
on Form 10-K. Our risk factors are updated since our previously
disclosed risk factors in our 2007 Annual Report on Form 10-K as
set forth below:
Anticipated
federal legislation could decrease our royalty revenues.
In recent years, the United States Congress has considered a number of proposed major revisions
to the General Mining Law of 1872, which governs the creation and possession of mining claims
and related activities on federal public lands in the United States. Bill H.R. 2262 presently is
pending in the Congress which, if enacted, would impose a royalty payable to the U.S.
Government on existing and future production of minerals from unpatented mining claims in the
United States. If enacted, the new legislation could, among other provisions, render certain
federal lands unavailable for the location of unpatented mining claims, afford greater public
involvement in the mine permitting process, provide for citizen suits against miners operating on
federal lands, and impose new and stringent environmental operating standards as well as new
mined land reclamation requirements. If enacted, this new legislation could adversely affect the
development of new mines and the expansion of existing mines, as well as increase the cost of all
mining operations on federal lands, perhaps materially and adversely affecting mine operators
and therefore our royalty revenue.
The effect of any revision of the General Mining Law on our royalty interests in the United
States cannot be determined conclusively until such revision, if any, is enacted and challenges to
the legislation, if any, have been finally resolved. A number of our United States royalty interests
are on public lands. By way of example, if a royalty, assessment, production tax, or other levy
imposed on and measured by production is charged to the operator at the Pipeline Mining
Complex, the amount of that charge would be deducted from gross proceeds for calculation of
our GSR1, GSR2 and GSR3 royalties, which would reduce our royalty revenues from these
royalties.
Foreign
operations are subject to many risks.
Our foreign activities are subject to the risks normally associated with conducting business in
foreign countries. This includes exchange controls and currency fluctuations, limitations on
repatriation of earnings, foreign taxation, foreign environmental laws and enforcement,
expropriation or nationalization of property, labor practices and disputes, and uncertain political
and economic environments. There are also risks of war and civil disturbances, as well as other
risks that could cause exploration or development difficulties or stoppages, restrict the movement
of funds or result in the deprivation or loss of contract rights or the taking of property by
nationalization or expropriation, without fair compensation. Exploration licenses granted by some
foreign countries do not include the right to mine. Each country has discretion in determining
whether to grant a license to mine. If an operator cannot secure a mining license following
exploration of a property, the value of our royalty interest would be negatively affected. Foreign
operations could also be adversely impacted by laws and policies of the United States affecting
foreign trade, investment, and taxation. We currently have interests in projects in Argentina,
Bolivia, Burkina Faso, Canada, Chile, Finland, Mexico, Nicaragua and Russia. We also evaluate
precious metal royalty acquisitions or development opportunities in other parts of the world,
including Canada, Central America, Europe, Australia, other Republics of the former Soviet Union,
Asia, Africa and South America.
We are also subject to the risks of operating in Burkina Faso, West Africa. Countries in the region
have historically experienced periods of political uncertainty, exchange rate fluctuations, balance
of payments and trade difficulties and problems associated with extreme poverty and unemployment.
Any of these economic or political risks could adversely affect the Taparko project. Our
operations in Mexico are subject to risks such as the effects of political developments and local
unrest, and communal property issues. In the past, Mexico has experienced prolonged periods of weak
economic conditions characterized by exchange rate instability, increased inflation and negative
economic growth, all of which could occur again in the future. Any of these risks could adversely
affect the Mulatos mine and the Peñasquito project.
We hold a royalty interest in an exploration property that is subject to the risks of operating in
Russia.
The economy of the Russian Federation continues to display characteristics of an emerging market,
including
extensive currency controls and potentially high inflation. The prospects for future economic
stability in the
Russian Federation are largely dependent upon the effectiveness of economic measures undertaken by
the
government, together with legal, regulatory and political developments. Russian laws, licenses and
permits
have been in a state of change and new laws may be given a retroactive effect. Our Martha royalty
is subject to risks relating to operating in Argentina. Argentina, while currently economically and
politically stable, has experienced political instability, currency fluctuations and changes in
banking regulations in recent years. Future instability, currency value fluctuations or regulation
changes could adversely affect our revenues from the Martha mine.
Our Don Mario royalty, which we acquired when we acquired Battle Mountain on October 24, 2007, is
subject to risks relating to operating in Bolivia. Bolivia has experienced political and social
instability, corruption, regulation changes, an abundance of administrative procedures and the
potential for nationalization of foreign business interests that could materially adversely affect
the Don Mario mine.
Additional issuances of equity securities by us would dilute the ownership of our existing
stockholders and could reduce our earnings per share.
We may
issue equity in the future in connection with acquisitions, strategic
transactions or for other purposes. Any such acquisition could be
material to us and could significantly increase the size and scope of
our business. To the extent we issue additional
equity securities, the ownership of our existing stockholders would
be diluted and our earnings per share could be reduced.
If a large number of shares of our common stock are sold in the public market, the sales could
reduce the trading price of our common stock and impede our ability to raise future capital.
We cannot predict what effect, if any, future issuances by us of our common stock or other equity
will have on the market price of our common stock. In addition, our shares of common stock that we
issue in connection with an acquisition may not be subject to resale restrictions. We issued
approximately 1.14 million shares of our common stock in connection with the acquisition of Battle
Mountain Gold Exploration Corporation which closed on October 24, 2007. We may issue substantial
additional shares of common stock or other securities in connection with other acquisition
transactions. The market price of our common stock could decline if certain large holders of our
common stock, or recipients of our common stock in connection with an acquisition, sell all or a
significant portion of their shares of common stock or are perceived by the market as intending to
sell these shares other than in an orderly manner. In addition, these sales could also impair our
ability to raise capital through the sale of additional common stock in the capital markets.
We may incur substantially more indebtedness that could have adverse effects on our business.
We may incur substantial indebtedness in the future in connection with financing acquisitions,
strategic transactions or for other purposes. Any such acquisition
could be material to us and could significantly increase the size and
scope of our business. If we were to incur substantial additional
indebtedness, it may make it
34
difficult for us to satisfy our debt obligations, increase our vulnerability to general adverse
economic and industry conditions, require us to dedicate a substantial portion of our cash flow
from operations and proceeds of any equity issuances to payments on our indebtedness, thereby
reducing the availability of cash flow to fund acquisitions and other
general corporate purposes and place us at a competitive disadvantage to our competitors that have less debt or have other adverse
effects on us. Furthermore, if future debt financing is not available to us when required or is
not available on acceptable terms, we may be unable to grow our business, take advantage of
opportunities to acquire additional royalties, or respond to competitive pressures or refinance
maturing debt, any of which could have a material adverse effect on our operating results and
financial condition.
We may experience operational and other difficulties if we complete one or more significant
acquisitions.
As part of our business model and growth strategy, we are engaged in a continual review of
opportunities to acquire existing royalties, including acquiring companies that hold royalties.
When we acquire a company, we may experience the need to hire additional personnel, difficulties in
integrating the acquired company, increases in our general and administrative
expenses and related problems. Furthermore, as part of the acquisition of a company or a group of
royalties, we may acquire operating or working interests and other assets outside of our core focus of
precious metal royalties. This could expose us to the need for additional operating expertise,
increased capital demands to fund the acquired operating or working interests, and other costs and liabilities
that would typically accrue to an operator of natural resource property. In the event we
experience these difficulties in connection with one or more acquisition, our business or financial
results may be adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
|
|
|
Exhibit Number |
|
Description |
2.1
|
|
Amended and Restated Agreement and Plan of Merger, dated July 30,
2007, among Battle Mountain Gold Exploration Corp., the Company
and Royal Battle Mountain, Inc. (filed as Exhibit 2.1 to the
Companys Current Report on Form 8-K (File No.
001-13357) on August 2, 2007 and incorporated herein by reference). |
|
|
|
3.1
|
|
Amended and Restated Bylaws, as amended (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K (File No. 001-13357) on
August 29, 2007 and incorporated herein by reference). |
35
|
|
|
Exhibit Number |
|
Description |
3.2
|
|
Amended and Restated Certificate of Designations of Series A
Junior Participating Preferred Stock of the Company (filed as
Exhibit 3.1 to the Companys Current Report on Form 8-K (File
No. 001-13357) on September 10, 2007 and incorporated herein by
reference). |
|
|
|
4.1
|
|
First Amended and Restated Rights Agreement, dated as of September
10, 2007, between Royal Gold, Inc. and Computershare Trust
Company, N.A. (filed as Exhibit 4.1 to the Companys Registration
Statement on Form 8-A/A (File No. 001-13357) on September 10, 2007
and incorporated herein by reference). |
|
|
|
10.1
|
|
First Amendment to the Bridge Facility Agreement, dated July 30,
2007, by and among Battle Mountain Gold Exploration Corp., BMGX
(Barbados) Corporation and the Company (filed as Exhibit 10.1 to
the Companys Current Report on Form 8-K (File No. 001-13357) on
August 2, 2007 and incorporated herein by reference). |
|
|
|
10.2
|
|
Form of Irrevocable Proxy (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K (File No. 001-13357) on August 2, 2007
and incorporated herein by reference). |
|
|
|
10.3
|
|
Form of Indemnification Agreement (filed as Exhibit 10.01 to the
Companys Current Report on Form 8-K (File No. 001-13357) on
November 13, 2006 (together with Schedule of Certain Officers
Parties thereto filed as Exhibit 99.2 to Royal Golds Current
Report on Form 8-K on September 4, 2007) and incorporated herein
by reference). |
|
|
|
10.4
|
|
Form of Employment Agreement (filed as Exhibit 99.3 to the
Companys Current Report on Form 8-K (File No. 001-13357) on
September 22, 2005 (together with Schedule of Certain Executive
Officers Parties thereto filed as Exhibit 99.1 to Royal Golds
Current Report on Form 8-K on September 4, 2007) and incorporated
herein by reference). |
|
|
|
31.1*
|
|
Certification of President and Chief Executive Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2*
|
|
Certification of Chief Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1*
|
|
Written Statement of the President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2*
|
|
Written Statement of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
99.1
|
|
Schedule of Certain Officers Parties to the Employment Agreement
(filed as Exhibit 99.1 to the Companys Current Report on Form 8-K
(File No. 001-13357) on September 4, 2007 and incorporated herein
by reference). |
36
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.
|
|
Date: November 1, 2007 |
By: |
/s/ Tony Jensen
|
|
|
|
Tony Jensen |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
Date: November 1, 2007 |
By: |
/s/ Stefan Wenger
|
|
|
|
Stefan Wenger |
|
|
|
Chief Financial Officer and Treasurer |
|
|
37
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description |
2.1
|
|
Amended and Restated Agreement and Plan of Merger, dated July 30,
2007, among Battle Mountain Gold Exploration Corp., the Company
and Royal Battle Mountain, Inc. (filed as Exhibit 2.1 to the
Companys Current Report on Form 8-K (File No.
001-13357) on August 2, 2007 and incorporated herein by reference). |
|
|
|
3.1
|
|
Amended and Restated Bylaws, as amended (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K (File No. 001-13357) on
August 29, 2007 and incorporated herein by reference). |
|
|
|
3.2
|
|
Amended and Restated Certificate of Designations of Series A
Junior Participating Preferred Stock of the Company (filed as
Exhibit 3.1 to the Companys Current Report on Form 8-K (File
No. 001-13357) on September 10, 2007 and incorporated herein by
reference). |
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4.1
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First Amended and Restated Rights Agreement, dated as of September
10, 2007, between Royal Gold, Inc. and Computershare Trust
Company, N.A. (filed as Exhibit 4.1 to the Companys Registration
Statement on Form 8-A/A (File No. 001-13357) on September 10, 2007
and incorporated herein by reference). |
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10.1
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First Amendment to the Bridge Facility Agreement, dated July 30,
2007, by and among Battle Mountain Gold Exploration Corp., BMGX
(Barbados) Corporation and the Company (filed as Exhibit 10.1 to
the Companys Current Report on Form 8-K (File No. 001-13357) on
August 2, 2007 and incorporated herein by reference). |
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10.2
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Form of Irrevocable Proxy (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K (File No. 001-13357) on August 2, 2007
and incorporated herein by reference). |
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10.3
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Form of Indemnification Agreement (filed as Exhibit 10.01 to the
Companys Current Report on Form 8-K (File No. 001-13357) on
November 13, 2006 (together with Schedule of Certain Officers
Parties thereto filed as Exhibit 99.2 to Royal Golds Current
Report on Form 8-K on September 4, 2007) and incorporated herein
by reference). |
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10.4
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Form of Employment Agreement (filed as Exhibit 99.3 to the
Companys Current Report on Form 8-K (File No. 001-13357) on
September 22, 2005 (together with Schedule of Certain Executive
Officers Parties thereto filed as Exhibit 99.1 to Royal Golds
Current Report on Form 8-K on September 4, 2007) and incorporated
herein by reference). |
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31.1*
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Certification of President and Chief Executive Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2*
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Certification of Chief Financial Officer required by Section 302
of the Sarbanes-Oxley Act of 2002. |
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32.1*
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Written Statement of the President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2*
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Written Statement of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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99.1
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Schedule of Certain Officers Parties to the Employment Agreement
(filed as Exhibit 99.1 to the Companys Current Report on Form 8-K
(File No. 001-13357) on September 4, 2007 and incorporated herein
by reference). |