e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2008
or
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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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84-0835164 |
(State or Other Jurisdiction
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(I.R.S. Employer |
of Incorporation or Organization)
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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 Offices)
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(Zip Code) |
Registrants telephone number, including area code: (303) 573-1660
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Common stock, $0.01 par value
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NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes o No þ
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company 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
Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the
closing sale price of Royal Gold on December 31, 2007, as reported on the NASDAQ Global Select
Market was $811.7 million. As of August 13, 2008, there were 33,926,495 shares of the registrants
common stock, $0.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2008 Annual Meeting of Stockholders scheduled to be held on
November 5, 2008, and to be filed within 120 days after June 30, 2008, are incorporated by
reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on
Form 10-K.
This document (including information incorporated herein by reference) contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty
due to various factors affecting Royal Gold, Inc. and its subsidiaries. For a discussion of some
of these factors, see the discussion in Item 1A, Risk Factors, of this report. In addition, please
see our note about forward-looking statements included in Item 7, Managements Discussion and
Analysis of Consolidated Financial Condition and Results of Operations (MD&A), of this report.
PART I
General
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. During the 2008 fiscal year, we focused on the
management of our existing royalty interests, the acquisition of royalty interests through asset
and corporate transactions, and the creation of royalty interests through financing and strategic
exploration alliances.
As discussed in further detail throughout this report, some significant developments to our
business during fiscal year 2008 were as follows:
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(1) |
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Our royalty revenues increased 43% to $69.4 million, compared with $48.4 million during
fiscal year 2007; |
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(2) |
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High River Gold Mines Ltd. (High River) commenced production at the Taparko mine,
which resulted in approximately $7.4 million in additional royalty revenue to the Company
during the fiscal year; |
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(3) |
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We completed the acquisition of Battle Mountain Gold Exploration Corp. (Battle
Mountain). As part of the acquisition, we acquired thirteen royalty interests in various
stages of production, development or exploration. The acquired Battle Mountain producing
royalty interests contributed approximately $2.8 million in additional royalty revenue to
the Company during the fiscal year; |
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(4) |
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In addition to the royalties acquired as part of the Battle Mountain acquisition, we
acquired the following royalties during our fiscal year 2008: |
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A 2.0% net smelter return (NSR) royalty on the Marigold mine, located on the
Battle Mountain-Eureka trend in Nevada, and operated by Goldcorp Inc. (Goldcorp); |
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A 2.0-4.0% sliding-scale NSR royalty and a 10.0% net profits interest (NPI)
royalty on the El Chanate mine, located in Sonora, Mexico, and operated by Capital
Gold, Inc. (Capital Gold); and |
1
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A 1.5% NSR royalty on gold produced from the Benso concession in the Western
Region of the Republic of Ghana, West Africa, and controlled by Golden Star
Resources Ltd. (Golden Star). |
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(5) |
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In November 2007, we completed an offering of 1,150,000 shares of 7.25% mandatory
convertible preferred stock (Preferred Stock), resulting in net proceeds to us of
approximately $111.1 million. In March 2008, we converted all of the issued and
outstanding shares of the Preferred Stock into 3,977,683 shares of our common stock in
connection with the conversion of the Preferred Stock. |
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(6) |
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We repurchased 196,986 shares of our common stock pursuant to an authorized share
repurchase program for a total cost of approximately $5.5 million; and |
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(7) |
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We increased our calendar year dividend to $0.28 per basic share, which is paid in
quarterly installments throughout calendar 2008. This represents an 8% increase compared
with the dividend paid during calendar year 2007. |
Recent Developments
Agreement to acquire Barrick Gold Corporation royalty portfolio
On July 30, 2008, we entered into a definitive agreement to acquire a portfolio of royalties from
Barrick Gold Corporation (Barrick) in exchange for net cash consideration of $150 million and a
restructuring of certain Royal Gold royalty positions at the Cortez Pipeline Mining Complex
(Cortez), which is operated by Barrick. The Barrick royalty portfolio consists of royalties on
77 properties, including eight producing royalties, 2 development stage royalties and 67
exploration stage royalties. Eighteen of the exploration stage projects are considered to be in an
evaluation stage as these properties are engaged in the search for reserves but currently contain
additional mineralized material. Over 75% of the portfolio consists of precious metals royalties.
The purchase price for the acquisition will be paid from cash on hand at closing. The acquisition
is subject to customary closing conditions and is expected to close on October 1, 2008. Please
refer to Item 7, MD&A, within this report for a further discussion of this transaction.
Certain Defined Terms
The Companys royalty portfolio contains several different types of royalties, which are defined as
follows:
Royaltythe right to receive a percentage or other denomination of mineral production from a
resource extraction operation.
Gross Smelter Return (GSR) Royaltya defined percentage of the gross revenue from a resource
extraction operation, less, if applicable, certain contract-defined costs paid by or charged to the
operator.
Net Smelter Return (NSR) Royaltya defined percentage of the gross revenue from a resource
extraction operation, less a proportionate share of incidental transportation, insurance, refining
and smelting costs.
Net Value Royalty (NVR)a defined percentage of the gross revenue from a resource extraction
operation, less certain contract-defined transportation costs, milling costs and taxes.
Net Profits Interest Royalty (NPI)a defined percentage of the gross revenue from a resource
extraction operation, after recovery of certain contract-defined pre-production costs, and after
deduction of certain contract-defined mining, milling, processing, transportation, administrative,
marketing and other costs.
2
Our Producing Royalty Interests
Our producing royalty interests are shown in the following table. Please see Item 2, Properties,
of this report for further discussion on our principal producing royalty interests.
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Royalty |
Mine |
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Location |
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Operator |
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(Gold unless otherwise stated) |
Cortez
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Nevada, USA
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Barrick
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GSR1: 0.40%-5.0% sliding-
scale GSR
GSR2(1): 0.72%-9.0%
sliding- scale GSR
GSR3(1): 0.71% GSR
NVR1(1): 0.39% NVR |
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Robinson
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Nevada, USA
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Quadra Mining Ltd.
(Quadra)
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3.0% NSR (copper, gold,
silver, molybdenum) |
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Taparko(2)
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Burkina Faso, West
Africa
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High River
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15% GSR (TB-GSR1) and a
0%-10% sliding-scale GSR
(TB-GSR2) |
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Leeville Mining Complex
(Leeville North and Leeville
South)
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Nevada, USA
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Newmont Mining
Corporation
(Newmont)
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1.8% NSR |
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Goldstrike-SJ Claims
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Nevada, USA
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Barrick
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0.9% NSR |
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Troy(3)
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Montana, USA
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Revett Minerals,
Inc. (Revett)
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7.0% GSR (silver and copper) |
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Bald Mountain
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Nevada, USA
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Barrick
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1.75%-3.5% sliding-scale NSR |
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Mulatos(4)
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Sonora, Mexico
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Alamos Gold, Inc.
(Alamos)
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0.30%-1.5% sliding-scale NSR |
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El Chanate(5)
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Sonora, Mexico
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Capital Gold
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2.0%-4.0% sliding-scale NSR;
10.0% NPI |
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Martha
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Santa Cruz
Province, Argentina
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Coeur dAlene Mines
Corporation
(Coeur dAlene)
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2.0% NSR (silver) |
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Don Mario-Lower Mineralized
Zone(6)
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Chiquitos Province,
Bolivia
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Orvana Minerals
Corp. (Orvana)
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3.0% NSR (gold, silver and
copper) |
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Williams(6)
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Ontario, Canada
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Barrick (50%) and
Teck Cominco
Limited (50%)
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0.72% NSR |
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Peñasquito (oxide)(7)
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Zacatecas, Mexico
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Goldcorp
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2.0% NSR (gold and silver) |
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El Limon(6)
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El Limon, Nicaragua
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Central Sun Mining,
Inc. (Central
Sun) (95%) and
Inversiones Mineras
S.A.
(Inversiones) (5%)
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3.0% NSR |
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(1) |
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Upon the consummation of the royalty acquisition transaction between Royal Gold
and Barrick, GSR2 will be reduced to match the royalty rate of GSR1 and the portion of the
GSR3 and NVR1 royalties on the mining claims that comprise the undeveloped Crossroads
deposit at Cortez will be eliminated. 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 royalty. |
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(2) |
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TB-GSR1 will remain in effect 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 occurs first. TB-GSR2 will remain in effect until |
3
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the termination of TB-GSR1.
As of June 30, 2008, we have recognized approximately $4.7 million in royalty revenue associated with TB-GSR1, which is attributable to cumulative production of 36,078 ounces of
gold. Portions of our royalty interests at the Taparko mine are classified as development
stage and exploration stage as shown below. |
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(3) |
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Royalty will extend until either cumulative production of approximately 9.9
million ounces of silver and 84.7 million pounds of copper, or we receive $10.5 million in
cumulative payments, whichever occurs first. As of June 30, 2008, we have recognized
royalty revenue associated with the GSR royalty totaling $8.0 million, which is
attributable to cumulative production of approximately 3.2 million ounces of silver and
approximately 33.0 million pounds of copper. |
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(4) |
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Royalty is capped at 2.0 million gold ounces of production. Approximately
248,000 cumulative ounces of gold have been produced as of June 30, 2008. |
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(5) |
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Acquired on February 20, 2008. Please refer to Item 7, MD&A, for further
discussion on these royalty acquisitions. |
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(6) |
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Acquired on October 24, 2007, as part of the acquisition of Battle Mountain.
Please refer to Item 7, MD&A, for a further discussion on the acquisition of Battle
Mountain. |
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(7) |
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The Peñasquito project consists of oxide and sulfide portions. The sulfide
portion is classified as development stage as shown below. |
Our Development Stage Royalty Interests
We also own the following royalty interests that are currently in development stage and are not yet
in production. Please see Item 2, Properties, of this report for further discussion on our
principal development stage royalty interests.
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Royalty |
Mine |
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Location |
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Operator |
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(Gold unless otherwise stated) |
Peñasquito (sulfide
circuit)
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Zacatecas, Mexico
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Goldcorp
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2.0% NSR (gold, silver, lead and
zinc) |
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Dolores(1)
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Chihuahua, Mexico
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Minefinders
Corporation, Ltd.
(Minefinders)
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1.25% NSR
2.0% NSR (gold and silver) |
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Taparko
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Burkina Faso, West
Africa
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High River
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2.0% GSR (TB-GSR3) |
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Pascua-Lama
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Region III, Chile
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Barrick
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0.16%-1.08% sliding-scale NSR
0.22% fixed rate royalty (copper) |
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Gold Hill
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Nevada, USA
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Kinross Gold
Corporation
(Kinross) (50%),
Barrick (50%)
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1.0%-2.0% sliding-scale NSR |
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Troy
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Montana, USA
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Revett
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6.1% GSR
2.0% GSR |
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Don MarioUpper
Mineralized
Zone(1)
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Chiquitos Province,
Bolivia
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Orvana
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3.0% NSR |
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Marigold(2)
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Nevada, USA
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Goldcorp
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2.0% NSR |
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Benso(3)
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Republic of Ghana,
West Africa
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Golden Star
Resources Ltd.
(Golden Star)
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1.5% NSR |
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(1) |
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Acquired on October 24, 2007, as part of the acquisition of Battle Mountain. Please
refer to Item 7, MD&A, for a further discussion on the acquisition of Battle Mountain. |
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(2) |
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Acquired on February 20, 2008. Please refer to Item 7, MD&A, for a further
discussion on this royalty acquisition. |
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(3) |
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Acquired on December 7, 2007. Please refer to Item 7, MD&A, for a further
discussion on this royalty acquisition. |
4
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, 2007.
Please see Item 2, Properties, of this report for further discussion regarding recent developments
at some of our exploration stage royalty interests.
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Property |
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Location |
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Royalty |
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Owned or Controlled By |
Santa Cruz Province
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Santa Cruz
Province, Argentina
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2.0% NSR
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Hidefield Gold PLC |
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Night Hawk Lake(1)
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Ontario, Canada
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2.5% NSR
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Selkirk Metals Corporation (Selkirk)
(40%), East West Resource Corporation
(East West) (40%), Trillium North
Minerals (20%) |
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Follansbee(2)
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Ontario, Canada
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2.0% NSR
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Goldcorp (51%), Premier Gold (49%) |
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Joe Mann(1)
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Quebec, Canada
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1.8% to 3.6%
sliding-scale NSR; and
2.0% NSR
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Gold Bullion Development Corp.
(Gold
Bullion) |
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Taparko
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Burkina Faso, West
Africa
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0.75% milling fee royalty
(TB-MR1)
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High River |
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Seguenega (Sega)(1)
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Burkina Faso, West
Africa
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3.0% NSR
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Orezone Resources Inc. (Orezone) |
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Marmato Properties(1)
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Marmato District,
Colombia
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5.0% NSR
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Mineros Nacionales S.A. (Mineros) |
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Kettukuusikko
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Lapland, Finland
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2.0% NSR
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Taranis Resources, Inc. (Taranis) |
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Vueltas del Rio(1)
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Western Honduras
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2.0% NSR
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Lundin Mining Corporation (Lundin) |
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Lluvia de Oro(1)
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Sonora, Mexico
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4.0% NSR
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Columbia Metals Corporation Ltd.
(Columbia Metals) |
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Nieves
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Zacatecas, Mexico
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2.0% NSR
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Quaterra Resources Inc. |
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San Jeronimo
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Zacatecas, Mexico
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2.0% NSR
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Goldcorp |
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Long Valley
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California, USA
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1.0% NSR
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Vista Gold Corporation |
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Rock Creek
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Montana, USA
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1.0% NSR
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Revett Minerals |
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Mule Canyon
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Nevada, USA
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5.0% NSR
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Newmont |
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Buckhorn South
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Nevada, USA
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16.5% NPI
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Barrick |
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Ferris/Cooks Creek
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Nevada, USA
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1.5% NVR
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Barrick |
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Horse Mountain
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Nevada, USA
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0.25% NVR
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Barrick |
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Simon Creek
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Nevada, USA
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1.0% NSR
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Barrick |
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Rye
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Nevada, USA
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0.5% NSR
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Barrick |
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BSC
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Nevada, USA
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2.5% NSR
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US Gold |
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ICBM
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Nevada, USA
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0.75% NSR
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BH Minerals USA, Inc. (BH Minerals) |
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Long Peak
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Nevada, USA
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0.75% NSR
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BH Minerals |
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Dixie Flats
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Nevada, USA
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0.75% NSR
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BH Minerals |
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Relief Canyon(1)
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Nevada, USA
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4.0% NSR
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Firstgold Incorporated (Firstgold) |
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Fletcher Junction(1)
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Nevada, USA
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1.25% NSR
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Nevada Exploration Inc. (Nevada
Exploration) |
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Hot Pot(1)
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Nevada, USA
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1.25% NSR
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Nevada Exploration |
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Svetloye
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Khabarovsk Region,
Russia
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1.0% NSR
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Fortress Minerals Corporation |
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La
India(3)
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Nicaragua
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3% NSR
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Central Sun Mining |
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(1) |
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Acquired on October 24, 2007, as part of the acquisition of Battle Mountain. Please
refer to Item 7, MD&A, for a further discussion on the acquisition of Battle Mountain. |
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(2) |
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Acquired on May 2008. |
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(3) |
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Right to convert equity in Revett Minerals into a 1% NSR royalty on the project. |
5
Our Operational Information
Financial Information about Geographic Areas
Royal Golds royalty revenue and long-lived assets (royalty interests in mineral properties, net)
are geographically distributed as shown in the following table. Please refer to Item 2,
Properties, for further discussion on our significant royalty interests on producing mineral
properties.
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Royalty |
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Royalty Interests in |
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Revenue |
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Mineral Properties, net |
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2008 |
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2007 |
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2006 |
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2008 |
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2007 |
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2006 |
United States |
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80 |
% |
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97 |
% |
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98 |
% |
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18 |
% |
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25 |
% |
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69 |
% |
Mexico |
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4 |
% |
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2 |
% |
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1 |
% |
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55 |
% |
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49 |
% |
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9 |
% |
Africa(1) |
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11 |
% |
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12 |
% |
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16 |
% |
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22 |
% |
Chile |
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7 |
% |
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10 |
% |
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Other(2) |
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5 |
% |
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1 |
% |
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1 |
% |
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8 |
% |
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(1) |
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Consists of royalties on properties in Burkina Faso and the Republic of Ghana.
Royalty revenue shown is attributable to revenues from our royalties in Burkina Faso. |
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(2) |
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The Other category for Royalty revenue consists of revenue from Argentina,
Bolivia (2008 only), Canada (2008 only) and Nicaragua (2008 only). The Other category for
Royalty Interests in Mineral Properties, net for 2008 consists of assets in Bolivia, Canada,
Colombia, Honduras and Nicaragua. |
Our financial results are discussed in Part II, Item 7, MD&A, and within our audited consolidated
financial statements are included in Part II, Item 8, Financial Statements and Supplementary Data.
The risks associated with the operations of our foreign royalty interests are discussed in Part 1A,
Risk Factors. In fiscal 2008, we generated royalty revenues of $25.1 million and $16.6 million
from Cortez and Robinson, respectively, representing 36% and 24%, respectively, of our total
royalty revenue. In fiscal 2007, we generated royalty revenues of
$21.5 million and $12.6 million
from Cortez and Robinson, respectively, representing 44% and 26%, respectively, of our total
royalty revenue.
Competition
The mining industry in general and the royalty segment in particular are intensely competitive. We
compete with other royalty companies, mine operators and financial buyers in efforts to acquire
existing royalties and with the lenders and investors providing debt and equity financing to
operators of mineral properties in our efforts to create new royalties. Many of our competitors in
the lending and mining business are larger than we are and have greater access to capital than we
have. Key competitive factors in the royalty acquisition and financing business include price,
structure and access to capital.
Regulation
Like all mining operations in the United States, the operators of the mines that are subject to our
royalties must comply with environmental laws and regulations promulgated by federal, state and
local governments including, but not limited to, the National Environmental Policy Act; the
Comprehensive Environmental Response, Compensation and Liability Act; the Clean Air Act; the Clean
Water Act; the Hazardous Materials Transportation Act; and the Toxic Substances Control Act. Mines
located on public lands are subject to the General Mining Law of 1872 and are subject to
comprehensive regulation by either the United States Bureau of Land Management (an agency of the
United States Department of the Interior) or the United States Forest Service (an agency of the
United States Department of Agriculture). The mines also are subject to regulations of the United
States Environmental Protection Agency (EPA), the United States Mine Safety and Health
Administration and similar state and local agencies. Operators of mines that are subject to our
royalties in other countries are obligated to comply with similar laws and
6
regulations in those jurisdictions. Although we are not responsible as a royalty owner for
ensuring compliance with these regulations, failure by the operators of the mines on which we have
royalties to comply with applicable laws, regulations and permits can result in injunctive action,
damages and civil and criminal penalties on the operators which could reduce production from the
mines and thereby reduce the royalties we receive and negatively affect our financial condition.
Corporate Information
We were incorporated under the laws of the State of Delaware on January 5, 1981. Our executive
offices are located at 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202, (303) 573-1660.
Available Information
Royal Gold maintains an internet website at www.royalgold.com. Royal Gold makes available, free of
charge, through the Investor Relations section of the web site, its Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports,
as soon as reasonably practicable after such material is electronically filed with the Securities
and Exchange Commission (SEC). Our SEC filings are available from the SECs Internet site at
www.sec.gov which contains reports, proxy and information statements and other information
regarding issuers that file electronically. These reports, proxy statements and other information
may also be inspected and copied at the public reference facilities maintained by the SEC at 100 F
Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference facilities. Royal Golds charters of key committees of
its Board of Directors and its Code of Business Conduct and Ethics are also available on the
Companys website. Any of the foregoing information is available in print to any stockholder who
requests it by contacting Royal Golds Investor Relations Department at 303-573-1660.
Company Personnel
We currently have 16 employees, all of whom are located in Denver, Colorado. Our employees are not
subject to a labor contract or a collective bargaining agreement. We consider our employee
relations to be good.
Consulting services, relating primarily to geologic and geophysical interpretations and also
relating to such metallurgical, engineering, and other technical matters as may be deemed useful in
the operation of our business, are primarily provided by independent contractors.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider
the risks described below before making an investment decision. Our business, financial condition,
results of operations and cash flows could be materially adversely affected by any of these risks.
The market or trading price of our securities could decline due to any of these risks. In
addition, please see our note about forward-looking statements included in Part II, Item 7, MD&A,
of this Annual Report on Form 10-K. Please note that additional risks not presently known to us or
that we currently deem immaterial may also impair our business and operations.
7
Risks Related to Our Business
We received a majority of our revenues in fiscal year 2008 from two properties.
In fiscal year 2008, approximately 36% and 24% of our revenues were derived from our royalties at
Cortez and the Robinson mine, respectively, compared to approximately 44% and 26% in fiscal year
2007, respectively. We expect that revenue from our royalties at Cortez and Robinson will continue
to be a significant, though less dominant, contributor to our revenue in future periods.
Furthermore, as Cortez and other mines on which we have royalties mature, like SJ Claims, we can
expect overall declines in production over the years unless operators are able to replace reserves
that are mined by mine expansion or successful new exploration. There can be no assurance that the
operators of Cortez, SJ Claims or the other properties will be able to maintain or increase
production or replace reserves as they are mined.
We own passive interests in mining properties, and it is difficult or impossible for us to
ensure properties are operated in our best interest.
All of our current revenue is derived from royalties on properties operated by third parties. The
holder of a royalty interest typically has no authority regarding development or operation of a
mineral property. Therefore, we are not in control of basic decisions regarding development or
operation of any of the properties in which we hold a royalty interest, and we have limited or no
legal rights to influence those decisions.
Our strategy of having others operate properties in which we retain a royalty or other passive
interest puts us generally at risk to the decisions of others regarding all basic operating
matters, including permitting, feasibility analysis, mine design and operation, processing, plant
and equipment matters and temporary or permanent suspension of operations, among others. These
decisions may be motivated by the best interests of the operator rather than to maximize royalties.
Although we attempt to secure contractual rights that will permit us to protect our interests,
there can be no assurance that such rights will always be available or sufficient, or that our
efforts will be successful in achieving timely or favorable results or in affecting the operations
of the properties in which we have royalty interests in ways that would be beneficial to our
stockholders.
Volatility in gold, copper and other metal prices may have an adverse impact on the value of
our royalty interests and reduce our royalty revenues.
The profitability of our royalty interests and exploration properties is directly related to the
market price of gold and, to a lesser degree, copper and other metal prices. The market price of
each metal fluctuates widely and is affected by numerous factors beyond the control of any mining
company. These factors include metal supply, industrial and jewelry fabrication and investment
demand, expectations with respect to the rate of inflation, the relative strength of the U.S.
dollar and other currencies, interest rates, gold sales and loans by central banks, forward sales
by metal producers, global or regional political, economic or banking crises, and a number of other
factors. If the market price of gold, copper or certain other metals, should drop, our royalty
revenues would also drop. Our sliding-scale royalties at Cortez, Taparko and other properties
amplifies this. When the gold price falls below the steps in the sliding-scale royalty, we receive
a lower royalty rate on production. In addition, if gold, copper and certain other metal prices
drop dramatically, we might not be able to recover our investment in royalty interests or
properties. The selection of a royalty investment or of a property for exploration or development,
the determination to construct a mine and place it into production, and the dedication of funds
necessary to achieve such purposes are decisions that must be made long before the first revenues
from production will be received. Price fluctuations between the time that decisions about
exploration, development and construction are made and the commencement of production can have a
material adverse effect on the economics of a mine, and can eliminate or have a material adverse
impact on the value of royalty interests.
8
The volatility in gold prices is illustrated by the following table, which sets forth, for the
periods indicated (calendar year), the high and low prices in U.S. dollars per ounce of gold, based
on the London P.M. fix.
Gold Price Per Ounce ($)
|
|
|
|
|
|
|
|
|
Year |
|
|
High |
|
|
Low |
1999 |
|
|
326 |
|
|
|
253 |
|
2000 |
|
|
312 |
|
|
|
263 |
|
2001 |
|
|
293 |
|
|
|
256 |
|
2002 |
|
|
349 |
|
|
|
278 |
|
2003 |
|
|
416 |
|
|
|
320 |
|
2004 |
|
|
454 |
|
|
|
375 |
|
2005 |
|
|
537 |
|
|
|
411 |
|
2006 |
|
|
725 |
|
|
|
525 |
|
2007 |
|
|
841 |
|
|
|
608 |
|
2008 (through August 13, 2008) |
|
|
1,011 |
|
|
|
818 |
|
The volatility in silver prices is illustrated by the following table which sets forth, for the
periods indicated (calendar year), the high and low prices in U.S. dollars per ounce of silver,
based on the London P.M. fix.
Silver Price Per Ounce ($)
|
|
|
|
|
|
|
|
|
Year |
|
High |
|
Low |
1999 |
|
|
5.75 |
|
|
|
4.88 |
|
2000 |
|
|
5.45 |
|
|
|
4.57 |
|
2001 |
|
|
4.82 |
|
|
|
4.07 |
|
2002 |
|
|
5.10 |
|
|
|
4.24 |
|
2003 |
|
|
5.97 |
|
|
|
4.37 |
|
2004 |
|
|
8.29 |
|
|
|
5.50 |
|
2005 |
|
|
9.23 |
|
|
|
6.39 |
|
2006 |
|
|
14.94 |
|
|
|
8.83 |
|
2007 |
|
|
15.82 |
|
|
|
11.67 |
|
2008 (through August 13, 2008) |
|
|
20.92 |
|
|
|
14.45 |
|
The volatility in copper prices is illustrated by the following table, which sets forth, for the
periods indicated (calendar year), the high and low prices in U.S. dollars per pound of copper,
based on the London Metal Exchange cash settlement price for copper Grade A.
Copper Price Per Pound ($)
|
|
|
|
|
|
|
|
|
Year |
|
High |
|
Low |
1999 |
|
|
0.80 |
|
|
|
0.63 |
|
2000 |
|
|
0.89 |
|
|
|
0.76 |
|
2001 |
|
|
0.81 |
|
|
|
0.62 |
|
2002 |
|
|
0.75 |
|
|
|
0.67 |
|
2003 |
|
|
1.00 |
|
|
|
0.72 |
|
2004 |
|
|
1.43 |
|
|
|
1.10 |
|
2005 |
|
|
2.08 |
|
|
|
1.44 |
|
2006 |
|
|
3.65 |
|
|
|
2.15 |
|
2007 |
|
|
3.77 |
|
|
|
2.37 |
|
2008 (through August 13, 2008) |
|
|
4.08 |
|
|
|
3.02 |
|
9
We depend on the services of our President and Chief Executive Officer, our Executive Chairman
and other key employees.
We believe that our success depends on the continued service of our key executive management
personnel. Currently, Tony Jensen is serving as President and Chief Executive Officer and Stanley
Dempsey is serving as our Executive Chairman. Mr. Jensens extensive commercial experience, mine
operations background and industry contacts gives us an important competitive advantage. Mr.
Dempseys knowledge of the royalty business and long term standing relationship with the mining
industry are important to the Companys success. Loss of the services of Mr. Jensen, Mr. Dempsey
or other key employees could jeopardize our ability to maintain our competitive position in the
industry. We currently do not have key person life insurance for any of our officers or directors.
Our revenues are subject to operational risks of the mining industry.
Although we are not required to pay capital costs or most operating costs, our financial results
are subject to hazards and risks normally associated with developing and operating mining
properties, both for the properties where we have exploration alliances or indirectly for
properties operated by others where we hold royalty interests. These risks include:
|
|
|
insufficient ore reserves; |
|
|
|
|
fluctuations in production costs by the operators or third parties that may make mining
of ore uneconomical or impact the amount of reserves; |
|
|
|
|
declines in the price of gold and other metal prices; |
|
|
|
|
significant environmental and other regulatory restrictions; |
|
|
|
|
labor disputes; |
|
|
|
|
geological problems; |
|
|
|
|
pit walls or tailings dam failures; |
|
|
|
|
natural catastrophes such as floods or earthquakes; and |
|
|
|
|
the risk of injury to persons, property or the environment. |
Operating cost increases can have a negative effect on the value of and income from our royalty
interests, by potentially causing an operator to curtail, delay or close operations at a mine site.
Estimates of reserves and mineralization by the operators of mines in which we have royalty
interests are subject to significant revision.
There are numerous uncertainties inherent in estimating proven and probable reserves and
mineralization, including many factors beyond our control or the control of the operators of
mineral properties in which we have a royalty interest. Reserve estimates on our royalty interests
are prepared by the operators of the mining properties. We do not participate in the preparation or
verification of such reports and have not independently assessed or verified the accuracy of such
information. The estimation of reserves and of other mineralization is a subjective process and the
accuracy of any such estimates is a function of the quality of available data and of engineering
and geological interpretation and judgment. Results of drilling, metallurgical testing and
production, and the evaluation of mine plans subsequent to the date of any estimate, may cause
revision of such estimates. The volume and grade of reserves recovered and rates of production may
be less than anticipated. Assumptions about gold and other precious metal prices are subject to
great uncertainty and such prices have fluctuated widely in the past. Declines in the market price
of gold or other precious metals also may render reserves or mineralization containing relatively
lower grades of ore uneconomical to exploit. Changes in operating and capital costs and other
factors
10
including short-term operating factors, such as the need for sequential development of ore bodies
and the processing of new or different ore grades, may materially and adversely affect reserves.
Estimates of production by the operators of mines in which we have royalty interests are
subject to change and actual production may vary materially from such estimates.
Production estimates are prepared by the operators of the mining properties. There are numerous
uncertainties inherent in estimating anticipated production attributable to our royalty interests,
including many factors beyond our control or the control of the operators of mineral properties in
which we have royalty interests. We do not participate in the preparation or verification of
production estimates and have not independently assessed or verified the accuracy of such
information. The estimation of anticipated production is a subjective process and the accuracy of
any such estimates is a function of the quality of available data, reliability of production
history, variability in grade encountered, mechanical or other
problems encountered, engineering
and geological interpretation and operator judgment. Rates of production may be less than
anticipated. Results of drilling, metallurgical testing and production, and the evaluation of mine
plans subsequent to the date of any estimate may cause actual production to vary materially from
such estimates.
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 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 be unable to successfully acquire additional royalty interests.
Our future success depends upon our ability to acquire royalty interests at appropriate valuations,
including through corporate acquisitions, to replace depleting reserves and to diversify our
royalty portfolio. We anticipate that most of our revenues will be derived from royalty interests
that we acquire or finance, rather than through exploration and development of properties. There
can be no assurance that we will be able to identify and complete the acquisition of such royalty
interests, or businesses that own desired royalty interests, at reasonable prices or on favorable
terms. In addition, we face competition in the acquisition of royalty interests. If we are unable
to successfully acquire additional royalties, the reserves on properties currently covered by our
royalties will decline as existing reserves are mined. Furthermore, we may experience negative
reactions from the financial markets, our collaborative partners and employees if we are unable to
successfully complete acquisitions of royalty interests or businesses that own desired royalty
interests. Each of these factors may adversely affect the trading price of our common stock or
financial results and operations.
Acquired royalty interests may not produce anticipated royalty revenues.
The royalty interests we acquire may not produce the anticipated royalty revenues. The success of
our royalty acquisitions is based on our ability to make accurate assumptions regarding the
valuation and timing and amount of royalty payments, particularly acquisitions of royalties on
development stage properties. If the operator does not bring the property into production and
operate in accordance with
11
feasibility studies or other plans, acquired royalty interests may not yield royalty revenues or
sufficient royalty revenues to be profitable. The Taparko project,
which recently began production in Burkina Faso, and the
Peñasquito project also in initial production in Mexico, represent our
largest development stage royalty acquisitions to date. The principal royalty assets of Battle
Mountain, which we acquired on October 24, 2007, include royalties on gold and silver production
from the Dolores project in Mexico, which is under development. In addition, our Pascua-Lama
royalty acquisition in Chile is in a pre-production stage. The failure of these projects to produce
anticipated royalty revenues may materially and adversely affect our financial condition, results
of operations and cash flows.
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 other
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. In the event we experience these difficulties in connection with one or more
acquisitions, our business or financial results may be adversely affected.
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 (the General Mining Law), which governs the creation and
possession of mining claims and related activities on federal public
lands in the United States. Several proposals, such as Bill H.R. 2262, introduced in the Congress in May 2007, 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, legislation such as H.R. 2262 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, such 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. In addition, a number of the properties on which
we have royalties are located on U.S. federal lands that are subject to federal mining and other
public land laws. Changes in such laws or regulations promulgated under such laws could affect
mine development and expansion and significantly increase regulatory obligations and compliance
costs with respect to mine development and mine operations, which could adversely affect our
royalty revenue from such properties. 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 Cortez, which is
largely located on U.S. federal lands, 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.
The mining industry is subject to significant environmental risks.
Mining is subject to potential risks and liabilities associated with pollution of the environment
and the disposal of waste products occurring as a result of mineral exploration and production.
Laws and regulations in the United States and abroad intended to ensure the protection of the
environment are constantly changing and generally are becoming more restrictive and costly.
Insurance against environmental risks (including potential liability for pollution or other hazards
as a result of the disposal
12
of waste products occurring from exploration and production) is not generally available to the
companies within the mining industry, such as the operators of the mines in which we hold a royalty
interest, at a reasonable price. If an operator is forced to incur significant costs to comply with
environmental regulations or becomes subject to environmental restrictions that limit its ability
to continue or expand operations, it could reduce our royalty revenues. To the extent that we
become subject to environmental liabilities for the time period during which we were operating
properties, the satisfaction of any liabilities would reduce funds otherwise available to us and
could have a material adverse effect on our financial condition, results of operations and cash
flows.
If title to properties are not properly maintained by the operators, our royalty revenues may
be decreased.
The validity of unpatented mining claims, which constitute a significant portion of the properties
on which we hold royalties in the United States, is often uncertain and such validity is always
subject to contest. Unpatented mining claims are generally considered subject to greater title risk
than patented mining claims, or real property interests that are owned in fee simple. Because
unpatented mining claims are self-initiated and self-maintained, they possess some unique
vulnerabilities not associated with other types of property interests. It is impossible to
ascertain the validity of unpatented mining claims from public real property records, and therefore
it can be difficult or impossible to confirm that all of the requisite steps have been followed for
location and maintenance of an unpatented mining claim. If title to unpatented mining claims
included among our royalty properties has not been properly established or is not properly
maintained, our royalty revenues could be adversely affected.
Foreign operations are subject to many risks.
We derived approximately 20% of our revenues from foreign sources in fiscal year 2008. 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, Colombia, Finland, Ghana, Honduras, 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 Peñasquito and Dolores projects, as well as the Mulatos and El Chanate mines.
13
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 in the Battle Mountain transaction on October 24, 2007, is
subject to risks relating to operating in Bolivia. Bolivia has experienced political and social
instability, corruption, regulation and tax law changes, an abundance of administrative procedures
and the potential for nationalization of foreign business interests that could materially adversely
affect the Don Mario mine.
Risks Related to Our Common Stock
Our stock price may continue to be volatile and could decline.
The market price of our common stock has fluctuated and may decline in the future. The high and low
sale prices of our common stock were $41.66 and $18.74 in the fiscal year ended June 30, 2006,
$37.50 and $23.25 for the fiscal year ended June 30, 2007 and $35.42 and $23.85 for the fiscal year
ended June 30, 2008. The fluctuation of the market price of our common stock has been affected by
many factors that are beyond our control, including:
|
|
|
market prices of gold and other metals; |
|
|
|
|
interest rates; |
|
|
|
|
expectations regarding inflation; |
|
|
|
|
ability of operators to produce precious metals and develop new reserves; |
|
|
|
|
currency values; |
|
|
|
|
general stock market conditions; and |
|
|
|
|
global and regional political and economic conditions. |
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 could be diluted and our earnings per share could be reduced.
If a large number of shares of our common stock is 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, which
14
closed on October 24, 2007 and 3.98 million shares in connection with the conversion of all of our issued
and outstanding Preferred Stock on March 10, 2008. 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 change our dividend policy.
We have paid a cash dividend on our common stock for each fiscal year beginning in fiscal year
2000. Our board of directors has discretion in determining whether to declare a dividend based on a
number of factors, including prevailing gold prices, economic market conditions, and funding
requirements for future opportunities or operations. If our board of directors declines to declare
dividends in the future, or reduces the current dividend level, our stock price could fall, and the
success of an investment in our common stock would depend solely upon any future stock price
appreciation in value. We have increased our dividends in prior years. There can be no assurance
that we will continue to do so. For example, if we were to materially increase our borrowings to
conduct a material acquisition, our board of directors could elect to modify our dividend policy
and potentially reduce or eliminate dividends on common stock.
Certain anti-takeover provisions could delay or prevent a third party from acquiring us.
Provisions in our restated certificate of incorporation may make it more difficult for third
parties to acquire control of us or to remove our management. Some of these provisions:
|
|
|
permit our board of directors to issue preferred stock that has rights senior to the
common stock without stockholder approval; and |
|
|
|
|
provide for three classes of directors serving staggered, three-year terms. |
We are also subject to the business combination provisions of Delaware law that could delay, deter,
or prevent a change in control. In addition, we have adopted a stockholders rights plan that
imposes significant penalties upon a person or group that acquires 15% or more of our outstanding
common stock without the approval of the board of directors. Any of these measures could prevent a
third party from pursuing an acquisition of Royal Gold, even if stockholders believe the
acquisition is in their best interests.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We do not operate the properties in which we have royalty interests and therefore much of the
information disclosed in this Form 10-K regarding these properties is provided to us by the
operators. For example, the operators of the various properties provide us information regarding
metals production, estimates of mineral reserves and additional mineralized material. Reserves are
summarized below in this report in Item 2, PropertiesReserve Information. Our rights to
information from the operators under our royalty agreements vary by royalty and by operator and we
may not be entitled to information regarding certain properties. Furthermore, we may receive
information regarding certain properties from
15
time to time which we contractually may not be permitted to disclose. We have not independently
verified any information provided by the operators.
There is more information available to the public from the operators of the properties in which we
have royalties, including reports filed by Barrick, Newmont, Coeur dAlene, Capital Gold and
Goldcorp with the SEC. For risks to our business associated with operations of mining properties
by third parties see generally the risks described under Part I, Item 1A, Risk Factors. For
risks associated with the operators reserve estimates, please see Part I, Item 1A, Risk Factors
Estimates of reserves and mineralization by the operators of mines in which we have royalty
interests are subject to significant revision of this Annual Report on Form 10-K for further
detail.
Royalties on Producing Properties
Recent activities and further information for each of the principal producing properties in which
we have a royalty interest are described in the following pages. Reserves for our producing
properties are summarized in this report in Item 2, PropertiesReserve Information.
Cortez Pipeline Mining Complex (Nevada, USA)
Cortez is a large open-pit, mill and heap leach operation located approximately 60 air miles
southwest of Elko, Nevada, in Lander County. The site is reached by driving west from Elko on
Interstate 80 approximately 46 miles, and proceeding south on State Highway 306 approximately 23
miles. Cortez includes the Pipeline, South Pipeline, Gap and Crossroads deposits and is operated
by subsidiaries of Barrick.
The royalty interests we hold at the Cortez include:
|
(a) |
|
Reserve Claims (GSR1). This is a sliding-scale GSR royalty for all gold
produced from an area originally known as the Reserve Claims, which includes the majority
of the Pipeline and South Pipeline deposits. As defined in our royalty agreement with
Cortez, our GSR royalty applies to revenues attributed to products mined and removed, with
no deduction for any costs paid by or charged to Cortez, except for deductions of Mining
Law reform costs. Mining Law reform costs includes all amounts paid by or charged to
Cortez for any royalty, assessment, production tax or other levy imposed on and measured by
production, to the extent that any such levy is hereafter imposed by the United States, in
connection with reform of the General Mining Law or otherwise. As defined, no such Mining
Law reform costs are currently deducted since no such reform has yet occurred. The
revenues attributed to Cortez are determined on a deemed market value basis of total
production for each calendar quarter outturned to Cortezs account at the refiner. The GSR
royalty rate on the Reserve Claims is tied to the gold price, without indexing for
inflation or deflation as shown in the table below. |
|
|
(b) |
|
GAS Claims (GSR2). This is a sliding-scale GSR royalty for all gold produced
from an area outside of the Reserve Claims, originally known as the GAS Claims, which
encompasses approximately 50% of the GAP deposit and all of the Crossroads deposit. The
GSR royalty rate on the GAS Claims, as shown in the table below, is tied to the gold price,
without indexing for inflation or deflation, and applies to revenues attributed to products
mined and removed, with no deduction of costs, except for Mining Law reform costs, if any. |
|
|
(c) |
|
Reserve and GAS Claims Fixed Royalty (GSR3). The GSR3 royalty is a fixed
rate GSR royalty of 0.7125% for the life of the mine and covers the same cumulative area as
is covered by our two sliding-scale GSR royalties, GSR1 and GSR2. |
|
|
(d) |
|
Net Value Royalty (NVR1). This is a fixed 1.25% NVR on production from the
GAS Claims located on a portion of Cortez that excludes the Pipeline
open pit. 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. This NVR1 royalty is calculated by deducting contract
defined processing- |
16
|
|
|
related and associated capital costs, but not mining costs, from the revenue received by the
operator for production from the area covered by the royalty. |
We also own two other royalties at Cortez where there is currently no production attributed to the
royalty interests and there is insignificant reserves attributed to the royalty interests.
The following shows the current sliding-scale GSR1 and GSR2 royalty rates under our royalty
agreement with Cortez:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
London PM Quarterly Average |
|
GSR1 |
|
GSR2 |
Price of Gold Per Ounce ($U.S.) |
|
Royalty Percentage |
|
Royalty Percentage |
Below |
|
|
|
|
|
$ |
210.00 |
|
|
|
0.40 |
% |
|
|
0.72 |
% |
$210.00 |
|
|
|
|
|
$ |
229.99 |
|
|
|
0.50 |
% |
|
|
0.90 |
% |
$230.00 |
|
|
|
|
|
$ |
249.99 |
|
|
|
0.75 |
% |
|
|
1.35 |
% |
$250.00 |
|
|
|
|
|
$ |
269.99 |
|
|
|
1.30 |
% |
|
|
2.34 |
% |
$270.00 |
|
|
|
|
|
$ |
309.99 |
|
|
|
2.25 |
% |
|
|
4.05 |
% |
$310.00 |
|
|
|
|
|
$ |
329.99 |
|
|
|
2.60 |
% |
|
|
4.68 |
% |
$330.00 |
|
|
|
|
|
$ |
349.99 |
|
|
|
3.00 |
% |
|
|
5.40 |
% |
$350.00 |
|
|
|
|
|
$ |
369.99 |
|
|
|
3.40 |
% |
|
|
6.12 |
% |
$370.00 |
|
|
|
|
|
$ |
389.99 |
|
|
|
3.75 |
% |
|
|
6.75 |
% |
$390.00 |
|
|
|
|
|
$ |
409.99 |
|
|
|
4.00 |
% |
|
|
7.20 |
% |
$410.00 |
|
|
|
|
|
$ |
429.99 |
|
|
|
4.25 |
% |
|
|
7.65 |
% |
$430.00 |
|
|
|
|
|
$ |
449.99 |
|
|
|
4.50 |
% |
|
|
8.10 |
% |
$450.00 |
|
|
|
|
|
$ |
469.99 |
|
|
|
4.75 |
% |
|
|
8.55 |
% |
$470.00 |
|
|
|
|
|
and above |
|
|
|
5.00 |
% |
|
|
9.00 |
% |
Upon the consummation of the royalty acquisition transaction between Royal Gold and Barrick, GSR2
will be reduced to match the royalty rate of GSR1 while the portion of the GSR3 and NVR1 royalties
on the mining claims that comprise the undeveloped Crossroads deposit at Cortez will be eliminated.
Please refer to Item 7, MD&A, of this report for a further discussion of the definitive agreement
between Barrick and us.
Under certain circumstances we would be entitled to delayed production payments (i.e.,
payments not recoupable by Cortez) of $400,000 per year.
Barrick estimated that at a $575 gold price, proven and probable reserves related to our royalty
interests at Cortez includes 44.09 million tons of ore, at an average grade of 0.044 ounces per
ton, containing approximately 1.923 million ounces of gold as of December 31, 2007. In addition,
Barrick has reported additional mineralized material at Cortez totaling 65.78 million tons of ore,
at an average grade of 0.028 ounces of gold per ton.
17
The following illustration depicts the area subject to our royalty interests at Cortez:
Robinson Mine (Nevada, USA)
We own a
3.0% NSR royalty on all mineral production from the Robinson open pit mine operated by a
subsidiary of Quadra. The Robinson mine produces two flotation concentrates for sale to third
party smelters. One concentrate contains copper, gold and silver. The second is a molybdenum
concentrate. Access to the property is via Nevada state highway 50, 6.5 miles west of Ely, Nevada,
in White Pine County.
As of December 31, 2007, Quadra informed us that the copper and gold reserves were 114.41 million
tons, at an average grade of 0.007 ounces per ton of gold, containing 0.772 million ounces of gold
and a copper grade of 0.68% equating to 1,563 million pounds of copper. The reserves were
calculated at $1.75-$2.50 per pound of copper. Quadra does not use a gold price figure to define
reserves as gold is produced as a by-product of copper. Silver and molybdenum reserves were not
reported but are produced and sold as a by-product.
18
All of the ground within the property boundary, as labeled in the following map, is subject to
our royalty interest at the Robinson mine:
Taparko (Burkina Faso, West Africa)
In connection with a financing transaction to Somita during our third quarter of our fiscal year
2006, we own a 15.0% GSR royalty (TB-GSR1) and a sliding-scale GSR royalty (TB-GSR2), ranging from
0% to 10.0% depending on the price of gold, on all gold produced from
the Taparko open pit gold
mine. The Taparko mine is located in Burkina Faso, West Africa, and is operated by Somita, a
subsidiary of High River. The Taparko mine is accessible by both paved and gravel roads and is
approximately 125 miles northeast of Ouagadougou, the capital of Burkina Faso. Please refer to
Note 3 to the consolidated financial statements for further information regarding the financing
transaction.
TB-GSR1 will remain in effect 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.
TB-GSR2 will remain in effect until the termination of TB-GSR1. Production at the Taparko mine
commenced during our first fiscal quarter of 2008. As of June 30, 2008, we have recognized royalty
revenue associated with the TB-GSR1 royalty totaling $4.7 million, which is attributable to
cumulative production of 36,078 ounces of gold.
We also own a perpetual 2.0% GSR royalty (TB-GSR3) on all gold produced from the Taparko mine. 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. 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.
19
In addition, we own 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, subject to
a maximum of 1.1 million tons per year. There currently are no proven and probable reserves
associated with TB-MR1 and this royalty is classified as an exploration stage royalty interest.
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 $0.4 million of our funding
commitment on September 27, 2007, and recorded our royalty interests.
The Taparko mine commenced gold production in August 2007 and contributed approximately $7.4
million in royalty revenue (from TB-GSR1 and TB-GSR2) for our fiscal year 2008. Reserve
characteristics, mining activity, and gold recovery performance has been near feasibility study
estimates. However, mill performance has suffered throughout our fiscal year 2008 due to problems
associated with the grinding mill drive-train. This has resulted in low mill availability and
throughput. Several problems with the original installation were identified and corrected but
mechanical problems have persisted. Production was ceased on June 11, 2008, and the entire
drive-train was re-evaluated and is now in the process of reassembly with the assistance of third
party mill equipment specialists. Continuous and sustained production is dependent upon resolving
the mill drive-train problems.
As of December 31, 2007, High River estimated that at a $800 gold price proven and probable
reserves include 3.70 million tons of ore, at an average grade of 0.082 ounces per ton, containing
0.303 million ounces of gold, which reflects the $35 million cap on the TB-GSR1 royalty based on
High Rivers $800 gold price.
The following map depicts the area subject to our royalty interests at the Taparko mine:
20
Leeville Mining Complex (Nevada, USA)
We own a carried working interest, equal to a 1.8% NSR royalty, which covers the majority of the
Leeville Mining Complex (collectively Leeville South and Leeville North), in Eureka County, Nevada.
The Leeville Mining Complex is approximately 19 air miles northwest of Carlin, Nevada. The
property is accessed by driving north from Carlin on State Highway 766 for 19 miles and then on an
improved gravel road for two miles. Leeville North is a newly developed underground mine.
Currently, we derive royalty revenue from underground operations on a portion of the Leeville North
mine, which are operated by a subsidiary of Newmont. Production from the Leeville South mine
ceased in late calendar 2007.
At the Leeville North mine, proven and probable reserves include 5.06 million tons of ore, at an
average grade of 0.427 ounces per ton, containing 2.161 million ounces of gold as of December 31,
2007. In addition, Newmont has reported additional mineralized material totaling 0.64 million tons
of ore, at an average grade of 0.446 ounces of gold per ton, at Leeville North as of December 31,
2007.
The following map depicts the area subject to our royalty interest at the Leeville Project:
Goldstrike - SJ Claims (Nevada, USA)
We own a 0.9% NSR royalty on the SJ Claims that covers a portion of the Betze-Post mine, in Eureka
County, Nevada. Betze-Post is an open pit mine operated by a subsidiary of Barrick, at its
Goldstrike property. The SJ Claims and the Betze-Post open-pit lie approximately 24 air miles
northwest of Carlin, Nevada. The property is accessed by driving north from Carlin on State
Highway 766 for 19 miles and then on an improved gravel road for five miles.
Barrick estimated that at a $575 gold price, proven and probable reserves related to our royalty
interest at the SJ Claims include 52.49 million tons of ore, at an average grade of 0.133 ounces
per ton, containing approximately 6.960 million ounces of gold as of December 31, 2007. In
addition, Barrick reported mineralized material of 6.82 million
tons, at a grade of 0.052 ounces per
ton, as of December 1, 2007.
21
The following map depicts the area subject to our royalty interest at the SJ Claims:
Royalties on Development Stage Properties
The following is a description of our principal royalty interests on development stage properties.
There are proven and probable reserves associated with these properties as indicated below. These
development stage royalty interests are not currently in production. Reserves for our development
stage properties are summarized below in this report in Item 2, Properties Reserve Information.
Peñasquito Project (Zacatecas, Mexico)
We own a production payment equivalent to a 2.0% NSR royalty on all metal production from the
Peñasquito project, located in the State of Zacatecas, Mexico, and operated by Goldcorp. The
Peñasquito project is located approximately 17 miles west of the town of Concepción del Oro,
Zacatecas, Mexico. The project, composed of two main deposits called Peñasco and Chile Colorado,
hosts large silver, gold, zinc and lead reserves. The deposits consist of oxide and sulfide
portions.
Goldcorp recently reported that construction is progressing at Peñasquito and that several
construction milestones were completed during the second calendar quarter of 2008. In May 2008,
Peñasquito poured the first gold from the oxide circuit. Accordingly, during our fourth quarter of
fiscal 2008, we reclassified our cost basis in the oxide circuit from development stage to
production stage. Goldcorp expects production at Peñasquito from the first sulfide circuit by late
calendar 2009 and expects the second sulfide circuit to be operational near the end of calendar
2010. The Company anticipates that the sulfide circuits will contribute significant royalty
revenue to the Company once the circuits reach commercial production.
Dolores (Chihuahua, Mexico)
We own a 1.25% NSR royalty on gold and a 2.0% royalty on both gold and silver from the Dolores
project located in Chihuahua, Mexico, and owned and operated by Minefinders. The Dolores project
is located approximately 155 miles west of the city of Chihuahua, Mexico.
22
Minefinders announced in July 2008 that initial production from the Dolores mine has been delayed
until the later portion of third calendar quarter of 2008 due to a blockade that was established in
May 2008 by a group of protestors. Minefinders also announced that the revised timing (from
mid-July 2008) for the initial production will affect previously released calendar 2008 production
estimates, but did not provide updated guidance. The 2.0% NSR royalty becomes effective when the
facility has been producing at 75% of its design capacity for three consecutive months. This
royalty was acquired as part of the Battle Mountain acquisition on October 24, 2007. Please refer
to Item 7, MD&A, of this report for further information.
Pascua-Lama Project (Region III, Chile)
We own a 0.16% to 1.08% sliding-scale NSR royalty on the Pascua-Lama project located on the border
of Argentina and Chile, and operated by a subsidiary of Barrick. The Pascua-Lama project is
located within 6.25 miles of Barricks Valedaro project. The sliding-scale NSR royalty is based
upon gold price as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
London PM Monthly Average |
|
NSR |
Price of Gold Per Ounce ($U.S.) |
|
Royalty Percentage |
Below |
|
|
|
|
|
$ |
325.00 |
|
|
|
0.16 |
% |
$325.01 |
|
|
|
|
|
$ |
350.00 |
|
|
|
0.22 |
% |
$350.01 |
|
|
|
|
|
$ |
375.00 |
|
|
|
0.27 |
% |
$375.01 |
|
|
|
|
|
$ |
400.00 |
|
|
|
0.32 |
% |
$400.01 |
|
|
|
|
|
$ |
500.00 |
|
|
|
0.56 |
% |
$500.01 |
|
|
|
|
|
$ |
600.00 |
|
|
|
0.73 |
% |
$600.01 |
|
|
|
|
|
$ |
800.00 |
|
|
|
0.91 |
% |
$800.01 |
|
|
|
|
|
and above |
|
|
|
1.08 |
% |
When the average quarterly gold price is between any two price ranges above, the royalty rate is
proportional to the change in gold price.
Our royalty interest is applicable to all the gold production from Chile. The Company owns an
additional royalty equivalent to 0.216% of proceeds from copper produced in Chile, net of allowable
deductions, sold on or after January 1, 2017.
23
Reserve Information
Table 1 below summarizes proven and probable reserves for gold, silver, copper, zinc and lead that
have been reported to us by the operators of our royalty interests as of December 31, 2007. Please
refer to pages 27-28 for the footnotes to Table 1.
TABLE 1
Summary of Proven and Probable Gold Reserves(1,2)
Production Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
Tons of |
|
Average Gold |
|
Contained |
|
|
|
|
|
|
Ore |
|
Grade |
|
Ounces |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(ounces per ton) |
|
(millions) (4) |
Cortez GSR1(5) |
|
Barrick |
|
Proven |
|
|
4.47 |
|
|
|
0.092 |
|
|
|
0.410 |
|
|
|
|
|
Probable |
|
|
27.70 |
|
|
|
0.045 |
|
|
|
1.239 |
|
Cortez GSR2(5) |
|
Barrick |
|
Proven |
|
|
1.30 |
|
|
|
0.029 |
|
|
|
0.037 |
|
|
|
|
|
Probable |
|
|
10.62 |
|
|
|
0.022 |
|
|
|
0.236 |
|
Cortez GSR3(5) |
|
Barrick |
|
Proven |
|
|
5.77 |
|
|
|
0.078 |
|
|
|
0.448 |
|
|
|
|
|
Probable |
|
|
38.32 |
|
|
|
0.038 |
|
|
|
1.475 |
|
Cortez NVR1(5) |
|
Barrick |
|
Proven |
|
|
3.71 |
|
|
|
0.054 |
|
|
|
0.201 |
|
|
|
|
|
Probable |
|
|
33.53 |
|
|
|
0.035 |
|
|
|
1.186 |
|
Robinson |
|
Quadra |
|
Proven |
|
|
96.89 |
|
|
|
0.007 |
|
|
|
0.669 |
|
|
|
|
|
Probable |
|
|
17.51 |
|
|
|
0.006 |
|
|
|
0.103 |
|
Taparko TB-GSR1(6) |
|
High River |
|
Reserve |
|
|
3.70 |
|
|
|
0.082 |
|
|
|
0.303 |
(7,8) |
Taparko TB-GSR2(6) |
|
High River |
|
Reserve |
|
|
3.70 |
|
|
|
0.082 |
|
|
|
0.303 |
(7,8) |
Leeville Mining
Complex(9) |
|
Newmont |
|
Reserve |
|
|
5.06 |
|
|
|
0.427 |
|
|
|
2.161 |
|
GoldstrikeSJ
Claims(9) |
|
Barrick |
|
Reserve |
|
|
52.49 |
|
|
|
0.133 |
|
|
|
6.960 |
|
Mulatos(10) |
|
Alamos |
|
Proven |
|
|
6.76 |
|
|
|
0.061 |
|
|
|
0.411 |
|
|
|
|
|
Probable |
|
|
28.66 |
|
|
|
0.045 |
|
|
|
1.278 |
|
Bald Mountain(9) |
|
Barrick |
|
Reserve |
|
|
31.46 |
|
|
|
0.028 |
|
|
|
0.889 |
|
El Chanate(11) |
|
Capital Gold |
|
Proven |
|
|
29.42 |
|
|
|
0.020 |
|
|
|
0.581 |
|
|
|
|
|
Probable |
|
|
14.07 |
|
|
|
0.018 |
|
|
|
0.251 |
|
Don Mario(12)
(LMZ) |
|
Orvana |
|
Reserve |
|
|
0.56 |
|
|
|
0.337 |
|
|
|
0.189 |
(13) |
Williams |
|
Williams |
|
Proven |
|
|
7.24 |
|
|
|
0.073 |
|
|
|
0.528 |
|
|
|
|
|
Probable |
|
|
2.69 |
|
|
|
0.119 |
|
|
|
0.319 |
|
Peñasquito (oxide)
(14) |
|
Goldcorp |
|
Proven |
|
|
46.41 |
|
|
|
0.006 |
|
|
|
0.283 |
|
|
|
|
|
Probable |
|
|
121.69 |
|
|
|
0.005 |
|
|
|
0.367 |
|
El Limon |
|
Central Sun |
|
Proven |
|
|
0.17 |
|
|
|
0.176 |
|
|
|
0.030 |
|
|
|
|
|
Probable |
|
|
1.35 |
|
|
|
0.138 |
|
|
|
0.187 |
|
24
TABLE 1 (Continued)
Summary of Proven and Probable Gold Reserves(1,2)
Development Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
|
|
|
|
Average Gold |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Ounces |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(ounces per ton) |
|
(millions)(4) |
Peñasquito
(sulfide)(14) |
|
Goldcorp |
|
Proven |
|
|
470.57 |
|
|
|
0.017 |
|
|
|
7.855 |
|
|
|
|
|
Probable |
|
|
419.09 |
|
|
|
0.011 |
|
|
|
4.546 |
|
Dolores |
|
Minefinders |
|
Proven |
|
|
62.42 |
|
|
|
0.023 |
|
|
|
1.454 |
|
|
|
|
|
Probable |
|
|
47.04 |
|
|
|
0.021 |
|
|
|
0.990 |
|
Pascua-Lama(15) |
|
Barrick |
|
Proven |
|
|
35.71 |
|
|
|
0.053 |
|
|
|
1.900 |
|
|
|
|
|
Probable |
|
|
288.80 |
|
|
|
0.044 |
|
|
|
12.700 |
|
Taparko
TB-GSR3(6,8) |
|
High River |
|
Reserve |
|
|
6.06 |
|
|
|
0.082 |
|
|
|
0.497 |
|
Gold Hill(9) |
|
Kinross |
|
Reserve |
|
|
|
|
|
|
|
|
|
|
0.750 |
(16) |
Marigold(9) |
|
Goldcorp |
|
Reserve |
|
|
44.59 |
|
|
|
0.019 |
|
|
|
0.867 |
|
Don Mario(12)
(UMZ) |
|
Orvana |
|
Proven |
|
|
1.18 |
|
|
|
0.041 |
|
|
|
0.049 |
|
|
|
|
|
Probable |
|
|
4.82 |
|
|
|
0.041 |
|
|
|
0.200 |
|
Benso |
|
Golden Star |
|
Probable |
|
|
2.54 |
|
|
|
0.099 |
|
|
|
0.252 |
|
Summary of Proven and Probable Silver Reserves(1,17)
Production Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver |
|
|
|
|
|
|
|
|
|
|
Average Silver |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Ounces |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(ounces per ton) |
|
(millions)(3) |
Peñasquito (oxide) (14) |
|
Goldcorp |
|
Proven |
|
|
46.41 |
|
|
|
0.61 |
|
|
|
28.244 |
|
|
|
|
|
Probable |
|
|
75.29 |
|
|
|
0.48 |
|
|
|
36.061 |
|
Martha |
|
Coeur dAlene |
|
Proven |
|
|
0.06 |
|
|
|
52.95 |
|
|
|
2.924 |
|
|
|
|
|
Probable |
|
|
0.10 |
|
|
|
54.55 |
|
|
|
5.369 |
|
Troy(6) 7.0% GSR |
|
Revett |
|
Reserve |
|
|
2.01 |
|
|
|
1.18 |
|
|
|
2.379 |
(18) |
6.1% GSR |
|
|
|
Reserve |
|
|
1.73 |
|
|
|
1.18 |
|
|
|
2.046 |
|
2.0% GSR |
|
|
|
Reserve |
|
|
2.61 |
|
|
|
1.18 |
|
|
|
3.085 |
|
25
TABLE 1 (Continued)
Summary of Proven and Probable Silver Reserves(1,17)
Development Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver |
|
|
|
|
|
|
|
|
|
|
Average Silver |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Ounces |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(ounces per ton) |
|
(millions)(3) |
Peñasquito
(sulfide)(14) |
|
Goldcorp |
|
Proven |
|
|
470.57 |
|
|
|
0.99 |
|
|
|
466.993 |
|
|
|
|
|
Probable |
|
|
419.09 |
|
|
|
0.79 |
|
|
|
332.561 |
|
Dolores |
|
Minefinders |
|
Proven |
|
|
62.42 |
|
|
|
1.18 |
|
|
|
73.415 |
|
|
|
|
|
Probable |
|
|
47.041 |
|
|
|
1.13 |
|
|
|
53.230 |
|
Don Mario(12)
(UMZ) |
|
Orvana |
|
Proven |
|
|
1.18 |
|
|
|
1.59 |
|
|
|
1.877 |
|
|
|
|
|
Probable |
|
|
4.82 |
|
|
|
1.30 |
|
|
|
6.276 |
|
Summary of Proven and Probable Copper Reserves(1,19)
Production Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
|
|
|
|
|
|
|
|
|
Average Copper |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Pounds |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(% Cu) |
|
(millions)(4) |
Robinson |
|
Quadra |
|
Proven |
|
|
96.89 |
|
|
|
0.61 |
|
|
|
1,188 |
|
|
|
|
|
Probable |
|
|
17.51 |
|
|
|
1.07 |
|
|
|
375 |
|
Troy(6) 7.0% |
|
Revett |
|
Reserve |
|
|
1.94 |
|
|
|
0.54 |
|
|
|
21 |
(18) |
6.1% |
|
|
|
Reserve |
|
|
1.58 |
|
|
|
0.54 |
|
|
|
17 |
|
2.0% |
|
|
|
Reserve |
|
|
3.70 |
|
|
|
0.54 |
|
|
|
40 |
|
Summary of Proven and Probable Zinc Reserves(1,20)
Development Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc |
|
|
|
|
|
|
|
|
|
|
Average Zinc |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Pounds |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(% Zn) |
|
(millions)(4) |
Peñasquito
(sulfide)(14) |
|
Goldcorp |
|
Proven |
|
|
470.57 |
|
|
|
0.78 |
|
|
|
7,363 |
|
|
|
|
|
Probable |
|
|
419.09 |
|
|
|
0.65 |
|
|
|
5,445 |
|
Don Mario(12)
(UMZ) |
|
Orvana |
|
Proven |
|
|
1.18 |
|
|
|
1.62 |
|
|
|
38 |
|
|
|
|
|
Probable |
|
|
4.82 |
|
|
|
1.47 |
|
|
|
142 |
|
26
TABLE 1 (Continued)
Summary of Proven and Probable Lead Reserves(1,21)
Development Stage Royalties
As of December 31, 2007(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lead |
|
|
|
|
|
|
|
|
|
|
Average Zinc |
|
Contained |
|
|
|
|
|
|
Tons |
|
Grade |
|
Pounds |
Royalty |
|
Operator |
|
Category |
|
(millions) |
|
(% Pb) |
|
(millions)(4) |
Peñasquito
(sulfide)(14) |
|
Goldcorp |
|
Proven |
|
|
470.57 |
|
|
|
0.36 |
|
|
|
3,439 |
|
|
|
|
|
Probable |
|
|
419.09 |
|
|
|
0.29 |
|
|
|
2,447 |
|
Footnotes to Table 1
|
|
|
(1) |
|
Set forth below are the definitions of proven and probable reserves used by the
SEC. Some of our royalty operators are Canadian issuers. Their definitions of
mineral reserve, proven mineral reserve and probable mineral reserve conform to the
Canadian Institute of Mining, Metallurgy and Petroleum definitions of these terms as of the
effective date of estimation as required by National Instrument 43-101 of the Canadian
Securities Administrators. The Canadian definitions of reserve, proven (measured)
reserves, and probable (indicated) reserves are different than those used by the SEC as
defined below. |
|
|
|
Reserve is that part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. |
|
|
|
Proven (Measured) Reserves are reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes, and the grade is computed from the
results of detailed sampling, and (b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined that the size, shape, depth and
mineral content of the reserves are well established. |
|
|
|
Probable (Indicated) Reserves are reserves for which the quantity and grade are computed from
information similar to that used for proven (measured) reserves, but the sites for inspection,
sampling and measurement are farther apart or are otherwise less adequately spaced. The degree
of assurance of probable (indicated) reserves, although lower than that for proven (measured)
reserves, is high enough to assume geological continuity between points of observation. |
|
(2) |
|
Gold reserves were calculated by the operators at the following per ounce prices:
$800 Taparko; $600 Dolores; $575 Cortez, Goldstrike, Bald Mountain, Leeville,
Williams and Pascua-Lama; $550 El Chanate, El Limon and Marigold; $525 Peñasquito; $500
Mulatos; $480 Benso; $400 Don Mario. Quadra does not use a gold price figure to
define reserves as gold is produced as a by-product of copper. No gold price is reported for
Gold Hill see footnote 15. |
|
(3) |
|
Reserves have been calculated by the operators as of December 31, 2007, with the
exception of the following properties: Don Mario (UMZ) October 2006; Benso April 2007;
Peñasquito June 2007; and El Chanate October 2007. The reserves at the Don Mario mine
for the LMZ as of September 30, 2007, are based on publicly available reserve and production
information dated December 5, 2005 and November 29, 2007. |
|
(4) |
|
Contained ounces or contained pounds do not take into account losses in
processing the ore. The amounts shown are 100% of the reserves subject to our royalty
interests. |
|
(5) |
|
GSR1, GSR2 and NVR1 reserves are a subset of the reserves covered by GSR3. Upon
consummation of the royalty acquisition transaction between Royal Gold and Barrick, the
portion of the GSR3 and NVR1 royalties on the Crossroads deposit will be eliminated. As of
December 31, 2007, there were no proven and probable reserves associated with the Crossroads
deposit. See Item 7, MD&A, for further detail on the transaction. |
|
(6) |
|
Due to the royalty structure at the Taparko and Troy mines, reserves cannot be
broken down into proven and probable. |
|
(7) |
|
TB-GSR1 and TB-GSR2 royalties are subject to the same reserve. |
27
|
|
|
(8) |
|
The reserves at Taparko have been adjusted, based on the operators gold price
assumption of $800 per ounce, to reflect the $35 million cap on the TB-GSR1 royalty. Upon
meeting this cap, both the TB-GSR1 and TB-GSR2 royalties cease and the TB-GSR3 royalty becomes
effective. The TB-GSR3 reserves represent the remaining reserves after subtracting the
reserves associated with TB-GSR1 and TB-GSR2. |
|
(9) |
|
The operators at Goldstrike, Leeville, Bald Mountain, Gold Hill and Marigold did not
provide a breakdown of proven and probable reserves. |
|
(10) |
|
The Companys royalty is subject to a 2.0 million ounce cap on gold production. As
of June 30, 2008, approximately 248,000 cumulative ounces of gold have been produced. |
|
(11) |
|
The reserves shown are subject to the Companys sliding-scale NSR and NPI royalties
at El Chanate and were not adjusted to reflect the respective caps. The sliding-scale NSR
royalty is capped once payment of approximately $17.0 million have been received while the NPI
royalty is capped at $1.0 million |
|
(12) |
|
Don Mario reserves consist of a lower mineralized zone (LMZ) and an upper
mineralized zone (UMZ). A breakdown of proven and probable reserves on the LMZ was not
provided by the operator. |
|
(13) |
|
Reserves represent the operators reserve estimates as of November 1, 2005, net of
2006 and 2007 annual production as reported by the operator. |
|
(14) |
|
Operator reported reserve estimates by deposit types. A sulfide deposit is one in
which the sulfide minerals predominate. An oxide deposit is one in which the oxide minerals
predominate. |
|
(15) |
|
Reserves shown represent the area of interest in Chile to which the royalty
applies. |
|
(16) |
|
Round Mountain Gold Corporations Gold Hill reserves are not separately detailed in
their publicly available financial reports. However, Barrick stated in its September 2006
Nevada Mine Tour presentation titled Barrick in Nevada, posted on their web site, that as of
December 31, 2005, there were 375,000 contained ounces in reserves that represent their 50%
share of the project. |
|
(17) |
|
Silver reserves were calculated by the operators at $11.00 per ounce for Martha;
$10.00 per ounce for Troy, Peñasquito (sulfide and oxide), and Dolores; and $6.00 per ounce
for Don Mario. |
|
(18) |
|
The reserves subject to the 7.0% GSR royalty have been adjusted downward by Royal
Gold due to the expectation of meeting the monetary cap of $10.5 million in cumulative
payments. Royal Gold used the operators December 31, 2007 silver and copper reserve prices
of $10.00 per ounce and $2.25 per pound, respectively, to calculate this adjustment. |
|
(19) |
|
Copper reserves were calculated by the operators at $2.50 per pound for Robinson
for calendar years 2008 through 2012 and $1.75 for the remainder of the mine life; $2.25 per
pound for Troy; and $1.00 for Don Mario (UMZ). |
|
(20) |
|
Zinc reserves were calculated by the operator at $0.80 per pound. |
|
(21) |
|
Lead reserves were calculated by the operator at $0.40 per pound. |
28
Table 2 below summarizes additional mineralization for gold, silver, copper, lead and zinc which
have been reported to us by the operators of our royalty interests as of December 31, 2007. Please
refer to page 32 for the footnotes to Table 2.
TABLE 2
Gold Additional Mineralized Material(1)
Production Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Gold |
|
|
|
|
Additional Mineralized |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Material |
|
(millions) |
|
(ounces per ton) |
Cortez GSR1(3) |
|
Barrick |
|
Measured(2,3) |
|
|
2.89 |
|
|
|
0.025 |
|
|
|
|
|
Indicated(2,3) |
|
|
29.43 |
|
|
|
0.020 |
|
|
|
|
|
Inferred(2,3) |
|
|
4.33 |
|
|
|
0.013 |
|
Cortez GSR2(3) |
|
Barrick |
|
Measured(2,3) |
|
|
3.49 |
|
|
|
0.044 |
|
|
|
|
|
Indicated(2,3) |
|
|
24.70 |
|
|
|
0.039 |
|
|
|
|
|
Inferred(2,3) |
|
|
0.94 |
|
|
|
0.019 |
|
Cortez GSR3(3) |
|
Barrick |
|
Measured(2,3) |
|
|
6.38 |
|
|
|
0.035 |
|
|
|
|
|
Indicated(2,3) |
|
|
54.14 |
|
|
|
0.028 |
|
|
|
|
|
Inferred(2,3) |
|
|
5.26 |
|
|
|
0.014 |
|
Cortez NVR1(3) |
|
Barrick |
|
Measured(2,3) |
|
|
3.84 |
|
|
|
0.044 |
|
|
|
|
|
Indicated(2,3) |
|
|
28.67 |
|
|
|
0.037 |
|
|
|
|
|
Inferred(2,3) |
|
|
3.38 |
|
|
|
0.012 |
|
Robinson |
|
Quadra |
|
Measured(2,4) |
|
|
573.00 |
|
|
|
0.005 |
|
|
|
|
|
Indicated(2,4) |
|
|
147.00 |
|
|
|
0.003 |
|
|
|
|
|
Inferred(2,4) |
|
|
89.00 |
|
|
|
0.002 |
|
Taparko |
|
High River |
|
Measured(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Indicated(2) |
|
|
2.51 |
|
|
|
0.082 |
|
|
|
|
|
Inferred(2) |
|
|
1.22 |
|
|
|
0.083 |
|
Leeville Mining Complex |
|
Newmont |
|
-(5) |
|
|
0.64 |
|
|
|
0.446 |
|
GoldstrikeSJ Claims |
|
Barrick |
|
Measured(2) |
|
|
2.76 |
|
|
|
0.055 |
|
|
|
|
|
Indicated(2) |
|
|
4.06 |
|
|
|
0.050 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
Mulatos(6) |
|
Alamos |
|
Measured(2) |
|
|
12.31 |
|
|
|
0.029 |
|
|
|
|
|
Indicated(2) |
|
|
58.47 |
|
|
|
0.027 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
Bald Mountain |
|
Barrick |
|
Measured & Indicated(2) |
|
|
7.64 |
|
|
|
0.026 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
El Chanate |
|
Capital Gold |
|
Measured(2,8) |
|
|
11.31 |
|
|
|
0.018 |
|
|
|
|
|
Indicated(2,8) |
|
|
32.85 |
|
|
|
0.020 |
|
|
|
|
|
Inferred(2,8) |
|
|
6.15 |
|
|
|
0.021 |
|
Williams |
|
Williams |
|
Measured(2) |
|
|
1.71 |
|
|
|
0.090 |
|
|
|
|
|
Indicated(2) |
|
|
2.37 |
|
|
|
0.154 |
|
|
|
|
|
Inferred(2) |
|
|
6.21 |
|
|
|
0.127 |
|
Peñasquito (oxide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
8.71 |
|
|
|
0.002 |
|
|
|
|
|
Indicated(2) |
|
|
38.25 |
|
|
|
0.003 |
|
|
|
|
|
Inferred(2) |
|
|
45.19 |
|
|
|
0.004 |
|
El Limon |
|
Central Sun |
|
Measured(2) |
|
|
0.03 |
|
|
|
0.136 |
|
|
|
|
|
Indicated(2) |
|
|
0.39 |
|
|
|
0.147 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
29
TABLE 2 (Continued)
Gold Additional Mineralized Material(1)
Development Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Gold |
|
|
|
|
Additional |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
(ounces per ton) |
Peñasquito (sulfide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
109.24 |
|
|
|
0.008 |
|
|
|
|
|
Indicated(2) |
|
|
591.71 |
|
|
|
0.006 |
|
|
|
|
|
Inferred(2) |
|
|
1,299.61 |
|
|
|
0.007 |
|
Dolores |
|
Minefinders |
|
Measured &
Indicated(2) |
|
|
7.70 |
|
|
|
0.090 |
|
|
|
|
|
Inferred(2) |
|
|
33.45 |
|
|
|
0.020 |
|
Pascua-Lama |
|
Barrick |
|
Measured(2) |
|
|
8.16 |
|
|
|
0.037 |
|
|
|
|
|
Indicated(2) |
|
|
62.39 |
|
|
|
0.035 |
|
|
|
|
|
Inferred(2) |
|
|
7.28 |
|
|
|
0.027 |
|
Benso |
|
Golden Star |
|
Measured(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Indicated(2) |
|
|
0.45 |
|
|
|
0.072 |
|
|
|
|
|
Inferred(2) |
|
|
0.67 |
|
|
|
0.099 |
|
Silver Additional Mineralized Material(1)
Production Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Silver |
|
|
|
|
Additional |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
(ounces per ton) |
Peñasquito (oxide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
8.71 |
|
|
|
0.20 |
|
|
|
|
|
Indicated(2) |
|
|
38.25 |
|
|
|
0.21 |
|
|
|
|
|
Inferred(2) |
|
|
45.19 |
|
|
|
0.38 |
|
Troy(9) |
|
Revett |
|
Measured(2) |
|
|
35.16 |
|
|
|
1.46 |
|
|
|
|
|
Indicated(2) |
|
|
10.93 |
|
|
|
1.05 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
Martha |
|
Coeur dAlene |
|
Measured(2) |
|
|
0.039 |
|
|
|
46.33 |
|
|
|
|
|
Indicated(2) |
|
|
0.053 |
|
|
|
29.78 |
|
|
|
|
|
Inferred(2) |
|
|
0.072 |
|
|
|
27.53 |
|
30
Silver Additional Mineralized Material(1)
Development Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Silver |
|
|
|
|
Additional |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
(ounces per ton) |
Peñasquito (sulfide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
109.24 |
|
|
|
0.65 |
|
|
|
|
|
Indicated(2) |
|
|
591.71 |
|
|
|
0.56 |
|
|
|
|
|
Inferred(2) |
|
|
1,299.61 |
|
|
|
0.38 |
|
Dolores |
|
Minefinders |
|
Measured &
Indicated(2) |
|
|
7.70 |
|
|
|
2.87 |
|
|
|
|
|
Inferred(2) |
|
|
33.45 |
|
|
|
0.82 |
|
Copper Additional Mineralized Material(1)
Production Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Tons |
|
Average Copper |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
Grade (%) |
Robinson |
|
Quadra |
|
Measured(2) |
|
|
573.00 |
|
|
|
0.43 |
|
|
|
|
|
Indicated(2) |
|
|
147.00 |
|
|
|
0.30 |
|
|
|
|
|
Inferred(2) |
|
|
89.00 |
|
|
|
0.28 |
|
Troy(9) |
|
Revett |
|
Measured(2) |
|
|
35.16 |
|
|
|
0.72 |
|
|
|
|
|
Indicated(2) |
|
|
10.93 |
|
|
|
0.46 |
|
|
|
|
|
Inferred(2) |
|
|
|
|
|
|
|
|
Lead Additional Mineralized Material(1)
Development Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Lead |
|
|
|
|
Additional |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
(%) |
Peñasquito (sulfide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
109.24 |
|
|
|
0.24 |
|
|
|
|
|
Indicated(2) |
|
|
591.71 |
|
|
|
0.20 |
|
|
|
|
|
Inferred(2) |
|
|
1,299.61 |
|
|
|
0.08 |
|
31
TABLE 2 (Continued)
Zinc Additional Mineralized Material(1)
Development Stage Royalties
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Zinc |
|
|
|
|
Additional |
|
Tons |
|
Grade |
Royalty |
|
Operator |
|
Mineralized Material |
|
(millions) |
|
(%) |
Peñasquito (sulfide)(7) |
|
Goldcorp |
|
Measured(2) |
|
|
109.24 |
|
|
|
0.67 |
|
|
|
|
|
Indicated(2) |
|
|
591.71 |
|
|
|
0.55 |
|
|
|
|
|
Inferred(2) |
|
|
1,299.61 |
|
|
|
0.50 |
|
Footnotes to Table 2
|
|
|
(1) |
|
Mineralized material is that part of a mineral system that has potential economic
significance but cannot be included in the proven and probable ore reserve estimates until
further drilling and metallurgical work is completed, and until other economic and technical
feasibility factors based upon such work have been resolved. The SEC does not recognize this
term. Investors are cautioned not to assume that any part or all of the mineral deposits in
these categories will ever be converted into reserves. |
|
(2) |
|
Some of our royalty operators are Canadian issuers. Their definitions of mineral
resource, measured mineral resource, indicated mineral resource and inferred mineral
resource conforms to the Canadian Institute of Mining, Metallurgy and Petroleum definitions
of those terms as of the effective date of estimation, as required by National Instrument
43-101 of the Canadian Securities Administrators. Mineral resources which are not mineral
reserves do not have economic viability. Canadian issuers use the terms mineral resources
and its subcategories measured, indicated and inferred mineral resources. While such
terms are recognized and required by Canadian regulations, the SEC does not recognize them.
Investors are cautioned not to assume that any part or all of the mineral deposits in these
categories will ever be converted into reserves. |
|
(3) |
|
GSR1, GSR2 and NVR1 additional mineralized material are a subset of the additional
mineralized material covered by GSR3. Upon consummation of the royalty acquisition
transaction between Royal Gold and Barrick, the portion of the GSR3 and NVR1 royalties on the
Crossroads deposit will be eliminated. Approximately 60% of the additional mineralized
material reported as of December 31, 2007, lies within the Crossroads deposit. |
|
(4) |
|
Additional mineralized material does not include reserves, except at Robinson at the
request of the operator. |
|
(5) |
|
The operator reported additional mineralization as non-reserve material but did not
provide a breakdown measured, indicated and inferred material. |
|
(6) |
|
In June 2008, figures for measured additional mineralized material at Mulatos were
corrected from 19.07 tons, at a grade of 0.040 ounces per ton, to 12.31 tons at a grade of
0.029 ounces per ton. Indicated additional mineralized material was corrected from 87.13
tons, at a grade of 0.033 ounces per ton, to 58.47 tons, at a grade of 0.027 ounces per ton.
These corrections reflect the operators inclusion of reserves in their initial additional
mineralized material figure for calendar year end 2007. |
|
(7) |
|
Operator has reported estimates by deposit types. An oxide deposit is one in which
the oxide minerals predominate. A sulfide deposit is one in which the sulfide minerals
predominate. |
|
(8) |
|
Includes additional mineralized material subject to the sliding-scale NSR and NPI
royalty interests at El Chanate. |
|
(9) |
|
Additional mineralized material shown is subject to the Companys 2.0% GSR royalty
at Troy. |
NOTE: Additional mineralization is not shown for the Don Mario, Gold Hill and Marigold mines. At
Don Mario, figures for the reported additional mineralization for the LMZ have not been updated
since the operators 2005 model, detailed in their December 5, 2005 press release. Due to the age
of the model, Royal Gold has not listed these figures. For the UMZ at Don Mario, all additional
mineralization is covered in the design of the existing pit. Figures for Gold Hill and Marigold
are not shown because the operator has not reported additional mineralization pertaining to our
royalty interest.
32
Royalties on Exploration Stage Properties
For a listing of the Companys interests in royalties on exploration stage properties, please refer
to Item 1, Business, of this report. There are no proven and probable reserves associated with
these properties at this time.
ITEM 3. LEGAL PROCEEDINGS
Casmalia Resources Hazardous Waste Disposal Site
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 $0.1
million, 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 matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the quarter ended June 30, 2008.
Results from our annual meeting will be described in Part II, Item 4 of our report that will be
filed on Form 10-Q for the quarter ending December 31, 2008.
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information and Current Stockholders
Our common stock is traded on the Nasdaq Global Select Market (Nasdaq) under the symbol RGLD
and on the Toronto Stock Exchange under the symbol RGL. The following table sets forth, for each
of
33
the quarterly periods indicated, the range of high and low sales prices, in U.S. dollars, for the
common stock on NASDAQ, for each quarter since July 1, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Prices |
Fiscal Year: |
|
|
|
High |
|
Low |
|
2006 |
|
|
First Quarter (July, Aug., Sept. 2005) |
|
$ |
30.20 |
|
|
$ |
18.74 |
|
|
|
|
|
Second Quarter (Oct., Nov., Dec. 2005) |
|
$ |
35.69 |
|
|
$ |
20.95 |
|
|
|
|
|
Third Quarter (Jan., Feb., March 2006) |
|
$ |
41.66 |
|
|
$ |
27.01 |
|
|
|
|
|
Fourth Quarter (April, May, June 2006) |
|
$ |
37.50 |
|
|
$ |
23.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
First Quarter (July, Aug., Sept. 2006) |
|
$ |
31.82 |
|
|
$ |
25.67 |
|
|
|
|
|
Second Quarter (Oct., Nov., Dec. 2006) |
|
$ |
37.50 |
|
|
$ |
24.12 |
|
|
|
|
|
Third Quarter (Jan., Feb., March 2007) |
|
$ |
36.50 |
|
|
$ |
29.31 |
|
|
|
|
|
Fourth Quarter (April, May, June 2007) |
|
$ |
30.87 |
|
|
$ |
23.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
First Quarter (July, Aug., Sept. 2007) |
|
$ |
34.36 |
|
|
$ |
23.85 |
|
|
|
|
|
Second Quarter (Oct., Nov., Dec. 2007) |
|
$ |
35.39 |
|
|
$ |
26.54 |
|
|
|
|
|
Third Quarter (Jan., Feb., March 2008) |
|
$ |
35.42 |
|
|
$ |
27.51 |
|
|
|
|
|
Fourth Quarter (April, May, June 2008) |
|
$ |
32.93 |
|
|
$ |
26.87 |
|
As of August 13, 2008, there were 1,001 shareholders of record of our common stock.
Dividends
We have paid a cash dividend on our common stock for each calendar year beginning in calendar year
2000. Our board of directors has discretion in determining whether to declare a dividend based on
a number of factors including prevailing gold prices, economic market conditions and funding
requirements for future opportunities or operations.
For calendar year 2008, we announced an annual dividend of $0.28 per share of common stock, payable
in four quarterly payments of $0.07 each. The first payment of $0.07 per share was made on
January 18, 2008, to shareholders of record at close of business on January 4, 2008. The second
payment of $0.07 per share was made on April 18, 2008, to shareholders of record at the close of
business on April 4, 2008. The third payment of $0.07 per share was made on July 18, 2008, to
shareholders of record at the close of business on July 3, 2008. We anticipate paying the fourth
payment of $0.07 per share on October 17, 2008, to shareholders of record at the close of business
on October 3, 2008.
For calendar year 2007, we paid an annual dividend of $0.26 per share of common stock, in four
quarterly payments of $0.065 each. We paid the first payment of $0.065 per share on January 19,
2007, to shareholders of record at the close of business on January 5, 2007. We paid the second
payment of $0.065 per share on April 20, 2007, to shareholders of record at the close of business
on April 5, 2007. We paid the third payment of $0.065 per share on July 20, 2007 to shareholders
of record at the close of business on July 6, 2007. We paid the fourth payment of $0.065 per share
on October 19, 2007, to shareholders of record at the close of business on October 5, 2007.
For calendar year 2006, we paid an annual dividend of $0.22 per share of common stock, in four
quarterly payments of $0.055 each. We paid the first payment of $0.055 per share on January 20,
2006, to shareholders of record at the close of business on January 6, 2006. We paid the second
payment of $0.055 per share on April 21, 2006, to shareholders of record at the close of business
on April 7, 2006. We paid the third payment of $0.055 per share on July 28, 2006 to shareholders
of record at the close of
business on July 7, 2006. We paid the fourth payment of $0.055 per share on October 20, 2006, to
shareholders of record at the close of business on October 6, 2006.
34
We currently plan to pay dividends on a calendar year basis, subject to the discretion of our board
of directors. However, our board of directors may determine not to declare a dividend based on a
number of factors including the gold price, economic and market conditions and the financial needs
of opportunities that might arise in the future.
Sales of Unregistered Securities
We did not make any unregistered sales of our securities during the fiscal year ended June 30,
2008.
ITEM 6. SELECTED FINANCIAL DATA
Selected Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Fiscal Years Ended June 30, |
Amounts in thousands, except per share data |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
Royalty revenue |
|
$ |
69,393 |
|
|
$ |
48,357 |
|
|
$ |
28,380 |
|
|
$ |
25,302 |
|
|
$ |
21,353 |
|
Costs of operations |
|
|
3,819 |
|
|
|
3,265 |
|
|
|
2,288 |
|
|
|
1,847 |
|
|
|
1,513 |
|
General and administrative expense |
|
|
7,208 |
|
|
|
5,824 |
|
|
|
5,022 |
|
|
|
3,695 |
|
|
|
2,923 |
|
Exploration and business development |
|
|
4,079 |
|
|
|
2,493 |
|
|
|
3,397 |
|
|
|
1,893 |
|
|
|
1,392 |
|
Depreciation, depletion and amortization |
|
|
18,364 |
|
|
|
8,269 |
|
|
|
4,261 |
|
|
|
3,205 |
|
|
|
3,314 |
|
Current and deferred tax expense |
|
|
12,926 |
|
|
|
9,549 |
|
|
|
5,101 |
|
|
|
4,102 |
|
|
|
3,654 |
|
Net income |
|
|
26,108 |
|
|
|
19,720 |
|
|
|
11,350 |
|
|
|
11,454 |
|
|
|
8,872 |
|
Net income available to common stockholders |
|
|
21,320 |
|
|
|
19,720 |
|
|
|
11,350 |
|
|
|
11,454 |
|
|
|
8,872 |
|
Basic earnings per share |
|
|
0.69 |
|
|
|
0.79 |
|
|
|
0.50 |
|
|
|
0.55 |
|
|
|
0.43 |
|
Diluted earnings per share |
|
|
0.68 |
|
|
|
0.79 |
|
|
|
0.49 |
|
|
|
0.54 |
|
|
|
0.42 |
|
Common dividends declared per share(1) |
|
|
0.28 |
|
|
|
0.25 |
|
|
|
0.22 |
|
|
|
0.19 |
|
|
|
0.15 |
|
|
|
|
(1) |
|
The 2008, 2007, 2006, 2005 and 2004 calendar year dividends were $0.28, $0.26,
$0.22,$0.20 and $0.15, respectively, as approved by our board of directors. Please refer to
Item 5 of this report for further information on our common dividends. |
Selected Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Fiscal Years Ended June 30, |
Amounts in thousands |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
Total assets |
|
$ |
546,284 |
|
|
$ |
356,649 |
|
|
$ |
171,765 |
|
|
$ |
102,158 |
|
|
$ |
93,215 |
|
Working capital |
|
|
204,108 |
|
|
|
90,995 |
|
|
|
81,452 |
|
|
|
53,330 |
|
|
|
49,460 |
|
Royalty interests in mineral properties, net |
|
|
300,670 |
|
|
|
215,839 |
|
|
|
84,590 |
|
|
|
44,817 |
|
|
|
40,326 |
|
Note payable |
|
|
15,750 |
|
|
|
15,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
504 |
|
|
|
98 |
|
|
|
98 |
|
|
|
97 |
|
|
|
103 |
|
Net deferred tax liabilities |
|
|
26,034 |
|
|
|
5,911 |
|
|
|
6,683 |
|
|
|
7,426 |
|
|
|
7,772 |
|
35
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion provides information that management believes is relevant to an assessment
and understanding of the consolidated financial condition and results of operations of Royal Gold
and its subsidiaries. This discussion addresses matters we consider important for an understanding
of our financial condition and results of operations as of and for the three fiscal years ended
June 30, 2008, 2007 and 2006.
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 are engaged in a continual review of
opportunities to acquire existing royalties, to create new royalties through the financing of mine
development or exploration, or to acquire companies that hold royalties. We currently, and
generally at any time, have acquisition opportunities in various stages of active review,
including, for example, our engagement of consultants and advisors to analyze particular
opportunities, analysis of technical, financial and other confidential information, submission of
indications of interest, participation in preliminary discussions and involvement as a bidder in
competitive auctions. 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 2008 fiscal year, 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 producing stage royalty interests. The price of gold and other metals have
fluctuated widely in recent years. The average price of gold per ounce during our fiscal year
2008, 2007 and 2006 was $821, $638 and $527, respectively. The marketability and the price of gold
are influenced by numerous factors beyond the control of the Company and may have a material and
adverse effect on the Companys results of operations and financial condition.
The increase in the average gold price, the continued ramp-up of gold production at the Taparko and
Leeville mines, increased production at Robinson and Leeville, and production from the recently
acquired Battle Mountain royalties, contributed to royalty revenue of $69.4 million during the
fiscal year ended June 30, 2008, compared to royalty revenue of $48.4 million during the fiscal
year ended June 30, 2007. The increase in our royalty revenue during the fiscal year 2008 was
slightly offset due to a decrease in production at the Cortez and certain other of our principal
producing royalties.
Please see Part I, Item 1, Business, and Part I, Item 2, Properties, of this Annual Report on Form
10-K for discussion on Royal Golds producing, development stage and exploration stage royalty
interests.
Royalty Acquisitions
Marigold and El Chanate
On February 20, 2008, we acquired three royalties from AngloGold Ashanti (U.S.A.) Exploration Inc.
(AngloGold), a wholly-owned subsidiary of AngloGold Ashanti North America Inc., for $13.75
million. The first royalty is a 2.0% NSR royalty on the Marigold mine, located on the Battle
Mountain-
36
Eureka trend in Nevada, and operated by Goldcorp. The second royalty is a 2.0-4.0% sliding-scale
NSR royalty on the El Chanate mine, located in Sonora, Mexico, and operated by Capital Gold. The
third royalty is a 10.0% NPI royalty, also on the El Chanate mine. The sliding-scale royalty is
capped once payments of approximately $17.0 million have been received while the 10.0% NPI royalty
is capped at $1.0 million.
The
Marigold mine is a large scale, open-pit, heap leach operation. The 2.0% NSR royalty interest
burdens the majority of six sections of land, containing a number of
open pits, but does not cover
the current mining area in the Basalt/Antler area. Approximately 38% of the current reserves are
covered by this royalty. According to Goldcorps December 31, 2007, reserve statement, reserves
subject to our royalty include 44.59 million tons of ore, at a grade of 0.019 ounces per ton,
containing about 0.867 million ounces of gold. We estimate this royalty will begin generating
royalty revenue in calendar 2011 when mining operations move into areas covered by our royalty
interests. The Marigold 2.0% NSR royalty is classified as a development stage royalty interest on
the Companys consolidated balance sheets.
According to Capital Golds reserve statement on September 4, 2007, El Chanate contains proven and
probable reserves of 43.5 million tons of ore, at a grade of 0.019 ounces per ton, containing about
832,000 ounces of gold. The open-pit mine and heap leach operation commenced production in
mid-2007 and Capital Gold estimates production of approximately 60,000 ounces of gold in calendar
2008, with a potential expansion to 100,000 ounces per year in calendar 2009. The El Chanate
sliding-scale royalty pays at a rate of 2.0% when the average gold price is below $300 per ounce,
3.0% when the gold price is between $300 and $350 per ounce, and 4.0% when the gold price is above
$350 per ounce. Including royalty payments made to AngloGold, there have been cumulative payments
made on the sliding-scale NSR royalty of $1.1 million, resulting in $15.9 million remaining under
the $17.0 million cap as of June 30, 2008. There have been no payments made on the NPI royalty as
of June 30, 2008; however, the Company has accrued approximately $0.5 million as of June 30, 2008,
for the NPI royalty based on information received from Capital Gold. The NPI royalty is payable in
February 2009. The El Chanate sliding-scale and NPI royalties are classified as production stage
royalty interests on the Companys consolidated balance sheets.
Benso
On December 7, 2007, Royal Gold paid $1.875 million to FairWest Energy in exchange for a 1.5% NSR
royalty on gold produced from the Benso concession in the Western Region of the Republic of Ghana,
West Africa. The Benso concession, controlled by Golden Star, is located approximately 25 miles
south of Golden Stars Wassa mine. Golden Star has reported that, as of June 15, 2007, the project
contains 252,000 ounces of probable reserves, consisting of 2.54 million tons of ore, at a grade of
0.099 ounces per ton. The operator expects production to commence during the third quarter of
calendar 2008. The Benso royalty is classified as a development stage royalty interest on the
Companys consolidated balance sheets.
Other developments
Please also see the Liquidity and Capital Resources section below within this Item 7 for
discussion of our Preferred Stock offering, credit facility amendment, stock repurchase program and
other recent liquidity and capital developments.
Agreement to acquire Barrick royalty portfolio
On July 30, 2008, we entered into a definitive agreement to acquire a portfolio of royalties from
Barrick in exchange for net cash consideration of $150 million and a restructuring of certain Royal
Gold royalty positions at Cortez, which is operated by Barrick. The Barrick royalty portfolio
consists of royalties on 77 properties, including eight producing royalties, two development stage
projects and 67 exploration
37
stage properties. Eighteen of the exploration stage projects are considered to be in an evaluation
stage as these properties are engaged in the search for reserves but currently contain additional
mineralized material. Over 75% of the portfolio consists of precious metals royalties and
complements our existing geographical royalty positions with significant growth into Canada and
Australia.
We will pay Barrick net cash of $150 million and reduce certain of our royalty positions at Cortez,
which are described further in Item 2, Properties, of this Annual Report on Form 10-K. The
restructuring of certain Cortez royalty positions includes the reduction of the GSR2 sliding-scale
royalty rate ranging from 0.72%-9.0%, to match the current GSR1 sliding-scale royalty rate ranging
from 0.40%-5.0%. In addition, we will also eliminate our interest in the 0.71% GSR3 and the NVR1
(non-consolidated minority interest portion) royalties on the mining claims that comprise the
undeveloped Crossroads deposit at Cortez. Barrick has announced that it is currently investing
exploration and engineering resources to advance the development of the Crossroads deposit and is
targeting over 1.0 million ounces of reserves by calendar year end 2008. The GSR3 and NVR1
royalties which cover areas outside of the Crossroads deposit will not be affected by this
transaction. GSR2, as reduced, will continue to apply to the Crossroads deposit.
The royalty portfolio, which was assembled by Barrick and various predecessor companies, including
Placer Dome, Lac Minerals, AurionGold, Delta Gold and Plutonic generated approximately $12 million
in royalty revenue in calendar 2007. The Company expects royalty revenues to grow within this
portfolio, assuming current commodity prices and as development stage projects commence production.
The key assets in the Barrick royalty portfolio include the following properties:
MulatosA sliding-scale NSR royalty currently paying 3.5% on Alamos Mulatos mine. We
currently own a 0.30%-1.50% sliding-scale NSR royalty on the property. This acquisition
consolidates the Mulatos royalty and increases our current royalty interest from 1.5% to
5.0%, at current commodity prices. The royalty is capped at 2.0 million gold ounces of
production and approximately 248,000 gold ounces have been produced through June 30, 2008;
MalarticA 2.0%-3.0% sliding-scale NSR royalty on the Canadian Malartic gold project, owned
by Osisko Mining Corporation (Osisko). Osisko anticipates releasing additional
mineralized material estimates on Malartic in the third calendar quarter of 2008 and expects
to complete feasibility work in the fourth calendar quarter of 2008. The royalty is subject
to a buy down right and a right of first refusal;
SiguiriA sliding-scale NSR royalty currently paying 1.875% on the Siguiri gold mine in
Guinea, West Africa, operated by AngloGold Ashanti. The royalty is capped on a dollar basis
and approximately $15 million remains to be paid;
Mt. Goode/CosmosA 1.5% NSR royalty covering a portion of Xstratas Cosmos nickel mine in
Australia. A large portion of the royalty interest is located to the south of the Cosmos
and Cosmos Deeps ore bodies and includes potential future production from identified
mineralization, including Tapinos, Prospero and AM2 deposits; and
AllanA 40% interest in a sliding-scale royalty on Potash Corporation of Saskatchewans
potash mine located in Canada. The royalty is currently paying at a rate of $1.44 per ton
relative to production, subject to reductions based on annual production.
The purchase price for the acquisition will be paid from cash on hand at closing. The acquisition
is subject to customary closing conditions and is expected to close on October 1, 2008.
Proposed Acquisition of Royalties at Limpopo Platinum Project
On April 3, 2008, Royal Gold entered into a letter of intent to acquire two royalties from MinEx
Projects Pty Ltd (MinEx) on the Limpopo platinum project in South Africa for $19.25 million. The
first royalty
38
is a fixed 0.704% NSR royalty on the producing Messina lease area and the second royalty in a 1.5%
NSR on the non-producing Dwaalkop lease area, both of which are located within the Limpopo project
area approximately 120 miles north of Johannesburg, South Africa. The transaction is subject to
definitive documentation, completion of due diligence, and board approval, and acquisition of the
Dwaalkop royalty is subject to a right of first refusal. The letter of intent is binding and
governed by the laws of the Republic of South Africa.
Acquisition of Battle Mountain Gold Exploration Corp.
On October 24, 2007, we acquired 100% of the issued and outstanding capital stock of Battle
Mountain in a transaction whereby our wholly-owned subsidiary, Royal Battle Mountain, Inc., was
merged with and into Battle Mountain, with Battle Mountain surviving as a wholly-owned subsidiary
of Royal Gold. The aggregate consideration consisted 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 and approximately $0.1 million in
cash may be paid to Battle Mountain stockholders. On September 13, 2006, an action was filed
against Battle Mountain and its former 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 part of the acquisition of Battle Mountain, we acquired thirteen royalty interests in various
stages of production, development or exploration. The Company recognized approximately $2.8
million in royalty revenue associated with the acquired Battle Mountain production stage royalty
interests from the date of acquisition through June 30, 2008.
The key royalty interest acquired in the Battle Mountain acquisition was a 1.25% NSR royalty on
gold and a 2.0% NSR royalty on both gold and silver from the Dolores project, located in Chihuahua,
Mexico, and owned and operated by Minefinders. The 2.0% NSR royalty becomes effective when the
facility has been producing at 75% of its design capacity for three consecutive months. In
February 2006, Minefinders received an optimized bankable feasibility study and approved the mine
construction on the Dolores project. Minefinders announced in July 2008 that initial gold and
silver pours from the Dolores mine have been delayed until the later portion of third calendar
quarter of 2008. The mine plan estimates a 12 year mine life.
We carry our interest in the proven and probable reserves at the Dolores project as a development
stage royalty interest, which is not currently subject to amortization. The remaining portion of
the Dolores royalty, which is not currently associated with proven and probable reserves, is
classified as an exploration stage royalty interest and is not currently subject to amortization.
Please refer to Note 2 of the notes to consolidated financial statements for further discussion on
the acquisition of Battle Mountain.
Operators Production Estimates by Royalty for Calendar 2008
We received production estimates from the operators of our producing mines during the first
calendar quarter of 2008. The following table shows such production estimates for calendar 2008 as
well as the actual production reported to us by the various operators for the six months ended June
30, 2008. The estimates and production reports are prepared by the operators of the mining
properties. We do not
39
participate in the preparation or calculation of the operators estimates or production reports and
have not independently assessed or verified the accuracy of such information.
Operators Production Estimate by Royalty for Calendar 2008 and Reported Production
For the period January 1, 2008 through June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar 2008 Operators Production |
|
Reported Production through |
|
|
Estimate(1) |
|
June 30, 2008(2) |
|
|
Gold |
|
Silver |
|
Copper |
|
Gold |
|
Silver |
|
Copper |
Royalty |
|
(oz.) |
|
(oz.) |
|
(lbs.) |
|
(oz.) |
|
(oz.) |
|
(lbs.) |
Cortez GSR1 |
|
|
316,000 |
|
|
|
|
|
|
|
|
|
|
|
141,448 |
|
|
|
|
|
|
|
|
|
Cortez GSR2(3) |
|
|
51,000 |
|
|
|
|
|
|
|
|
|
|
|
20,362 |
|
|
|
|
|
|
|
|
|
Cortez GSR3(3) |
|
|
367,000 |
|
|
|
|
|
|
|
|
|
|
|
161,810 |
|
|
|
|
|
|
|
|
|
Cortez NVR1(3) |
|
|
242,000 |
|
|
|
|
|
|
|
|
|
|
|
86,120 |
|
|
|
|
|
|
|
|
|
SJ Claims |
|
|
792,000 |
|
|
|
|
|
|
|
|
|
|
|
327,804 |
|
|
|
|
|
|
|
|
|
Leeville |
|
|
415,000 |
|
|
|
|
|
|
|
|
|
|
|
212,679 |
|
|
|
|
|
|
|
|
|
Taparko |
|
|
91,000 |
|
|
|
|
|
|
|
|
|
|
|
27,280 |
|
|
|
|
|
|
|
|
|
Peñasquito(4) |
|
|
67,000 |
|
|
2.3 million |
|
|
|
|
|
|
1,618 |
|
|
|
91,601 |
|
|
|
|
|
Dolores(5) |
|
|
40,000 |
|
|
1.0 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don Mario(6) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
41,162 |
|
|
|
|
|
|
|
|
|
Williams |
|
|
126,000 |
|
|
|
|
|
|
|
|
|
|
|
68,092 |
|
|
|
|
|
|
|
|
|
El Limon |
|
|
43,000 |
|
|
|
|
|
|
|
|
|
|
|
21,210 |
|
|
|
|
|
|
|
|
|
Bald Mountain |
|
|
28,000 |
|
|
|
|
|
|
|
|
|
|
|
17,293 |
|
|
|
|
|
|
|
|
|
Mulatos |
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
68,588 |
|
|
|
|
|
|
|
|
|
El Chanate(7) |
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
20,906 |
|
|
|
|
|
|
|
|
|
Benso |
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martha(8,9) |
|
|
|
|
|
3.2 million |
|
|
|
|
|
|
|
|
|
1.8 million |
|
|
|
|
|
Robinson(9,10) |
|
|
115,000 |
|
|
|
|
|
|
150 million |
|
|
67,716 |
|
|
|
|
|
|
77.6 million |
Troy(11) |
|
|
|
|
|
1.4 million |
|
12.5 million |
|
|
|
|
|
|
448,732 |
|
|
4.4 million |
|
|
|
(1) |
|
There can be no assurance that these production estimates will be achieved. Please
refer to our cautionary language regarding forward looking statements and to the risk factors
identified in Part I, Item 1A, of this Annual Report on Form 10-K for information regarding
factors that could affect actual results. |
|
(2) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the period January 1, 2008 through June 30, 2008, as reported to us by the
operators of the mines. |
|
(3) |
|
Upon the consummation of the royalty acquisition transaction between Royal Gold and
Barrick, GSR2 will be reduced to match the royalty rate of GSR1 and the portion of the GSR3
and NVR1 royalties on the mining claims that comprise the undeveloped Crossroads deposit at
Cortez will be eliminated. None of the production estimates shown are attributable to the
Crossroads deposit. |
|
(4) |
|
Reported production estimate relates to the oxide circuit. Goldcorp recently
reported that construction is progressing at Peñasquito and that several construction
milestones were completed during the second calendar quarter of 2008. In May 2008, Peñasquito
poured the first gold from the oxide circuit. Goldcorp expects production at Peñasquito from
the first sulfide circuit by late calendar 2009 and expects the second sulfide circuit to be
operational near the end of calendar 2010. |
|
(5) |
|
Minefinders announced in July 2008 that initial production from the Dolores mine has
been delayed until the later portion of third calendar quarter of 2008 due to a blockade that
was established in May 2008 by a group of protestors. Minefinders also announced that the
revised timing (from mid-July 2008) for the initial production will affect previously released
calendar 2008 production estimates, but did not provide updated guidance. |
|
(6) |
|
The operator at Don Mario did not provide us a production estimate for calendar 2008. |
|
(7) |
|
Reported production is for the period from the date of acquisition through June 30, 2008. |
|
(8) |
|
Recovered metal contained in concentrate and subject to third party treatment charges and recovery losses. |
40
|
|
|
(9) |
|
As discussed in Coeur dAlenes National Instrument 43-101 report of the Canadian
Securities Administration filed as of December 31, 2007, it was estimated that the Martha mine
would produce approximately 5.0 million ounces of silver during calendar 2008. During the
second calendar quarter of 2008, Coeur dAlene announced that estimated production at the
Martha mine would be approximately 3.2 million ounces of silver for calendar 2008. The
Company has revised Martha production herein accordingly. |
|
(10) |
|
As a result of strong performance at Robinson through the first six months of
calendar 2008, Quadra announced in July 2008 that it increased its 2008 annual metal
production guidance from 130 million pounds to 150 million pounds of copper and from 100,000
ounces to 115,000 ounces of gold. |
|
(11) |
|
Recovered metal contained in concentrate and subject to third party recovery losses. |
The following table discloses historical production for the properties that are subject to our
royalty interests, as reported to us by the operators of the mines, for the past three fiscal
years:
Historical Production(1) by Royalty
For the Fiscal Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
|
Metal |
|
2008 |
|
2007 |
|
2006 |
Cortez GSR1 |
|
Gold |
|
|
400,396 |
|
|
oz. |
|
|
502,626 |
|
|
oz. |
|
|
598,974 |
|
|
oz. |
Cortez GSR2 |
|
Gold |
|
|
35,752 |
|
|
oz. |
|
|
7,647 |
|
|
oz. |
|
|
|
|
|
|
Cortez GSR3 |
|
Gold |
|
|
436,148 |
|
|
oz. |
|
|
510,273 |
|
|
oz. |
|
|
598,974 |
|
|
oz. |
Cortez NVR1 |
|
Gold |
|
|
127,198 |
|
|
oz. |
|
|
291,963 |
|
|
oz. |
|
|
263,223 |
|
|
oz. |
Robinson |
|
Gold |
|
|
120,873 |
|
|
oz. |
|
|
80,603 |
|
|
oz. |
|
|
13,082 |
|
|
oz. |
SJ Claims |
|
Gold |
|
|
698,488 |
|
|
oz. |
|
|
950,462 |
|
|
oz. |
|
1.0 million |
|
|
oz. |
Leeville |
|
Gold |
|
|
360,811 |
|
|
oz. |
|
|
230,458 |
|
|
oz. |
|
|
83,696 |
|
|
oz. |
Bald Mountain |
|
Gold |
|
|
50,141 |
|
|
oz. |
|
|
109,515 |
|
|
oz. |
|
|
126,317 |
|
|
oz. |
Mulatos |
|
Gold |
|
|
120,933 |
|
|
oz. |
|
|
103,262 |
|
|
oz. |
|
|
23,912 |
|
|
oz. |
Taparko(2) |
|
Gold |
|
|
36,078 |
|
|
oz. |
|
|
N/A |
|
|
|
|
|
N/A |
|
|
|
El Chanate(3) |
|
Gold |
|
|
20,906 |
|
|
oz. |
|
|
N/A |
|
|
|
|
|
N/A |
|
|
|
Don Mario(4) |
|
Gold |
|
|
63,419 |
|
|
oz. |
|
|
N/A |
|
|
|
|
|
N/A |
|
|
|
El Limon(4) |
|
Gold |
|
|
28,385 |
|
|
oz. |
|
|
N/A |
|
|
|
|
|
N/A |
|
|
|
Williams(4) |
|
Gold |
|
|
105,898 |
|
|
oz. |
|
|
N/A |
|
|
|
|
|
N/A |
|
|
|
Troy |
|
Silver |
|
|
744,008 |
|
|
oz. |
|
1.0 million |
|
|
oz. |
|
|
884,528 |
|
|
oz. |
Martha |
|
Silver |
|
3.2 million |
|
|
oz. |
|
2.9 million |
|
|
oz. |
|
2.3 million |
|
|
oz. |
Troy |
|
Copper |
|
7.1 million |
|
|
lbs. |
|
9.6 million |
|
|
lbs. |
|
7.1 million |
|
|
lbs. |
Robinson |
|
Copper |
|
139.0 million |
|
|
lbs. |
|
116.9 million |
|
|
lbs. |
|
27.2 million |
|
|
lbs. |
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, through June 30, 2008, as reported to us by the operators of the mines. |
|
(2) |
|
Production commenced during the quarter ended September 30, 2007. |
|
(3) |
|
Royalty was acquired in February 2008. |
|
(4) |
|
Royalty was acquired on October 24, 2007, as part of the acquisition of Battle Mountain. |
41
Recently Issued Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 intends to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position, financial performance and cash flows.
SFAS 161 also requires disclosure about an entitys strategy and objectives for using derivatives,
the fair values of derivative instruments and their related gains and losses. SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008, and will be
applicable to the Companys fiscal year beginning July 1, 2009. The Company is evaluating the
impact, if any, the adoption of SFAS 161 could have on its financial statements.
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations, (SFAS
141R), which significantly changes the ways companies account for business combinations and will
generally require more assets acquired and liabilities assumed to be measured at their acquisition
date fair value. Under SFAS 141R, legal fees and other transaction-related costs are expensed as
incurred and are no longer included in goodwill as a cost of acquiring the business. SFAS 141R
also requires, among other things, acquirers to estimate the acquisition date fair value of any
contingent consideration and to recognize any subsequent changes in the fair value of contingent
consideration in earnings. In addition, restructuring costs the acquirer expected, but was not
obligated to incur, will be recognized separately from the business acquisition. SFAS 141R is
effective for the Companys fiscal year beginning July 1, 2009, and is to be applied prospectively.
The Company is evaluating the impact, if any, the adoption of SFAS 141R could have on its
financial statements.
Also in December 2007, the FASB issued Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires all
entities to report non-controlling interests in subsidiaries as a separate component of equity in
the consolidated financial statements. SFAS 160 establishes a single method of accounting for
changes in a parents ownership interest in a subsidiary that do not result in deconsolidation.
Companies will no longer recognize a gain or loss on partial disposals of a subsidiary where
control is retained. In addition, in partial acquisitions, where control is obtained, the acquiring
company will recognize and measure at fair value 100 percent of the assets and liabilities,
including goodwill, as if the entire target company had been acquired. SFAS 160 is effective for
the Companys fiscal year beginning July 1, 2009, and is to be applied prospectively. The Company
is evaluating the impact, if any, the adoption of SFAS 160 could have on its financial statements.
In June 2007, the Emerging Issues Task Force (EITF) reached consensus on Issue No. 06-11
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF Issue No.
06-11 requires that the tax benefit related to dividend and dividend equivalents paid on
equity-classified nonvested shares and nonvested share units, which are expected to vest, be
recorded as an increase to additional paid-in capital. EITF No. 06-11 is to be applied
prospectively for tax benefits on dividends declared in our fiscal year beginning July 1, 2008. We
do not expect the adoption of EITF 06-11 to have a material impact on our consolidated financial
statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, (SFAS 159) which allows entities to choose to measure many financial
instruments and certain other items at fair value. The provisions of SFAS 159 are effective for
our fiscal year beginning July 1, 2008, and interim periods within the fiscal year. We do not
expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS
157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies
whenever other accounting standards require (or permit) assets or liabilities to be measured at
fair value
42
but does not expand the use of fair value in any new circumstances. Under SFAS 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 SFAS 157 are effective for our
fiscal year beginning July 1, 2008, and interim periods within the fiscal year. We do not expect
the adoption of SFAS 157 to have a material impact on our consolidated financial statements.
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 11 for a discussion regarding the effect
of adopting FIN 48.
Critical Accounting Policies
Listed below are the accounting policies that the Company believes are critical to its financial
statements due to the degree of uncertainty regarding the estimates or assumptions involved and the
magnitude of the asset, liability, revenue or expense being reported.
Use of Estimates
The preparation of our financial statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and liabilities, at the date
of the financial statements, as well as the reported amount of revenues and expenses during the
reporting period.
Our most critical accounting estimates relate to our assumptions regarding future gold prices and
the estimates of reserves and recoveries of third-party mine operators. We rely on reserve
estimates reported by the operators on the properties in which we have royalty interests. These
estimates and the underlying assumptions affect the potential impairments of long-lived assets and
the ability to realize income tax benefits associated with deferred tax assets. These estimates
and assumptions also affect the rate at which we charge depreciation, depletion and amortization to
earnings. On an ongoing basis, management evaluates these estimates and assumptions; however,
actual amounts could differ from these estimates and assumptions.
Royalty Interests in Mineral Properties
As of June 30, 2008, the net carrying value of royalty interests in mineral properties was
approximately $300.7 million. Royalty interests in mineral properties include acquired royalty
interests in production stage, development stage and exploration stage properties. The fair value
of acquired royalty interests in mineral properties are capitalized as tangible assets when such
interests do not meet the definition of a financial asset under the FASB Statement of Financial
Account Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities a Replacements of FASB Statement No. 125, or a derivative
instrument under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
Acquisition costs of production and development stage royalty interests are depleted using the
units of production method over the life of the mineral property, which is estimated using proven
and probable reserves. Acquisition costs of royalty interests on exploration stage mineral
properties, where there are no proven and probable reserves, are not amortized. At such time as
the associated exploration stage mineral
43
interests are converted to proven and probable reserves, the cost basis is amortized over the
remaining life of the mineral property, using proven and probable reserves. The carrying values of
exploration stage mineral interests are evaluated for impairment at such time as information
becomes available indicating that the production will not occur in the future. Exploration costs
are expensed when incurred.
Royalty Revenue
For the fiscal year ended June 30, 2008, we recognized royalty revenue of approximately $69.4
million. Royalty revenue is recognized pursuant to guidance in Staff Accounting Bulletin No. 104,
Revenue Recognition for Financial Statements. Revenue is recognized in accordance with the terms
of the underlying royalty agreements subject to (i) the pervasive evidence of the existence of the
arrangements; (ii) the risks and rewards having been transferred; (iii) the royalty being fixed or
determinable; and (iv) the collectability of the royalty being reasonably assured. For royalty
payments received in gold, royalty revenue is recorded at the average spot price of gold for the
period in which the royalty was earned.
Revenue recognized pursuant to the Robinson royalty agreement is based upon three percent of
revenue received by the operator of the mine, Quadra, for the sale of minerals from the Robinson
mine, reduced by certain costs incurred by Quadra. Quadras concentrate sales contracts with
third-party smelters, in general, provide for an initial payment based upon provisional assays and
quoted metal prices at the date of shipment. Final true up payments are subsequently based upon
final assays and market metal prices set on a specified future dates, typically one to three months
after the date the concentrate arrives at the third-party smelter (which generally occurs three to
six months after the shipment date from the Robinson mine).
Royal Gold recognizes revenue under the Robinson royalty agreement based on amounts contractually
due pursuant to the calculations above for the underlying sale. As a result of pricing variations
in gold, silver and copper over the respective settlement period, royalty revenue recognized on the
Robinson royalty could be positively or negatively impacted by any changes in metal prices, between
the provisional and final settlement periods.
Liquidity and Capital Resources
Overview
At June 30, 2008, we had current assets of $211.4 million compared to current liabilities of $7.3
million for a current ratio of 29 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. Our current ratio increased during the period primarily due to an increase in cash and
equivalents, which was largely due to net proceeds received from the issuance of preferred stock
related to our November 2007 preferred stock offering, discussed below, of approximately $111.1
million as well as cash received during the fiscal year 2008 from royalty revenue of approximately
$62.1 million. This increase in cash and equivalents was partially offset by cash paid as part of
the acquisition of Battle Mountain of approximately $3.4 million, cash paid for common and
preferred stock dividends of approximately $11.1 million and cash paid during the period for
royalty acquisitions and income taxes of approximately $16.2 million and $13.3 million,
respectively.
During the fiscal year ended June 30, 2008, liquidity needs were met from $69.4 million in royalty
revenues (including $1.4 million of minority interest royalty revenue), net proceeds from issuance
of preferred stock related to our November 2007 preferred stock offering of approximately $111.1
million, our available cash resources and interest and other income of $6.7 million. Also during
the fiscal year ended June 30, 2008, our total assets increased to $546.3 million compared to
$356.6 million at June 30, 2007. The increase was primarily attributable to net cash proceeds
received from our November 2007 preferred stock offering of approximately $111.1 million and the
preliminary allocation of approximately $85.5 million in royalty interests in mineral properties as
part of the Battle Mountain
44
acquisition. At June30, 2008, our cash and equivalents as shown on the consolidated balance sheets were primarily held
in money market accounts which are invested in United States treasury bills or United States
treasury backed securities. We are not invested in auction rate securities. The Company has not
experienced any losses related to these balances and management believes its credit risk to be
minimal.
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 long-term capital requirements are primarily affected by our ongoing acquisition activities.
In the event of a substantial royalty or other acquisition, we may seek additional debt or equity
financing opportunities.
Recent Liquidity and Capital Resource Developments
Stock Repurchase Program
On January 25, 2008, the Company announced that its board of directors authorized the repurchase of
up to $30.0 million of its common stock in the open market through March 31, 2008. The timing and
number of shares repurchased through March 31, 2008, depended on market conditions and other
corporate considerations. As of March 31, 2008, the Company repurchased 196,986 common shares, at
an average price of $28.00 per common share for a total cost of approximately $5.5 million. The
common share repurchases were funded through cash and cash equivalents. The total cost to
reacquire the 196,986 common shares was included in Treasury Stock on the Companys consolidated
balance sheets as of March 31, 2008. The repurchase program, pursuant to the January 25, 2008,
announcement, ended on March 31, 2008.
On April 2, 2008, the Company retired the 196,986 common shares repurchased, pursuant to the
January 25, 2008, repurchase announcement. The 196,986 common shares retired have been returned to
the Companys authorized but unissued amount of common stock. Also, on June 20, 2008, the Company
retired the remaining 229,224 common shares held as treasury stock. The 229,224 common shares
retired have been returned to the Companys authorized but unissued amount of common stock. As of
June 30, 2008, the Company has zero common shares included in treasury stock.
Amendment to Credit Facility
On January 3, 2008, the Company entered into an amendment of its existing credit facility with HSBC
Bank USA, National Association. The amendment extends the maturity date of the credit facility two
years from December 31, 2010 to December 31, 2012. The amendment also updated the assumptions used
in the calculation of the borrowing base, which included an increase in the metal price assumption
of gold and added a metal price assumption for silver. The borrowing base calculation is
recalculated as of April 15 and October 15 each year. As of June 30, 2008, the Companys borrowing
capacity under the credit facility was $70.8 million. Please refer to Note 6 of the notes to the
consolidated financial statements for a further discussion on the credit facility.
Common Stock Dividend Increase
On November 14, 2007, the Company announced that its board of directors increased the Companys
annual (calendar year) common stock dividend from $0.26 per share to $0.28 per share, payable on a
quarterly basis of $0.07 per share of common stock, beginning with the quarterly dividend paid on
January 18, 2008.
45
Mandatory Convertible Preferred Stock Offering
On November 9, 2007, the Company completed an offering of 1,150,000 shares of 7.25% mandatory
convertible preferred stock (the Preferred Stock) at a price of $100.00 per share, less
underwriter discounts and other related expenses, resulting in net proceeds of $111.1 million.
Dividends on the Preferred Stock were payable on a cumulative basis when, as and if declared by our
board of directors at an annual rate of 7.25% per share on the liquidation preference of $100 per
share. We were to pay dividends in cash, common stock or a combination thereof, on February 15,
May 15, August 15 and November 15 of each year to and including November 15, 2010, commencing on
February 15, 2008.
Under the original terms of the Preferred Stock offering, each share of the Preferred Stock was to
automatically convert on November 15, 2010, into between 2.8335 and 3.4002 shares of our common
stock, subject to anti-dilution adjustments. At any time prior to November 15, 2010, holders may
have elected to convert each share of the Preferred Stock into shares of our common stock at the
minimum conversion rate of 2.8335 shares of common stock per share of the Preferred Stock, subject
to anti-dilution adjustments. At any time prior to May 15, 2008, we may have, at our option,
caused the conversion of all, but not less than all, of the Preferred Stock into shares of our
common stock at the provisional conversion rate described within the Preferred Stock offering.
However, we could not elect to exercise our provisional conversion right if, on or prior to May 15,
2008, we completed a material transaction involving the acquisition of assets or a business with a
purchase price of $100 million or more.
On January 10, 2008, the Companys board of directors declared the regular quarterly dividend for
the first dividend period of $1.9333 per share of the Preferred Stock. The dividend was paid on
February 15, 2008, to preferred shareholders of record at the close of business on February 1,
2008. The preferred dividend of $2.2 million was paid in cash.
On January 25, 2008, the Company announced that it exercised its provisional conversion right for
all of the issued and outstanding shares of its Preferred Stock. As part of the provisional
conversion right, each share of the Preferred Stock was converted into shares of our common stock
on March 10, 2008 (the Conversion Date), based on the average closing price per common share on
the Nasdaq over a 20 consecutive trading day period, which ended on March 5, 2008, as provided in
the Certificate of Designations of the Preferred Stock. The average closing price over the 20
consecutive trading day period was $29.78 and each outstanding share of Preferred Stock was
automatically converted into 3.4589 shares of common stock on the Conversion Date. The Company
issued 3,977,683 shares of its common stock upon conversion of the Preferred Stock.
In connection with the conversion, all accrued and unpaid dividends on the Preferred Stock up to
the Conversion Date were paid in cash at $0.5035 per share of Preferred Stock, or $0.6 million, to
holders of record on the Conversion Date. Trading of the Preferred Stock on the NASDAQ was
suspended at the close of business on March 5, 2008, and the Preferred Stock was de-listed on March
24, 2008. The conversion of the Preferred Stock into shares of our common stock simplified our
capital structure and will significantly reduce our cost of capital due to the elimination of the
7.25% after tax Preferred Stock dividend payment. The Company applied a contingent beneficial
conversion feature model to account for the provisional conversion of the Preferred Stock during
its third fiscal quarter of 2008, which resulted in the Company recognizing a deemed dividend of
$2.0 million during our fiscal year 2008. There were no tax consequences to the Company upon
conversion of the Preferred Stock.
Acquisition of Battle Mountain Gold Exploration Corp.
On October 24, 2007, we acquired 100% of the issued and outstanding capital stock of Battle
Mountain in a transaction whereby our wholly-owned subsidiary, Royal Battle Mountain, Inc., was
merged with and into Battle Mountain, with Battle Mountain surviving as a wholly-owned subsidiary
of Royal Gold, for aggregate consideration consisting of 1.14 million shares of our common stock
and approximately $3.4
46
million in cash. At the time of acquisition, Battle Mountain had approximately $1.4 million in
cash. Please refer to Note 2 of the notes to consolidated financial statements and Other
Developments in this MD&A for further discussion on the acquisition of Battle Mountain.
Contractual Obligations
Our contractual obligations as of June 30, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (in thousands) |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Note payable(1) |
|
$ |
17,732 |
|
|
$ |
529 |
|
|
$ |
17,203 |
|
|
$ |
|
|
|
$ |
|
|
Operating leases |
|
|
904 |
|
|
|
186 |
|
|
|
631 |
|
|
|
87 |
|
|
|
|
|
Other long-term
obligations |
|
|
94 |
|
|
|
26 |
|
|
|
53 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,730 |
|
|
$ |
741 |
|
|
$ |
17,887 |
|
|
$ |
102 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal ($15.75 million) and estimated interest payments ($2.0
million) assuming no early extinguishment. |
For information on our contractual obligations, see Notes 7 and 15 of the notes to consolidated
financial statements under Part II, Item 8. Financial Statements and Supplementary Data of this
Annual Report on Form 10-K. Royal Gold believes it will be able to fund all existing obligations
from net cash provided by operating activities.
Results of Operations
Fiscal Year Ended June 30, 2008, Compared with Fiscal Year Ended June 30, 2007
For the fiscal year ended June 30, 2008, we recorded net income of $26.1 million, or $0.69 per
basic share and $0.68 per diluted share (after adjustments for preferred stock dividends and deemed
dividends), compared to net income of $19.7 million, or $0.79 per basic share and diluted share,
for the fiscal year ended June 30, 2007.
For fiscal year 2008, we received total royalty revenue of $69.4 million (including $1.4 million of
minority interest), at an average gold price of $821 per ounce, compared to royalty revenue of
$48.4 million (including $1.5 million of minority interest), at an average gold price of $638 per
ounce for fiscal year 2007. Royalty revenue and the corresponding production, attributable to our
royalty interests, for fiscal year 2008 compared to fiscal year 2007 is as follows:
47
Royalty Revenue and Production Subject to Our Royalty Interests
Fiscal Years Ended June 30, 2008 and 2007
(In thousands, except reported production in ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
Fiscal Year Ended |
|
|
|
|
June 30, 2008 |
|
June 30, 2007 |
|
|
|
|
Royalty |
|
Reported |
|
Royalty |
|
Reported |
Royalty |
|
Metal |
|
Revenue |
|
Production(1) |
|
Revenue |
|
Production(1) |
Cortez |
|
Gold |
|
$ |
25,085 |
|
|
|
436,148 |
|
|
oz. |
|
$ |
21,486 |
|
|
|
510,273 |
|
|
oz. |
Robinson |
|
|
|
$ |
16,576 |
|
|
|
|
|
|
|
|
$ |
12,573 |
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
120,873 |
|
|
oz. |
|
|
|
|
|
|
80,603 |
|
|
oz. |
|
|
Copper |
|
|
|
|
|
139.0 million |
|
|
lbs. |
|
|
|
|
|
116.9 million |
|
|
lbs. |
Taparko(2) |
|
Gold |
|
$ |
7,435 |
|
|
|
36,078 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
Leeville |
|
Gold |
|
$ |
5,570 |
|
|
|
360,811 |
|
|
oz. |
|
$ |
2,661 |
|
|
|
230,458 |
|
|
oz. |
Goldstrike SJ Claims |
|
Gold |
|
$ |
5,086 |
|
|
|
698,488 |
|
|
oz. |
|
$ |
5,463 |
|
|
|
950,462 |
|
|
oz. |
Troy |
|
|
|
$ |
2,536 |
|
|
|
|
|
|
|
|
$ |
3,067 |
|
|
|
|
|
|
|
|
|
Silver |
|
|
|
|
|
|
744,008 |
|
|
oz. |
|
|
|
|
|
1.0 million |
|
|
oz. |
|
|
Copper |
|
|
|
|
|
7.1 million |
|
|
lbs. |
|
|
|
|
|
9.6 million |
|
|
lbs. |
Mulatos |
|
Gold |
|
$ |
1,521 |
|
|
|
120,933 |
|
|
oz. |
|
$ |
1,012 |
|
|
|
103,262 |
|
|
oz. |
Don Mario(3) |
|
Gold |
|
$ |
1,430 |
|
|
|
63,419 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
El Chanate(4) |
|
Gold |
|
$ |
1,081 |
|
|
|
20,906 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
Martha |
|
Silver |
|
$ |
983 |
|
|
3.2 million |
|
|
oz. |
|
$ |
714 |
|
|
2.9 million |
|
|
oz. |
El Limon(3) |
|
Gold |
|
$ |
708 |
|
|
|
28,385 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
Williams(3) |
|
Gold |
|
$ |
613 |
|
|
|
105,898 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
Bald Mountain |
|
Gold |
|
$ |
607 |
|
|
|
50,141 |
|
|
oz. |
|
$ |
1,281 |
|
|
|
109,515 |
|
|
oz. |
Gold Hill |
|
Gold |
|
$ |
100 |
|
|
|
N/A |
|
|
|
|
$ |
100 |
|
|
|
N/A |
|
|
|
Peñasquito (oxide) |
|
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
Gold |
|
|
|
|
|
|
1,618 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
Silver |
|
|
|
|
|
|
91,601 |
|
|
oz. |
|
|
N/A |
|
|
|
N/A |
|
|
|
Joe Mann(3) |
|
Gold |
|
$ |
3 |
|
|
|
138 |
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
Total Revenue |
|
|
|
$ |
69,393 |
|
|
|
|
|
|
|
|
$ |
48,357 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the twelve months ended June 30, 2008 and June 30, 2007, as reported to us by
the operators of the mines. |
|
(2) |
|
Receipt of royalty revenue commenced during the quarter ended September 30, 2007. |
|
(3) |
|
Royalty acquired on October 24, 2007, as part of the acquisition of Battle Mountain. |
|
(4) |
|
Royalty was acquired on February 20, 2008. Royalty revenue amount shown includes
amounts recognized by us for both the sliding-scale and NPI royalties. Please refer to
Recent Developments Marigold and El Chanate Royalty Acquisitions within this MD&A for
further discussion. |
The increase in royalty revenue for the fiscal year ended June 30, 2008, compared with the fiscal
year ended June 30, 2007, resulted from an increase in the average gold price, increased production
at Robinson and Leeville, the continued ramp-up of gold production at the Taparko mine and
production from the recently acquired Battle Mountain production stage royalty interests. The
continued ramp-up of production at the Taparko mine contributed approximately $7.4 million in
royalty revenue during the period, while production from the recently acquired Battle Mountain
royalties contributed approximately $2.8 million in royalty revenue during the period. The
increase in royalty revenue was offset slightly by decreases in production volume at the Cortez,
Goldstrike SJ Claims, Bald Mountain and Troy mine royalties.
48
The Taparko mine commenced gold production in August 2007 and contributed approximately $7.4
million in royalty revenue for our fiscal year 2008. Reserve characteristics, mining activity, and
gold recovery performance has been near feasibility study estimates. However, mill performance has
suffered throughout our fiscal year 2008 due to problems associated with the grinding mill
drive-train. This has resulted in low mill availability and throughput. Several problems with the
original installation were identified and corrected but mechanical problems have persisted.
Production was ceased on June 11, 2008, and the entire drive-train was re-evaluated and is now in
the process of reassembly with the assistance of third party mill equipment specialists.
Continuous and sustained production is dependent upon resolving the mill drive-train problems.
Cost of operations expenses increased to $3.8 million for the fiscal year ended June 30, 2008, from
$3.3 million for the fiscal year ended June 30, 2007. The increase was primarily due to an
increase in the Nevada Net Proceeds Tax (NNPT) expense, which resulted from an increase in
royalty revenue from the Cortez, Leeville and Robinson royalties.
General and administrative expenses increased to $7.2 million for the quarter ended June 30, 2008,
from $5.8 million for the fiscal year ended June 30, 2007. The increase was primarily due to an
increase in general corporate costs of approximately $0.5 million, tax and consulting fees of
approximately $0.4 million, non-recurring general corporate costs associated with the preferred
stock offering of approximately $0.2 million and an increase in employee related costs of
approximately $0.2 million.
Exploration and business development expenses increased to $4.1 million for the fiscal year ended
June 30, 2008, from $2.5 million for the fiscal year ended June 30, 2007. The increase is due to
an increase in legal and consulting services for business development activities during the period.
The Company recorded total non-cash stock compensation expense related to our equity compensation
plan of $2.9 million for the fiscal year ended June 30, 2008, compared to $2.7 million for the
fiscal year ended June 30, 2007. 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 8 of the
notes to consolidated financial statements for further discussion of our stock-based compensation
and the allocation of non-cash stock compensation for the fiscal year ended June 30, 2008 and 2007.
Depreciation, depletion and amortization increased to $18.4 million for the fiscal year ended June
30, 2008, from $8.3 million for the fiscal year ended June 30, 2007. The increase was primarily
due to the continued ramp-up of gold production at the Taparko mine, which contributed
approximately $4.5 million in additional depletion during the period. Depletion from the recently
acquired Battle Mountain producing royalties also contributed approximately $2.3 million in
additional depletion during the period. An increase in production at Robinson and Mulatos as well
as the additional depletion from the recently acquired royalties on the El Chanate mine also
resulted in additional depletion of approximately $1.4 million over the prior period. Finally, an
increase in production at Leeville resulted in additional depletion of approximately $1.0 million
over the prior period.
Interest and other income increased to $6.7 million for the fiscal year ended June 30, 2008, from
$4.3 million for the fiscal year ended June 30, 2007. The increase is primarily due to an increase
in funds available for investing over the prior period, which is due primarily to the preferred
stock offering completed in November 2007, as discussed above in Liquidity and Capital Resources
within this MD&A. The increase was partially offset by lower interest rates on our cash
investments when compared to the prior period.
During the fiscal year ended June 30, 2008, we recognized current and deferred tax expense totaling
$12.9 million compared with $9.5 million during the fiscal year ended June 30, 2007. This resulted
in an effective tax rate of 33.1% in the current period, compared with 32.6% in the prior period.
The increase in our effective tax rate is the result of the increase in the amount of foreign
losses for which no tax
49
benefit is currently recognized, as well as an increase in our non-cash stock compensation expense
associated with incentive stock options for which there is no current tax deduction.
Fiscal Year Ended June 30, 2007, Compared with Fiscal Year Ended June 30, 2006
For the fiscal year ended June 30, 2007, we recorded net income of $19.7 million, or $0.79 per
basic share and diluted share, as compared to net income of $11.4 million, or $0.50 per basic share
and $0.49 per diluted share, for the fiscal year ended June 30, 2006.
For fiscal year 2007, we received total royalty revenue of $48.4 million (including $1.7 million of
minority interest), at an average gold price of $638 per ounce, compared to royalty revenue of
$28.4 million, at an average gold price of $527 per ounce for fiscal year 2006. Royalty revenue
and the corresponding production, attributable to our royalty interests, for fiscal year 2007
compared to fiscal year 2006 is as follows:
Royalty Revenue and Production Subject to Our Royalty Interests
Fiscal Years Ended June 30, 2007 and 2006
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
Fiscal Year Ended |
|
|
|
|
June 30, 2007 |
|
June 30, 2006 |
|
|
|
|
Royalty |
|
Reported |
|
Royalty |
|
Reported |
Royalty |
|
Metal(s) |
|
Revenue |
|
Production(1) |
|
Revenue |
|
Production(1) |
Cortez |
|
Gold |
|
$ |
21,486 |
|
|
|
510,273 |
|
|
oz. |
|
$ |
16,813 |
|
|
|
598,974 |
|
|
oz. |
Robinson |
|
|
|
$ |
12,573 |
|
|
|
|
|
|
|
|
$ |
2,203 |
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
80,603 |
|
|
oz. |
|
|
|
|
|
|
13,082 |
|
|
oz. |
|
|
Copper |
|
|
|
|
|
116.9 million |
|
|
lbs. |
|
|
|
|
|
27.2 million |
|
|
lbs. |
Goldstrike SJ Claims |
|
Gold |
|
$ |
5,463 |
|
|
|
950,462 |
|
|
oz. |
|
$ |
4,784 |
|
|
1.0 million |
|
|
oz. |
Troy |
|
|
|
$ |
3,067 |
|
|
|
|
|
|
|
|
$ |
1,693 |
|
|
|
|
|
|
|
|
|
Silver |
|
|
|
|
|
1.0 million |
|
|
oz. |
|
|
|
|
|
|
884,528 |
|
|
oz. |
|
|
Copper |
|
|
|
|
|
9.6 million |
|
|
lbs. |
|
|
|
|
|
7.1 million |
|
|
lbs. |
Leeville |
|
Gold |
|
$ |
2,661 |
|
|
|
230,458 |
|
|
oz. |
|
$ |
768 |
|
|
|
83,696 |
|
|
oz. |
Bald Mountain |
|
Gold |
|
$ |
1,281 |
|
|
|
109,515 |
|
|
oz. |
|
$ |
1,493 |
|
|
|
126,317 |
|
|
oz. |
Mulatos(2) |
|
Gold |
|
$ |
1,012 |
|
|
|
103,262 |
|
|
oz. |
|
$ |
225 |
|
|
|
23,912 |
|
|
oz. |
Martha |
|
Silver |
|
$ |
714 |
|
|
2.9 million |
|
|
oz. |
|
$ |
401 |
|
|
2.3 million |
|
|
oz. |
Gold Hill(3) |
|
Gold |
|
$ |
100 |
|
|
|
N/A |
|
|
|
|
$ |
N/A |
|
|
|
N/A |
|
|
|
Total Revenue |
|
|
|
$ |
48,357 |
|
|
|
|
|
|
|
|
$ |
28,380 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the fiscal years ended June 30, 2007 and June 30, 2006, as reported to us by
the operators of the mines. |
|
(2) |
|
Receipt of royalty revenue commenced during our fourth quarter of fiscal year 2006. |
|
(3) |
|
Royalty revenue received represents an annual advance royalty payment per the
Assignment and Mining Lease with Option to Purchase between Round Mountain Gold and Royal
Gold. The Gold Hill royalty was acquired during our second quarter of fiscal year 2007. |
The increase in royalty revenue for the fiscal year ended June 30, 2007, compared with the fiscal
year ended June 30, 2006, resulted from an increase in metal prices, increased production at the
Leeville Mining Complex, the Troy mine, and a full year of revenue from the Robinson and Mulatos
royalties. The consolidation of Crescent Valley Partners, L.P. (CVP) contributed $1.6 million to
royalty revenue during the fiscal year ended June 30, 2007, $1.5 million of which is eliminated
from income as minority interest in income of consolidated subsidiary. See Note 16 to the
consolidated financial statements for further information.
50
Cost of operations increased to $3.3 million for the fiscal year ended June 30, 2007, compared to
$2.3 million for the fiscal year ended June 30, 2006. The increase was mainly due to an increase
in the NNPT expense, which resulted primarily from an increase in royalty revenue from the Cortez,
Leeville and Robinson royalties.
General and administrative expenses increased to $5.8 million for the fiscal year ended June 30,
2007, compared to $5.0 million for the fiscal year ended June 30, 2006. The increase was primarily
due to an increase in legal fees of approximately $0.3 million and accounting fees of approximately
$0.2 million. These increases were primarily the result of the internal review of stock option
matters and other corporate matters during our third and fourth fiscal quarters of 2007.
Exploration and business development expenses decreased to $2.5 million for the fiscal year ended
June 30, 2007, compared to $3.4 million for the fiscal year ended June 30, 2006. The decrease was
primarily due to a decrease in exploration costs of approximately $0.2 million, a decrease in
non-cash compensation expense allocated to exploration and business development expense of
approximately $0.2 million and a decrease in consulting services for business development of
approximately $0.4 million, which is the result of the Company completing royalty acquisitions and
capitalizing the related acquisition costs.
Depreciation and depletion increased to $8.3 million for the fiscal year ended June 30, 2007,
compared to $4.3 million for the fiscal year ended June 30, 2006. The increase was primarily due
to additional depletion incurred of approximately of $1.9 million, as a result of the Robinson and
Mulatos royalty acquisitions during the fourth quarter of fiscal year 2006. Increased production
and an increase in depletion rates for our Leeville Mining Complex and Troy mine royalties resulted
in additional depletion of approximately $2.1 million over the prior period.
The Company recorded total non-cash stock compensation expense related to our equity compensation
plans of $2.7 million for the fiscal year ended June 30, 2007, compared to $2.8 million for the
fiscal year ended June 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. The total non-cash compensation
expense allocated to cost of operations, general and administrative expenses, and exploration and
business development expenses for the fiscal year ended June 30, 2007, was $0.4 million, $1.5
million and $0.8 million, respectively, compared with $0.4 million, $1.5 million and $0.9 million,
respectively, for the fiscal year ended June 30, 2006.
Interest and other income increased to $4.3 million for the fiscal year ended June 30, 2007,
compared to $3.2 million for the fiscal year ended June 30, 2006. The increase is primarily due to
higher interest rates, an increase in average funds available for investing over the prior period
and interest earned on the Battle Mountain bridge facility.
Interest and other expense increased to $2.0 million for the fiscal year ended June 30, 2007,
compared to $0.2 million for the period ended June 30, 2006. The increase is due to interest paid
during the period for the outstanding revolving credit facility balance during our third fiscal
quarter and the RGCL note payable, as discussed above in Recent Liquidity and Capital Resource
Development.
For the fiscal year ended June 30, 2007, we recognized current and deferred tax expense totaling
$9.5 million compared with $5.1 million for the fiscal year ended June 30, 2006. This resulted in
an effective tax rate of 32.6% and 31.0% as of June 30, 2007 and 2006, respectively.
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
51
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, 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 production at or 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 and geological, metallurgical, processing or other problems at the
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; |
|
|
|
|
federal, state and foreign 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; |
|
|
|
|
risks associated with issuances of substantial additional common stock in connection
with acquisitions or otherwise; |
|
|
|
|
risks associated with the incurrence of substantial additional indebtedness if we take
such actions in connection with acquisitions or otherwise; and |
|
|
|
|
the completion of the Barrick royalty acquisition. |
as well as other factors described elsewhere in this report and other reports filed with the 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 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 significantly 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
52
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 this
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 fiscal year ended June 30, 2008, we reported royalty revenues of $69.4 million, with an
average gold price for the period of $821 per ounce and an average copper price of $3.53 per pound.
Approximately 75% of our total recognized revenues for the fiscal year ended June 30, 2008, were
attributable to gold sales from our gold producing royalty interests, as shown within the MD&A.
For the fiscal year ended June 30, 2008, if the price of gold had averaged higher or lower by $50
per ounce, we would have recorded an increase of approximately $3.1 million or a decrease of
approximately $3.3 million in royalty revenue, respectively. Approximately 22% of our total
recognized revenues for the fiscal year ended June 30, 2008, were attributable to copper sales at
Robinson and Troy. For the fiscal year ended June 30, 2008, 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 $1.2 million, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors Royal Gold, Inc.:
In our opinion, the accompanying consolidated financial statements listed in the accompanying
appendix present fairly, in all material respects, the financial position of Royal Gold, Inc. and
its subsidiaries at June 30, 2008 and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2008 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
June 30, 2008, based on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting appearing under part II, Item 9A. Our responsibility is to express opinions on
these financial statements and on the Companys internal control over financial reporting based on
our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Denver, Colorado
August 19, 2008
54
ROYAL GOLD, INC.
Consolidated Balance Sheets
As of June 30,
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
192,035 |
|
|
$ |
82,842 |
|
Royalty receivables |
|
|
17,627 |
|
|
|
12,470 |
|
Income tax receivable |
|
|
1,310 |
|
|
|
|
|
Deferred tax assets |
|
|
131 |
|
|
|
154 |
|
Prepaid expenses and other |
|
|
308 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
211,411 |
|
|
|
95,683 |
|
|
|
|
|
|
|
|
|
|
Royalty interests in mineral properties, net (Note 4) |
|
|
300,670 |
|
|
|
215,839 |
|
Restricted cash compensating balance |
|
|
15,750 |
|
|
|
15,750 |
|
Inventory restricted |
|
|
11,170 |
|
|
|
10,612 |
|
Note receivable Battle Mountain Gold Exploration (Note 2) |
|
|
|
|
|
|
14,494 |
|
Other assets |
|
|
7,283 |
|
|
|
4,271 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
546,284 |
|
|
$ |
356,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,122 |
|
|
$ |
2,342 |
|
Income taxes payable |
|
|
|
|
|
|
5 |
|
Dividends payable |
|
|
2,384 |
|
|
|
1,869 |
|
Other |
|
|
1,797 |
|
|
|
472 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,303 |
|
|
|
4,688 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
|
26,034 |
|
|
|
5,911 |
|
Note payable |
|
|
15,750 |
|
|
|
15,750 |
|
Other long-term liabilities |
|
|
504 |
|
|
|
98 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
49,591 |
|
|
|
26,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
|
Minority interest in subsidiary (Note 16) |
|
|
11,411 |
|
|
|
11,121 |
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares authorized |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized
100,000,000 shares; and issued 33,926,495 and
28,892,980 shares, respectively |
|
|
339 |
|
|
|
289 |
|
Additional paid-in capital |
|
|
463,335 |
|
|
|
310,439 |
|
Accumulated other comprehensive income |
|
|
65 |
|
|
|
458 |
|
Accumulated earnings |
|
|
21,543 |
|
|
|
8,992 |
|
Less treasury stock, at cost (0 and 229,224 shares, respectively) |
|
|
|
|
|
|
(1,097 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
485,282 |
|
|
|
319,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
546,284 |
|
|
$ |
356,649 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
55
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
For the Years Ended June 30,
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Royalty revenues |
|
$ |
69,393 |
|
|
$ |
48,357 |
|
|
$ |
28,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of operations (exclusive of depreciation,
depletion and
amortization shown separately below) |
|
|
3,819 |
|
|
|
3,265 |
|
|
|
2,288 |
|
General and administrative |
|
|
7,208 |
|
|
|
5,824 |
|
|
|
5,022 |
|
Exploration and business development |
|
|
4,079 |
|
|
|
2,493 |
|
|
|
3,397 |
|
Depreciation, depletion and amortization |
|
|
18,364 |
|
|
|
8,269 |
|
|
|
4,261 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
33,470 |
|
|
|
19,851 |
|
|
|
14,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
35,923 |
|
|
|
28,506 |
|
|
|
13,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
6,742 |
|
|
|
4,258 |
|
|
|
3,204 |
|
Interest and other expense |
|
|
(1,729 |
) |
|
|
(1,973 |
) |
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
40,936 |
|
|
|
30,791 |
|
|
|
16,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (Note 11) |
|
|
(12,811 |
) |
|
|
(10,310 |
) |
|
|
(5,974 |
) |
Deferred tax (expense) benefit (Note 11) |
|
|
(115 |
) |
|
|
761 |
|
|
|
873 |
|
Minority interest in income of consolidated subsidiary |
|
|
(1,352 |
) |
|
|
(1,522 |
) |
|
|
|
|
Loss from equity investment |
|
|
(550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,108 |
|
|
$ |
19,720 |
|
|
$ |
11,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized change in market value of available for sale
securities, net of tax |
|
|
(393 |
) |
|
|
(40 |
) |
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
25,715 |
|
|
$ |
19,680 |
|
|
$ |
12,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,108 |
|
|
$ |
19,720 |
|
|
$ |
11,350 |
|
Preferred stock dividends and deemed dividend |
|
|
(4,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
21,320 |
|
|
$ |
19,720 |
|
|
$ |
11,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.69 |
|
|
$ |
0.79 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
31,054,725 |
|
|
|
24,827,319 |
|
|
|
22,863,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.68 |
|
|
$ |
0.79 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
31,390,293 |
|
|
|
25,075,086 |
|
|
|
23,134,034 |
|
The accompanying notes are an integral part of these consolidated financial statements
56
ROYAL GOLD, INC.
Consolidated Statements of Stockholders Equity
For the Years Ended June 30, 2008, 2007 and 2006
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Accumulated Other |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Preferred Shares |
|
|
Common Shares |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Deferred |
|
|
(Deficit) |
|
|
Treasury Stock |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
Balance at June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
21,258,576 |
|
|
$ |
212 |
|
|
$ |
104,164 |
|
|
$ |
(285 |
) |
|
$ |
(525 |
) |
|
$ |
(10,732 |
) |
|
|
229,224 |
|
|
$ |
(1,097 |
) |
|
$ |
91,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity offering |
|
|
|
|
|
|
|
|
|
|
2,227,912 |
|
|
|
22 |
|
|
|
54,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,718 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
276,777 |
|
|
|
3 |
|
|
|
3,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,912 |
|
Vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|
53,375 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock-based
compensation exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,438 |
|
Recognition of non-cash
compensation expense for stock-
based compensation (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,778 |
|
Reversal of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(524 |
) |
|
|
|
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Net income and comprehensive
income for the year ended
June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783 |
|
|
|
|
|
|
|
11,350 |
|
|
|
|
|
|
|
|
|
|
|
12,133 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,058 |
) |
|
|
|
|
|
|
|
|
|
|
(5,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
23,816,640 |
|
|
$ |
238 |
|
|
$ |
166,460 |
|
|
$ |
498 |
|
|
$ |
|
|
|
$ |
(4,440 |
) |
|
|
229,224 |
|
|
$ |
(1,097 |
) |
|
$ |
161,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity offering |
|
|
|
|
|
|
|
|
|
|
4,400,064 |
|
|
|
44 |
|
|
|
121,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,938 |
|
Peñasquito royalty acquisition |
|
|
|
|
|
|
|
|
|
|
577,434 |
|
|
|
6 |
|
|
|
18,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,501 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
46,467 |
|
|
|
|
|
|
|
582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
582 |
|
Vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|
52,375 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock-based
compensation exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346 |
|
Recognition of non-cash
compensation expense for stock-
based compensation (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,663 |
|
Net income and comprehensive
income for the year ended
June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
19,721 |
|
|
|
|
|
|
|
|
|
|
|
19,681 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,289 |
) |
|
|
|
|
|
|
|
|
|
|
(6,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
28,892,980 |
|
|
$ |
289 |
|
|
$ |
310,439 |
|
|
$ |
458 |
|
|
$ |
|
|
|
$ |
8,992 |
|
|
|
229,224 |
|
|
$ |
(1,097 |
) |
|
$ |
319,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Mandatory Convertible
offering (Note 9) |
|
|
1,150,000 |
|
|
|
115,000 |
|
|
|
|
|
|
|
|
|
|
|
(3,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of 7.25% Mandatory
Convertible Preferred Stock |
|
|
(1,150,000 |
) |
|
|
(115,000 |
) |
|
|
3,977,683 |
|
|
|
40 |
|
|
|
116,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986 |
|
Battle Mountain
acquisition
(Note 2) |
|
|
|
|
|
|
|
|
|
|
1,144,025 |
|
|
|
11 |
|
|
|
35,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,843 |
|
Equity offering costs (April
2007) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
101,750 |
|
|
|
1 |
|
|
|
724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725 |
|
Vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|
19,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
IAMGOLD Corporation and Repadre
International Corporation (Note
9) |
|
|
|
|
|
|
|
|
|
|
216,642 |
|
|
|
2 |
|
|
|
6,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retire treasury stock |
|
|
|
|
|
|
|
|
|
|
(426,210 |
) |
|
|
(4 |
) |
|
|
(6,609 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(426,210 |
) |
|
|
6,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
(Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,986 |
|
|
|
(5,516 |
) |
|
|
(5,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock-based
compensation exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of non-cash
compensation expense
for stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive
income for the year income for
the year ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(393 |
) |
|
|
|
|
|
|
26,108 |
|
|
|
|
|
|
|
|
|
|
|
25,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock deemed dividend
upon conversion of 7.25%
Mandatory Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,986 |
) |
|
|
|
|
|
|
|
|
|
|
(1,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,803 |
) |
|
|
|
|
|
|
|
|
|
|
(2,803 |
) |
Common stock dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,768 |
) |
|
|
|
|
|
|
|
|
|
|
(8,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
33,926,495 |
|
|
$ |
339 |
|
|
$ |
463,335 |
|
|
$ |
65 |
|
|
$ |
|
|
|
$ |
21,543 |
|
|
|
|
|
|
$ |
|
|
|
$ |
485,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
57
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
For the Years Ended June 30,
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,108 |
|
|
$ |
19,720 |
|
|
$ |
11,350 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
18,364 |
|
|
|
8,269 |
|
|
|
4,261 |
|
Loss on available for sale securities |
|
|
49 |
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit) |
|
|
115 |
|
|
|
(761 |
) |
|
|
(873 |
) |
Non-cash employee stock compensation expense |
|
|
2,869 |
|
|
|
2,663 |
|
|
|
2,778 |
|
Interest income accrued for Battle Mountain note receivable |
|
|
(713 |
) |
|
|
|
|
|
|
|
|
Tax benefit of stock-based compensation exercises |
|
|
(722 |
) |
|
|
(346 |
) |
|
|
(1,438 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Royalty receivables |
|
|
(4,430 |
) |
|
|
(6,508 |
) |
|
|
639 |
|
Prepaid expenses and other assets |
|
|
(232 |
) |
|
|
414 |
|
|
|
266 |
|
Accounts payable |
|
|
580 |
|
|
|
1,020 |
|
|
|
(65 |
) |
Income taxes (receivable) payable |
|
|
(970 |
) |
|
|
16 |
|
|
|
1,520 |
|
Other |
|
|
(1,891 |
) |
|
|
(140 |
) |
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
39,127 |
|
|
$ |
24,347 |
|
|
$ |
18,605 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property and equipment |
|
$ |
(42 |
) |
|
$ |
(285 |
) |
|
$ |
(39 |
) |
Acquisition of royalty interests in mineral properties |
|
|
(16,246 |
) |
|
|
(120,808 |
) |
|
|
(43,931 |
) |
Note receivable Battle Mountain Gold Exploration |
|
|
|
|
|
|
(14,494 |
) |
|
|
|
|
Restricted cash compensating balance |
|
|
|
|
|
|
(15,750 |
) |
|
|
|
|
Purchase of available for sale securities |
|
|
|
|
|
|
(81 |
) |
|
|
(205 |
) |
Deferred acquisition costs |
|
|
(157 |
) |
|
|
(973 |
) |
|
|
|
|
Battle Mountain acquisition, net of cash acquired of $1,398 |
|
|
(2,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(19,378 |
) |
|
$ |
(152,391 |
) |
|
$ |
(44,175 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends |
|
$ |
(8,253 |
) |
|
$ |
(5,721 |
) |
|
$ |
(4,807 |
) |
Preferred stock dividends |
|
|
(2,802 |
) |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(27 |
) |
|
|
(464 |
) |
|
|
(82 |
) |
Issuance of Note payable |
|
|
|
|
|
|
15,750 |
|
|
|
|
|
Tax benefit from stock-based compensation exercises |
|
|
722 |
|
|
|
346 |
|
|
|
1,438 |
|
Gold loan payoff Battle Mountain |
|
|
(6,476 |
) |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
698 |
|
|
|
122,526 |
|
|
|
58,630 |
|
Net proceeds from issuance of preferred stock |
|
|
111,098 |
|
|
|
|
|
|
|
|
|
Stock repurchase program |
|
|
(5,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
$ |
89,444 |
|
|
$ |
132,437 |
|
|
$ |
55,179 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and equivalents |
|
|
109,193 |
|
|
|
4,393 |
|
|
|
29,609 |
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of year |
|
|
82,842 |
|
|
|
78,449 |
|
|
|
48,840 |
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year |
|
$ |
192,035 |
|
|
$ |
82,842 |
|
|
$ |
78,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 12 for supplemental cash flow information. |
The accompanying notes are an integral part of these consolidated financial statements.
58
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data, per ounce and per pound amounts)
|
|
|
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. During the 2008 fiscal year, 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.
Summary of Significant Accounting Policies
Use of Estimates:
The preparation of our financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities
at the dates of the financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ significantly from those estimates.
Basis of Consolidation:
The consolidated financial statements include the accounts of Royal Gold, Inc., its wholly-owned
subsidiaries and an entity over which control is achieved through means other than voting rights
(see
Note 16). Intercompany transactions and account balances have been eliminated in consolidation.
Cash and Equivalents:
We consider all highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. At June 30, 2008, cash and equivalents were primarily held in money
market accounts which are invested in United States treasury bills or United States treasury backed
securities. As of June 30, 2008, approximately $190.2 million of our total cash and equivalents
was held at one financial institution.
Available for Sale Securities:
Investments in securities that management does not have the intent to sell in the near term and
that have readily determinable fair values are classified as available-for-sale investments and are
included as a separate component of Other assets on the Companys consolidated balance sheets.
Unrealized gains and losses on these investments are recorded in accumulated other comprehensive
income as a separate component of stockholders equity, except that declines in market value judged
to be other than temporary are recognized in determining net income. When investments are sold,
the realized gains and
59
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
losses on these investments, determined using the specific identification method, are included in
determining net income.
The Companys policy for determining whether declines in fair value of available-for-sale
investments are other than temporary includes a quarterly analysis of the investments and a review
by management of all investments that are impaired. If such impairment is determined by the
Company to be other than temporary, the investments cost basis is written down to fair value and
recorded in net income during the period the Company determines such impairment to be other than
temporary.
Royalty Interests in Mineral Properties:
Royalty interests in mineral properties include acquired royalty interests in production stage,
development stage and exploration stage properties. The fair value of acquired royalty interests
in mineral properties are capitalized as tangible assets when such interests do not meet the
definition of a financial asset under the Financial Accounting Standard Boards (FASB) Statement
of Financial Account Standards (SFAS) No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities a Replacements of FASB Statement No. 125, or
a derivative instrument under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. Also, in accordance with FASB Emerging Issues Task Force (EITF) Issue No., or EITF,
04-02, Working Group Report No.1, Whether Mineral Rights are Tangible or Intangible Assets and
Related Issues, we recognize our royalty interests as tangible assets as of June 30, 2008 and 2007.
We based our conclusion on the following factors:
|
1. |
|
Our royalty interests in mineral properties do not meet the definition of financial
assets under FASB Statement No. 140; and |
|
|
2. |
|
Our royalty interests in mineral properties do not meet the definition of derivative
instruments under FASB Statement No. 133. |
Acquisition costs of production stage royalty interests are depleted using the units of production
method over the life of the mineral property, which is estimated using proven and probable
reserves. Acquisition costs of royalty interests on development stage mineral properties, not yet
in production, are not amortized until the property begins production. Acquisition costs of
royalty interests on exploration stage mineral properties, where there are no proven and probable
reserves, are not amortized. At such time as the associated exploration stage mineral interests
are converted to proven and probable reserves, the cost basis is amortized over the remaining life
of the mineral property, using proven and probable reserves. The carrying values of exploration
stage mineral interests are evaluated for impairment at such time as information becomes available
indicating that the production will not occur in the future. Exploration costs are charged to
operations when incurred.
Asset Impairment:
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate
that the related carrying amounts of an asset or group of assets may not be recoverable. The
recoverability of the carrying value of royalty interests in production and development stage
mineral properties is evaluated based upon estimated future undiscounted net cash flows from each
royalty interest property using estimates of proven and probable reserves. We evaluate the
recoverability of the carrying value of royalty interests in exploration stage mineral properties
in the event of significant decreases in the price of gold and other metals, and whenever new
information regarding the mineral properties is obtained from the operator that could affect the
future recoverability of our royalty interests. Impairments in the carrying value of each property
are measured and recorded to the extent that the carrying value in each property exceeds its
estimated fair value, which is generally calculated using estimated future discounted cash flows.
60
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
Our estimates of gold and other metal prices, operators estimates of proven and probable reserves
related to our royalty properties, and operators estimates of operating, capital and reclamation
costs are subject to certain risks and uncertainties which may affect the recoverability of our
investment in these royalty interests in mineral properties. Although we have made our best
assessment of these factors based on current conditions, it is possible that changes could occur,
which could adversely affect the net cash flows expected to be generated from these royalty
interests.
Royalty Revenue:
Royalty revenue is recognized pursuant to guidance in Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition for Financial Statements. Revenue is recognized in accordance with the terms
of the underlying royalty agreements subject to (i) the persuasive evidence of the existence of the
arrangements; (ii) the risks and rewards having been transferred; (iii) the royalty being fixed or
determinable; and (iv) the collectability of the royalty being reasonably assured. For royalty
payments received in gold, royalty revenue is recorded at the average spot price of gold for the
period in which the royalty was earned.
Revenue recognized pursuant to the Robinson royalty agreement is based upon 3 percent of revenue
received by the operator of the mine, Quadra Mining Ltd. (Quadra), for the sale of minerals from
the Robinson mine, reduced by certain costs incurred by Quadra. Quadras concentrate sales
contracts with third-party smelters, in general, provide for an initial payment based upon
provisional assays and quoted metal prices at the date of shipment. Final true up payments are
subsequently based upon final assays and market metal prices set on a specified future date,
typically one to three months after the date the concentrate arrives at the third-party smelter
(which generally occurs four to five months after the shipment date from the Robinson mine).
Royal Gold recognizes revenue under the Robinson royalty agreement based on amounts contractually
due pursuant to the calculations above for the underlying sale. As a result of pricing variations
in gold, silver and copper over the respective settlement period, royalty revenue recognized on the
Robinson royalty could be positively or negatively impacted by any changes in metal prices, between
the provisional and final settlement periods.
Income Taxes:
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes, and FASB
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income TaxesAn interpretation of
FASB Statement No. 109. FIN 48 clarifies the accounting and reporting for uncertainties in the
application of the income tax laws to the Companys operations. The Company adopted FIN 48 on July
1, 2007. Please refer to Note 11 for a discussion regarding the effect of adopting FIN 48.
The Companys deferred income taxes reflect the impact of temporary differences between the
reported amounts of assets and liabilities for financial reporting purposes and such amounts
measured by tax laws and regulations. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. A valuation allowance is provided for deferred
tax assets when management concludes it is more likely than not that some portion of the deferred
tax assets will not be realized.
Stock-Based Compensation:
Effective July 1, 2005, we account for our stock-based compensation in accordance with SFAS No. 123
(revised 2004), Share-Based Payment, (SFAS 123(R)). SFAS 123(R) requires all share-based
61
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
payments to employees, including grants of employee stock options and restricted stock, to be
recognized in the financial statements based on their fair values. See Note 8 for further
discussion on the Companys stock-based compensation.
Operating Segments and Geographical Information:
We manage our business under one operating segment, consisting of royalty acquisition and
management activities. All of our assets and revenues are attributable to the royalty operating
segment.
Royal Golds royalty revenue and long-lived assets (royalty interests in mineral properties, net)
are geographically distributed as shown in the following table. Please refer to Note 4 for further
discussion on our significant royalty interests on producing mineral properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
|
Royalty Interests in |
|
|
Revenue |
|
Mineral Properties, net |
|
|
2008 |
|
2007 |
|
2006 |
|
2008 |
|
2007 |
|
2006 |
United States |
|
|
80 |
% |
|
|
97 |
% |
|
|
98 |
% |
|
|
18 |
% |
|
|
25 |
% |
|
|
69 |
% |
Mexico |
|
|
4 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
55 |
% |
|
|
49 |
% |
|
|
9 |
% |
Africa(1) |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
12 |
% |
|
|
16 |
% |
|
|
22 |
% |
Chile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
% |
|
|
10 |
% |
|
|
|
|
Other(2) |
|
|
5 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of royalties on properties in Burkina Faso and the Republic of Ghana.
Royalty revenue shown is attributable to revenues from our royalties in Burkina Faso. |
|
(2) |
|
The Other category for Royalty revenue consists of Argentina, Bolivia (2008
only), Canada (2008 only) and Nicaragua (2008 only). The Other category for Royalty
Interests in Mineral Properties, net for 2008 consists of Bolivia, Canada, Colombia, Honduras
and Nicaragua. |
Comprehensive Income:
In addition to net income, comprehensive income includes changes in equity during a period
associated with cumulative unrealized changes in the fair value of marketable securities held for
sale, net of tax effects.
Earnings Per Share:
Basic earnings per share is computed by dividing the net income or loss by the weighted average
number of common shares outstanding during each year. Diluted earnings per share reflects the
effect of all potentially dilutive stock-based compensation awards.
Reclassifications:
Certain amounts in the prior period financial statements have been reclassified for comparative
purposes to conform with the presentation in the current period financial statements.
Recently Issued Accounting Pronouncements
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 intends to
improve financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on an entitys
financial position, financial performance and cash flows. SFAS 161 also requires disclosure about
an entitys strategy and objectives
62
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
for using derivatives, the fair values of derivative instruments and their related gains and
losses. SFAS 161 is effective for fiscal years and interim periods beginning after November 15,
2008, and will be applicable to the Companys fiscal year beginning July 1, 2009. The Company is
evaluating the impact, if any, the adoption of SFAS 161 could have on its financial statements.
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations, (SFAS
141R), which significantly changes the ways companies account for business combinations and will
generally require more assets acquired and liabilities assumed to be measured at their acquisition
date fair value. Under SFAS 141R, legal fees and other transaction-related costs are expensed as
incurred and are no longer included in goodwill as a cost of acquiring the business. SFAS 141R
also requires, among other things, acquirers to estimate the acquisition date fair value of any
contingent consideration and to recognize any subsequent changes in the fair value of contingent
consideration in earnings. In addition, restructuring costs the acquirer expected, but was not
obligated to incur, will be recognized separately from the business acquisition. SFAS 141R is
effective for the Companys fiscal year beginning July 1, 2009, and is to be applied prospectively.
The Company is evaluating the impact, if any, the adoption of SFAS 141R could have on its
financial statements.
Also in December 2007, the FASB issued Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires all
entities to report non-controlling interests in subsidiaries as a separate component of equity in
the consolidated financial statements. SFAS 160 establishes a single method of accounting for
changes in a parents ownership interest in a subsidiary that do not result in deconsolidation.
Companies will no longer recognize a gain or loss on partial disposals of a subsidiary where
control is retained. In addition, in partial acquisitions, where control is obtained, the acquiring
company will recognize and measure at fair value 100 percent of the assets and liabilities,
including goodwill, as if the entire target company had been acquired. SFAS 160 is effective for
the Companys fiscal year beginning July 1, 2009, and is to be applied prospectively. The Company
is evaluating the impact, if any, the adoption of SFAS 160 could have on its financial statements.
In June 2007, the EITF reached consensus on Issue No. 06-11 Accounting for Income Tax Benefits of
Dividends on Share-Based Payment Awards. EITF Issue No. 06-11 requires that the tax benefit
related to dividend and dividend equivalents paid on equity-classified nonvested shares and
nonvested share units, which are expected to vest, be recorded as an increase to additional paid-in
capital. EITF No. 06-11 is to be applied prospectively for tax benefits on dividends declared in
our fiscal year beginning July 1, 2008. We do not expect the adoption of EITF 06-11 to have a
material impact on our consolidated financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, (SFAS 159) which allows entities to choose to measure many financial
instruments and certain other items at fair value. The provisions of SFAS 159 are effective for
our fiscal year beginning July 1, 2008, and interim periods within the fiscal year. We do not
expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS
157 provides guidance for using fair value to measure assets and liabilities. SFAS 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 SFAS 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 SFAS 157 are
effective for our fiscal year beginning July 1, 2008, and interim
63
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
periods within the fiscal year. We do not expect the adoption of SFAS 157 to have a material
impact on our consolidated financial statements.
On July 13, 2006, FIN 48 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 11 for a discussion regarding the effect of adopting FIN 48.
2. ACQUISITION OF BATTLE MOUNTAIN GOLD EXPLORATION
On July 30, 2007, we entered into an Amended and Restated Agreement and Plan of Merger (the Merger
Agreement) with Battle Mountain Gold Exploration Corp. (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 was 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 in a transaction whereby the Merger Sub
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. As part of the acquisition of
Battle Mountain, we acquired thirteen royalty interests in various stages of production,
development or exploration.
Immediately prior to the merger, Royal Gold owned approximately 18% of Battle Mountains
outstanding common stock and accounted for this ownership under the equity method, which resulted
in the Company recognizing a loss from equity investment of approximately $0.5 million for the
fiscal year ended June 30, 2008.
Subject to settlement of the Battle Mountain litigation discussed below, additional merger
consideration of up to an aggregate of 37,418 shares of Royal Gold common stock and approximately
$0.1 million in cash may be paid to former Battle Mountain stockholders. On September 13, 2006, an
action was filed against Battle Mountain and its former 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.
The acquisition of Battle Mountain has been accounted for as an asset acquisition using the
purchase method of accounting, whereby assets acquired and liabilities assumed were recorded at
their fair market values as of the date of acquisition. The purchase price was calculated using
the fair market value of the Royal Gold common shares issued, as of the date we completed the
transaction, plus cash and direct acquisition costs paid by Royal Gold.
We have allocated the purchase price of approximately $65.8 million to the fair market values of
the assets acquired and liabilities assumed, including $85.5 million to royalty interests in
mineral properties, $2.2 million to current assets, $5.8 million to intangible assets (included
within Other assets on the consolidated balance sheets), $3.8 million to deferred tax assets, $6.5
million to a gold loan payable,
64
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
$24.5 million to deferred tax liabilities resulting from the acquisition and $0.5 million of other
liabilities. The amounts allocated to the acquired royalty interests in mineral properties and
related deferred taxes are preliminary and are subject to change upon completion of final
valuations. The operating impact of the assets acquired from Battle Mountain have been reflected
in the results of Royal Gold from October 24, 2007.
The intangible asset included as part of the purchase price is associated with non-compete
agreements with the two former employees of Battle Mountain. For fiscal year 2008, the total
amortization expense associated with the intangible asset was approximately $1.3 million. The
remaining carrying value associated with the intangible asset is approximately $4.5 million, which
will be amortized over our next two and a half fiscal years.
The gold loan payable assumed as part of the acquisition of Battle Mountain was paid in full during
November 2007. The Note Receivable Battle Mountain Gold Exploration as shown on the Companys
consolidated balance sheets as of June 30, 2007, was assumed during the acquisition and was
included in the purchase price for Battle Mountain.
3. ROYALTY ACQUISITIONS
Marigold and El Chanate
On February 20, 2008, we acquired three royalties from AngloGold Ashanti (U.S.A.) Exploration Inc.
(AngloGold), a wholly-owned subsidiary of AngloGold Ashanti North America Inc., for $13.75
million. The first royalty is a 2.0% net smelter return (NSR) royalty on the Marigold mine,
located on the Battle Mountain-Eureka trend in Nevada, and operated by Goldcorp, Inc. (Goldcorp).
The second royalty is a 2.0-4.0% sliding-scale NSR royalty on the El Chanate mine, located in
Sonora, Mexico and operated by Capital Gold, Inc. (Capital Gold). The sliding-scale NSR royalty
is capped once payments of approximately $17.0 million have been received. The third royalty is a
10.0% net profits interest (NPI) royalty, also on the El Chanate mine. The 10.0% NPI royalty at
El Chanate is capped at $1.0 million.
The sliding-scale NSR royalty at El Chanate pays at a rate of 2.0% when the average gold price is
below $300 per ounce, 3.0% when the gold price is between $300 and $350 per ounce, and 4.0% when
the gold price is above $350 per ounce. The El Chanate mine commenced production in mid-2007.
Including royalty payments made to AngloGold, there have been cumulative payments made on the
sliding-scale NSR royalty of $1.1 million, resulting in $15.9 million remaining under the $17.0
million cap as of June 30, 2008. Also, based on information from Capital Gold, the Company has
accrued approximately $0.5 million in royalty revenue for the NPI royalty. The NPI royalty is
payable in February 2009.
The 2.0% NSR royalty interest on the Marigold mine covers the majority of six sections of land,
containing a number of open-pits, but does not cover the current mining in the Basalt/Antler area.
Approximately 38% of the current Marigold reserves are covered by this royalty. Based on our own
estimates, we expect to begin receiving royalty payments from the 2.0% NSR royalty on the Marigold
mine in calendar 2011, when mine operations are expected to move into areas covered by our royalty
interest.
The AngloGold transaction has been accounted for as a purchase of assets. The total purchase price
of $13.75 million, less royalty amounts received for production prior to the purchase date of $0.15
million, plus direct transaction costs, has been allocated to the three acquired royalties
according to their relative fair values, as separate components of Royalty Interests in Mineral
Properties on our consolidated
65
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
balance sheets. Accordingly, $7.5 million has been allocated to the sliding-scale NSR royalty at
El Chanate, $0.8 million has been allocated to the NPI royalty at El Chanate, and $5.3 million has
been allocated to the Marigold royalty.
Pascua-Lama
On March 9, 2007, Royal Golds wholly-owned subsidiary, Royal Gold Chile Limitada, a Chilean
limited liability company (RGCL), acquired an NSR sliding-scale royalty on gold which is derived
from certain mineral concessions at the Pascua-Lama project located in Chile for $20.5 million.
Barrick Gold Corporation (Barrick) owns the Pascua-Lama project and is ready for construction,
pending resolution of tax and permitting issues. The acquisition also includes an NSR royalty on
copper from reserves located in Chile sold after January 1, 2017.
The NSR sliding-scale 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. The
acquisition also includes 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.
The Pascua-Lama royalty acquisition was accounted for as an asset purchase. As such, the $20.5
million purchase price, plus approximately $0.4 million of direct acquisition costs, is recorded as
a component of Royalty interests in mineral properties in the consolidated balance sheets. We have
allocated $20.5 million as a development stage royalty interest and approximately $0.4 million as
an exploration stage royalty interest.
Peñasquito
On January 23, 2007, we acquired a 2.0% NSR royalty interest on the Peñasquito project located in
the State of Zacatecas, Mexico, from Kennecott Exploration Company, a Delaware corporation, and
Minera Kennecott S.A. de C.V., a company incorporated under the laws of Mexico for $80.0 million in
cash and 577,434 shares of our common stock. We also obtained the right to acquire any or all of a
group of NSR royalties ranging from 1.0% to 2.0% on various other concessions in the same region.
On April 27, 2007, we notified Kennecott Exploration Company of our intention to acquire the
royalties on certain of these concessions. We completed our acquisition of these royalties for
nominal consideration during our fiscal 2008.
The Peñasquito project is currently under development by a subsidiary of Goldcorp Inc. (Goldcorp)
and is composed of two main deposits called Peñasco and Chile Colorado, which host large silver,
gold, zinc and lead reserves. The deposits consist of oxide and sulfide portions. In May 2008,
Peñasquito poured the first gold from the oxide circuit. Goldcorp expects production at Peñasquito
from the first sulfide circuit by late calendar 2009 and expects the second sulfide circuit to be
operational near the end of calendar 2010.
The Peñasquito royalty acquisition was accounted for as an asset purchase. As such, the total
purchase price of $99.1 million, which consisted of $80.0 million in cash, 577,434 shares of our
common stock (valued at $18.5 million) and approximately $0.6 million of transaction costs, is
recorded as a component of Royalty interests in mineral properties, as a development stage royalty,
in our consolidated balance sheets.
Gold Hill
On December 8, 2006, Royal Gold paid $3.3 million to Nevada Star Resource Corp. in exchange for an
NSR sliding-scale royalty and certain unpatented mining claims on the Gold Hill deposit. The NSR
66
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
sliding-scale 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 royalty is also
subject to a minimum royalty payment of $0.1 million per year. The Gold Hill deposit, located just
north of the Round Mountain gold mine in Nye County, Nevada, is controlled by Round Mountain Gold
Corporation, a joint venture between subsidiaries of Kinross Gold Corporation (Kinross), the
operator, and Barrick. Production on the Gold Hill deposit is expected to commence in calendar
2011.
The Gold Hill transaction was accounted for as an asset purchase. As such, the $3.3 million
acquisition cost is recorded as a component of Royalty interests in mineral properties, as a
development stage royalty, on the consolidated balance sheets.
Taparko Project Royalties
On March 1, 2006, Royal Gold entered into an Amended and Restated Funding Agreement (Funding
Agreement) with Societe des Mines de Taparko, also known as Somita SA (Somita), a 90% owned
subsidiary of High River Gold Mines Ltd. (High River), to acquire two initial production payments
equivalent to gross smelter return (GSR) royalties and two subsequent royalty interests on the
Taparko-Bouroum Project (Taparko project) in Burkina Faso, West Africa. The Taparko project is
operated by Somita. Royal Golds funding of the project totaled $35 million and was used by High
River for the development and construction of the Taparko project. Construction of the Taparko
project was completed during mid-calendar 2007, with production commencing during our first
quarter of fiscal 2008.
As a result of our funding, we obtained the following mineral interests, all related to the Taparko
project:
|
1. |
|
TB-GSR1 A production payment equivalent to a 15.0% GSR royalty on all gold produced
from the Taparko project. TB-GSR1 remains in force until cumulative production of 804,420
ounces of gold is achieved, or until cumulative payments of $35 million have been made to
us, whichever is earlier; |
|
|
2. |
|
TB-GSR2 A production payment equivalent to a GSR sliding-scale royalty on all gold
produced from the Taparko project. The TB-GSR2 royalty ranges from 0.0% to 10.0%,
depending on the price of gold. The TB-GSR2 royalty remains in effect until the
termination of TB-GSR1; |
|
|
3. |
|
TB-GSR3 A perpetual 2.0% GSR royalty on all gold produced from the Taparko project
area (as defined in the Funding Agreement). This royalty will commence upon termination of
the
TB-GSR1 and TB-GSR2 royalties; and |
|
|
4. |
|
TB-MR1 A 0.75% milling fee royalty, on all gold processed through the Taparko
project processing facilities that is mined from any area outside of the Taparko project
area (as defined in the Funding Agreement). TB-MR1 royalty is subject to a cap of 1.1
million tons per year (e.g., if in a given year, the Taparko project processing
facility processes 800,000 tons of ore from the Taparko project area and 500,000 tons of
ore from areas outside the Taparko project area, the 800,000 tons from the Taparko project
area would be subject to TB-GSR1, TB-GSR2, or
TB-GSR3 and the TB-MR1 would only apply to 300,000 tons of ore. |
The Taparko transaction has been accounted for as a purchase of assets. Accordingly, the four
components of the transaction noted above have been recorded at their allocated relative fair
values as components of Royalty Interests in Mineral Properties on our consolidated balance sheets.
In order to secure our investment during the period between funding by Royal Gold and project
completion (as defined in the Funding Agreement), High River has pledged its 90% interest in the
equity of Somita. Royal Gold will maintain its security interest, in the form of the Somita
shares, through the construction period. The security interest will be released upon the project
meeting Project Completion,
67
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
as defined in the Funding Agreement. Per the terms of the Funding Agreement, the Taparko project
has not achieved Project Completion as of June 30, 2008.
In addition to the 90% interest in Somita, Royal Gold also obtained as collateral a pledge of
shares of two equity investments held by High River. The equity value underlying the pledge of
these shares is valued at approximately $63.2 million as of June 30, 2008, and includes 12,015,000
common shares in the capital stock of Pelangio Mines, Inc. and 1,790,941 common shares in the
capital stock of Intrepid Minerals Corporation. The purpose of this collateral is to maintain a
construction reserve that can be used to remedy any construction defects noted during the
construction contract warranty period. This collateral can only be used to remedy identified
construction defects and cannot be used to repay any of Royal Golds investment. This security
interest will be released by Royal Gold at the end of the construction contract warranty period.
Robinson and Mulatos Royalties
On December 28, 2005, Royal Gold paid $25 million to Kennecott Minerals (Kennecott) in exchange
for two existing royalty interests held by Kennecott, including a 3.0% NSR royalty on the Robinson
mine, located in eastern Nevada, and a sliding-scale NSR royalty on the Mulatos mine, located in
Sonora, Mexico.
The Robinson mine is an open-pit copper mine with significant gold and molybdenum credits. The
mine has been owned and operated by a subsidiary of Quadra since 2004. Royal Gold began receiving
revenue from the Robinson royalty during our fourth quarter of fiscal year 2006 after a $20.0
million reclamation trust account was fully funded by Quadra.
The Mulatos project, owned and operated by a subsidiary of Alamos Gold, Inc. (Alamos), is an
open-pit, heap leach gold mine. Commercial production was achieved effective April 1, 2006. The
Mulatos mine sliding-scale royalty, capped at two million ounces of gold production, ranges from
0.30% for gold prices below $300 per ounce up to 1.50% for gold prices above $400 per ounce.
The Kennecott transaction has been accounted for as a purchase of assets. As such, the $25 million
acquisition cost, and approximately $267,000 of our direct legal and other acquisition costs, have
been allocated to the two acquired royalties according to their relative fair values, as separate
components of Royalty Interests in Mineral Properties on our consolidated balance sheets.
Accordingly, $17.8 million has been allocated to the Robinson royalty and $7.4 million has been
allocated to the Mulatos royalty.
Taranis Exploration Alliance
On November 4, 2005, Royal Gold entered into two Exploration and Earn-In Agreements (the
Agreements) with Taranis Resources Inc. (Taranis) with respect to its exploration program in
Finland. As part of the first Agreement, the Company will obtain a 2.0% NSR royalty and future
earn-in rights on any new property acquired by Taranis in Finland as a result of its regional
exploration program, in exchange for a $0.3 million investment in 937,500 shares of Taranis common
stock and 468,750 warrants. On August 21, 2006, we acquired, under a private placement, an
additional 100,000 shares of Taranis common stock and warrants exercisable to purchase up to
50,000 Taranis common shares at $0.49.
As part of the Agreements, we funded $0.5 million to Taranis for exploration work on the
Kettukuusikko property in Lapland, Finland, in exchange for a 2.0% NSR royalty on the property. As
of June 30, 2006, we funded the entire $0.5 million commitment. We also had an option to fund up to
an additional $0.6 million. If we fund the entire additional amount, we will earn a 51% joint
venture interest in the
68
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
Kettukuusikko project, and we will release our 2% NSR royalty. The Company elected to exercise
this option during our fiscal year 2007. In the event that Royal Gold does not fully fund the $0.6
million to earn the joint venture interest, we would retain our 2.0% NSR royalty. As of June 30,
2008, we have funded approximately $0.5 million of the additional $0.6 million option. Amounts
funded to Taranis as part of the $0.5 million and $0.6 million Kettukuusikko exploration
commitments have been expensed as a component of Exploration and business development expense on
our consolidated statements of operations and comprehensive income.
Taranis is publicly traded and therefore we have recorded our investment in Taranis common stock
and warrants as Available for sale securities, which are included as a component of Other assets on
our consolidated balance sheets at their relative fair values. See Note 5 for further detail on
our investment in common stock and warrants of Taranis.
4. ROYALTY INTERESTS IN MINERAL PROPERTIES
The following summarizes the Companys royalty interests in mineral properties as of June 30, 2008
and June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
As of June 30, 2008 (Amounts in thousands): |
|
Cost |
|
|
Depletion |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez Pipeline Mining Complex |
|
$ |
10,630 |
|
|
$ |
(8,901 |
) |
|
$ |
1,729 |
|
Robinson |
|
|
17,825 |
|
|
|
(4,271 |
) |
|
|
13,554 |
|
Taparko |
|
|
33,570 |
|
|
|
(4,514 |
) |
|
|
29,056 |
|
Leeville |
|
|
17,495 |
|
|
|
(5,567 |
) |
|
|
11,928 |
|
GoldstrikeSJ Claims |
|
|
20,788 |
|
|
|
(8,641 |
) |
|
|
12,147 |
|
Other |
|
|
40,782 |
|
|
|
(11,598 |
) |
|
|
29,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,090 |
|
|
|
(43,492 |
) |
|
|
97,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito (sulfide circuit) |
|
|
95,146 |
|
|
|
|
|
|
|
|
|
Dolores |
|
|
40,989 |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
|
20,446 |
|
|
|
|
|
|
|
|
|
Other |
|
|
18,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,691 |
|
|
|
|
|
|
|
174,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests |
|
|
28,652 |
|
|
|
(271 |
) |
|
|
28,381 |
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
344,433 |
|
|
$ |
(43,763 |
) |
|
$ |
300,670 |
|
|
|
|
|
|
|
|
|
|
|
69
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
As of June 30, 2007 (Amounts in thousands) |
|
Cost |
|
|
Depletion |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez Pipeline Mining Complex |
|
$ |
10,630 |
|
|
$ |
(8,422 |
) |
|
$ |
2,208 |
|
Robinson |
|
|
17,825 |
|
|
|
(2,053 |
) |
|
|
15,772 |
|
Leeville |
|
|
16,862 |
|
|
|
(3,248 |
) |
|
|
13,614 |
|
GoldstrikeSJ Claims |
|
|
20,788 |
|
|
|
(7,159 |
) |
|
|
13,629 |
|
Other |
|
|
17,093 |
|
|
|
(5,705 |
) |
|
|
11,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,198 |
|
|
|
(26,587 |
) |
|
|
56,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito (sulfide circuit) |
|
|
99,172 |
|
|
|
|
|
|
|
99,172 |
|
Taparko |
|
|
34,246 |
|
|
|
|
|
|
|
34,246 |
|
Pascua-Lama |
|
|
20,445 |
|
|
|
|
|
|
|
20,445 |
|
Other |
|
|
3,340 |
|
|
|
|
|
|
|
3,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,203 |
|
|
|
|
|
|
|
157,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests |
|
|
2,296 |
|
|
|
(271 |
) |
|
|
2,025 |
|
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
242,697 |
|
|
$ |
(26,858 |
) |
|
$ |
215,839 |
|
|
|
|
|
|
|
|
|
|
|
Discussed below is each of the Companys significant production stage royalty interests:
Cortez Pipeline Mining Complex
We own two GSR sliding-scale royalties (GSR1 ranging from 0.40% to 5.0% and GSR2 ranging from 0.72%
to 9.0%), a 0.71% fixed gross smelter return royalty (GSR3), and a 1.25% net value return (NVR)
royalty (NVR1) over the Cortez Pipeline Mining Complex (Cortez)which includes the Pipeline, South
Pipeline, Gap and Crossroads gold deposits. Cortez is owned by subsidiaries of Barrick and is
located in Lander County, Nevada. 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.
Robinson Mine
We own a 3.0% NSR royalty on the Robinson mine, located in White Pine County, 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.
Taparko Mine
We own a production payment equivalent to a 15.0% GSR (TB-GSR1) royalty on all gold produced from
the Taparko project, located in Burkina Faso and operated by Somita, a subsidiary of 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 GSR sliding-scale royalty (TB-GSR2 ranging from 0%
to 10%) on all gold produced from the Taparko project. 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.
70
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
TB-GSR1 and TB-GSR2 were classified as development stage royalty interests as of June 30, 2007.
During our first fiscal quarter of 2008, High River commenced production at the Taparko mine.
Accordingly, we reclassified our cost basis in TB-GSR1 and TB-GSR2 from development stage royalty
interests. As such, we began depleting the associated cost basis using the units of production
method during our first fiscal quarter of 2008.
As of June 30, 2008, we have recognized royalty revenue associated with the TB-GSR1 royalty
totaling $4.7 million, which is attributable to cumulative production of 36,078 ounces of gold.
Leeville
We own a 1.8% carried working interest, equal to a 1.8% NSR royalty, which covers the majority of
the Leeville Mining Complex (collectively Leeville South and Leeville North), in Eureka County,
Nevada. The Leeville Mining Complex is operated by a subsidiary of Newmont Mining Corporation
(Newmont). During our fiscal year 2008, most of our royalty revenue was derived from Leeville
North, an underground mining operation, as production from Leeville South ceased in late calendar
2007.
A portion (non-reserve) of our investment in Leeville North is classified as an exploration stage
royalty interest, which is not subject to amortization. During our third fiscal quarter of 2008,
Newmont informed us that additional proven and probable reserves were developed at Leeville North.
As such, we reclassified approximately $0.6 million of our cost basis in the Leeville North
exploration stage royalty interest to the Leeville North production stage royalty interest. In the
event that future proven and probable reserves associated with our royalty interest are developed
at Leeville North, additional cost basis of our royalty interest will be reclassified as a
development stage or a production stage royalty interest in future periods, as appropriate.
Goldstrike-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 mine operated by a subsidiary of Barrick at its Goldstrike
property.
5. AVAILABLE FOR SALE SECURITIES
As of June 30, 2008 and 2007, we held 1.3 million shares of Revett Minerals, Inc. (Revett) common
stock. The market value for our investment in the shares of Revett was $0.7 million and $1.5
million as of June 30, 2008 and 2007, respectively. Our cost basis in the Revett shares is $1.0
million.
As of June 30, 2008 and 2007, we held 1,037,500 and 100,000 shares of common stock and stock
options, respectively, in Taranis. The market value for our investment in Taranis common stock,
warrants and stock options was $0.6 and $0.5 million as of June 30, 2008 and 2007, respectively.
The warrants in Taranis expired during our fiscal year 2008. Our cost basis in the Taranis common
stock, warrants and stock options is $0.3 million.
Our investments in available for sale securities are included as a component of Other assets on our
consolidated balance sheets.
6. CREDIT FACILITY
The Company and a wholly-owned subsidiary currently has an $80 million credit facility with HSBC
Bank USA, National Association (HSBC Bank), which bears interest at LIBOR plus 1.5% and includes
71
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
both affirmative and negative covenants, as defined, so long as any portion of the facility is
outstanding. On January 23, 2008, the Company entered into an amendment of its credit facility
with HSBC Bank, which extended the maturity date of the credit facility two years from December 31,
2010 to December 31, 2012. The amendment also updated the assumptions used in the calculation of
the borrowing base, which included an increase in the metal price assumption of gold and added a
metal price assumption for silver.
As part of the credit facility, the Company and the wholly-owned subsidiary granted HSBC Bank
security interests in the following: the Companys GSR1, GSR3, and NVR1 royalties at the Cortez;
the Companys SJ Claims, Leeville Mining Complex, Bald Mountain and Robinson royalties; and the
Companys debt reserve account (an interest bearing cash account which is included within Cash and
equivalents on the consolidated balance sheets) at HSBC Bank. The initial availability under the
borrowing base was the full $80 million under the credit facility; however, the borrowing base
calculation is recalculated as of April 15 and October 15 each year. As of June 30, 2008, the
Companys borrowing capacity under the credit facility was $70.8 million.
The Company drew $0 and $60 million under the revolving credit facility during its fiscal years
2008 and 2007, respectively. The $60 million advanced under the credit facility during our fiscal
year 2007 was used to complete the closing of the Peñasquito and Pascua-Lama royalty acquisitions,
as discussed in Note 3. The company paid approximately $0.8 million in interest associated with
the outstanding credit facility during fiscal year 2007. As of June 30, 2008 and 2007, the Company
had no amounts outstanding under the credit facility.
7. NOTE PAYABLE
On March 1, 2007, 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 June 30, 2008, 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.
8. STOCK-BASED COMPENSATION
In November 2004, the Company adopted the 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
72
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
performance incentives. Stock options granted under the 2004 Plan may be non-qualified stock
options or incentive stock options.
For the fiscal years ended June 30, 2008, 2007 and 2006, we recorded total non-cash stock
compensation expense related to our equity compensation plans of $2.9 million, $2.7 million and
$2.8 million, 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 Fiscal Years Ended June 30, |
|
(Amounts in thousands) |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Non-cash stock compensation
allocation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations |
|
$ |
356 |
|
|
$ |
401 |
|
|
$ |
381 |
|
|
General and administrative |
|
|
1,509 |
|
|
|
1,510 |
|
|
|
1,465 |
|
|
Exploration and business
development |
|
|
1,004 |
|
|
|
752 |
|
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-cash compensation expense |
|
$ |
2,869 |
|
|
$ |
2,663 |
|
|
$ |
2,778 |
|
|
|
|
|
|
|
|
|
|
|
The total income tax benefit associated with non-cash stock compensation expense was approximately
$1.0 million for the fiscal years ended June 30, 2008, 2007, and 2006.
As of June 30, 2008, there are 70,567 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 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. Stock option 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. Stock option awards have 10 year contractual terms.
To determine non-cash stock compensation expense for stock option awards, the fair value of each
stock option award is estimated on the date of grant using the Black-Scholes-Merton
(Black-Scholes) option pricing model for all periods presented. The Black-Scholes model requires
key assumptions in order to determine fair value. Those key assumptions during our fiscal year
2008, 2007 and 2006 grants are noted in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
Weighted average expected volatility |
|
|
47.8 |
% |
|
|
52.9 |
% |
|
|
61.2 |
% |
Weighted average expected option term in years |
|
|
5.0 |
|
|
|
5.1 |
|
|
|
5.4 |
|
Weighted average dividend yield |
|
|
0.91 |
% |
|
|
0.93 |
% |
|
|
1.00 |
% |
Weighted average risk free interest rate |
|
|
3.9 |
% |
|
|
4.6 |
% |
|
|
4.5 |
% |
The Companys expected volatility is based on the historical volatility of the Companys stock over
the expected option term. The Companys expected option term is determined by historical exercise
patterns along with other known employee or company information at the time of grant. The risk
free interest rate
73
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
is based on the zero-coupon U.S. Treasury bond at the time of grant with a term approximate to the
expected option term.
On November 7, 2007, 110,500 stock options under the 2004 Plan were granted to officers and certain
employees under the 2004 Plan. These options have an exercise price of $29.75, which was the
closing market price for our common stock on the date of grant.
A summary of stock option activity under our equity compensation plans for the fiscal year ended
June 30, 2008, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
Stock Options |
|
Shares |
|
|
Price |
|
|
(Years) |
|
|
Value |
|
Outstanding at July 1, 2007 |
|
|
579,213 |
|
|
$ |
17.57 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
110,500 |
|
|
|
29.75 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(101,750 |
) |
|
|
7.13 |
|
|
|
|
|
|
|
|
|
Forfeited and Expired |
|
|
(1,250 |
) |
|
|
29.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
586,713 |
|
|
$ |
21.65 |
|
|
|
6.7 |
|
|
$ |
5,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
436,947 |
|
|
$ |
19.13 |
|
|
|
4.4 |
|
|
$ |
5,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted during the fiscal years ended
June 30, 2008, 2007 and 2006, was $12.82, $13.79, and $12.04, respectively. The total intrinsic
value of options exercised during the fiscal years ended June 30, 2008, 2007 and 2006, were $2.5
million, $0.8 million, and $5.6 million, respectively.
A summary of the status of the Companys non-vested stock options for the fiscal year ended June
30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Shares |
|
|
Grant Date Fair Value |
Non-vested at July 1, 2007 |
|
|
138,434 |
|
|
$ |
13.00 |
|
Granted |
|
|
110,500 |
|
|
$ |
12.82 |
|
Vested |
|
|
(99,517 |
) |
|
$ |
12.45 |
|
Forfeited |
|
|
(1,250 |
) |
|
$ |
13.94 |
|
|
|
|
|
|
|
|
Non-vested at June 30, 2008 |
|
|
148,167 |
|
|
$ |
13.23 |
|
|
|
|
|
|
|
|
For the fiscal years ended June 30, 2008, 2007 and 2006, we recorded non-cash stock compensation
expense associated with stock options of $1.3 million, $1.2 million and $1.1 million, respectively.
As of June 30, 2008, there was approximately $1.1 million 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 2.1 years. The total
fair value of shares vested during the fiscal years ended June 30, 2008, 2007 and 2006 was $1.3
million, $1.1 million and $0.5 million, respectively.
74
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
Other Stock-based Compensation
On November 7, 2007, officers and certain employees were granted 48,000 shares of restricted common
stock that can be earned only if either one of two defined multi-year performance goals is 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 an
interim earn out of 25%, 50%, 75% or 100%. The defined performance goals are tied to two different
performance measures: (1) growth of free cash flow per share on a trailing twelve month basis; and
(2) growth of royalty ounces in reserve on an annual basis.
A summary of the status of the Companys non-vested Performance Shares for the fiscal year ended
June 30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Shares |
|
|
Grant Date Fair Value |
Non-vested at July 1, 2007 |
|
|
27,000 |
|
|
$ |
28.78 |
|
Granted |
|
|
48,000 |
|
|
$ |
29.75 |
|
Vested |
|
|
(9,000 |
) |
|
$ |
28.78 |
|
Forfeited |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2008 |
|
|
66,000 |
|
|
$ |
29.49 |
|
|
|
|
|
|
|
|
We measure the fair value of the Performance Shares based upon the market price of our common stock
as of the date of grant. In accordance with SFAS 123(R), the measurement date for the Performance
Shares will be determined at such time that the performance goals are attained or that it is
probable they will be attained. 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 June 30, 2008, our estimates indicated that it is probable that
59% of our non-vested Performance Shares will be earned by December 31, 2008. For the fiscal years
ended June 30, 2008, 2007 and 2006, we recorded non-cash stock compensation expense associated with
our Performance Shares of approximately $0.5 million, $1.1 million and $1.2 million, respectively.
As of June 30, 2008, total unrecognized non-cash stock compensation expense related to our
Performance Shares is approximately $0.2 million, which is expected to be recognized over the next
two fiscal quarters, the period over which it is probable that the performance goals will be
attained.
As defined in the 2004 Plan, officers, non-executive directors and certain employees may be granted
shares of restricted stock that vest on continued service alone (Restricted Stock). On November
7, 2007, officers and certain employees were granted 72,500 shares of Restricted Stock. Restricted
Stock awards granted to officers and certain employees vest over three years beginning 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. Also on November 7, 2007, our non-executive directors were
granted 15,000 shares of Restricted Stock. The non-executive directors shares of Restricted Stock
vest as to 50% immediately and 50% one year after the date of grant.
Shares of Restricted Stock represent issued and outstanding shares of common stock, with dividend
and voting rights. We measure the fair value of the Restricted Stock based upon the market price
of our common stock as of the date of grant. Restricted Stock is amortized over the applicable
vesting period
75
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
using the straight-line method. 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 fiscal year ended
June 30, 2008, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Shares |
|
|
Grant Date Fair Value |
Non-vested at July 1, 2007 |
|
|
117,000 |
|
|
$ |
24.73 |
|
Granted |
|
|
87,500 |
|
|
$ |
29.75 |
|
Vested |
|
|
(10,625 |
) |
|
$ |
29.59 |
|
Forfeited |
|
|
(625 |
) |
|
$ |
29.20 |
|
|
|
|
|
|
|
|
Non-vested at June 30, 2008 |
|
|
193,250 |
|
|
$ |
26.72 |
|
|
|
|
|
|
|
|
For the fiscal years ended June 30, 2008, 2007 and 2006, we recorded non-cash stock compensation
expense associated with the Restricted Stock of approximately $1.1 million, $0.4 million, and $0.4
million, respectively. As of June 30, 2008, total unrecognized non-cash stock compensation expense
related to Restricted Stock was approximately $3.8 million, which is expected to be recognized over
the remaining weighted average vesting period of 2.4 years.
9. STOCKHOLDERS EQUITY
Preferred Stock
We have 10,000,000 authorized and unissued shares of $.01 par value Preferred Stock as of June 30,
2008 and 2007.
Mandatory Convertible Preferred Stock
On November 9, 2007, the Company completed an offering of 1.15 million shares of 7.25% mandatory
convertible preferred stock (Mandatory Preferred Stock) at a price to the public of $100.00 per
share, less underwriter discounts and other related expenses, resulting in net proceeds of $111.1
million. Dividends on the Mandatory Preferred Stock were payable on a cumulative basis when, as
and if declared by our board of directors at an annual rate of 7.25% per share on the liquidation
preference of $100 per share. Dividends were payable, at the Companys discretion, in cash, common
stock or a combination thereof, on February 15, May 15, August 15 and November 15 of each year to
and including November 15, 2010, commencing on February 15, 2008. On January 10, 2008, the
Companys board of directors declared the regular quarterly dividend for the first dividend period
of $1.9333 per share of the Mandatory Preferred Stock. The dividend was payable on February 15,
2008, to preferred shareholders of record at the close of business on February 1, 2008. The
preferred dividend was paid in cash.
Under the original terms of the Preferred Stock offering, each share of the Mandatory Preferred
Stock was to automatically convert on November 15, 2010, into between 2.8335 and 3.4002 shares of
our common stock, subject to anti-dilution adjustments. At any time prior to November 15, 2010,
holders may have elected to convert each share of the Mandatory Preferred Stock into shares of our
common stock at the minimum conversion rate of 2.8335 shares of common stock per share of the
Mandatory Preferred Stock, subject to anti-dilution adjustments. At any time prior to May 15,
2008, we may have had, at our option, caused the conversion of all, but not less than all, of the
Mandatory Preferred Stock into shares of our common stock at the provisional conversion rate
described within the Mandatory Preferred Stock offering. However, we could not elect to exercise
our provisional conversion right if, on or prior to
76
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
May 15, 2008, we completed a material transaction involving the acquisition of assets or a business
with a purchase price of $100 million or more.
On January 25, 2008, the Company announced that it exercised its provisional conversion right for
all of the issued and outstanding shares of its Mandatory Preferred Stock. As part of the
provisional conversion right, each share of the Mandatory Preferred Stock was converted into shares
of our common stock on March 10, 2008 (the Conversion Date), based on the average closing price
per common share on the Nasdaq Global Select Market (Nasdaq) over a 20 consecutive trading day
period, which ended on March 5, 2008, as provided in the Certificate of Designations of the
Mandatory Preferred Stock. The average closing price over the 20 consecutive trading day period
was $29.78 and each outstanding share of Mandatory Preferred Stock was automatically converted into
3.4589 shares of common stock on the Conversion Date. The Company issued 3,977,683 shares of its
common stock upon conversion of the Mandatory Preferred Stock on the Conversion Date.
In connection with the conversion, all accrued and unpaid dividends on the Mandatory Preferred
Stock up to the Conversion Date were payable at $0.5035 per share of Mandatory Preferred Stock and
were paid in cash to holders of record on the Conversion Date. Trading of the Mandatory Preferred
Stock on the NASDAQ was suspended at the close of business on March 5, 2008, and the Mandatory
Preferred Stock was de-listed on March 24, 2008. The Company applied a contingent beneficial
conversion feature model to account for the provisional conversion of the Mandatory Preferred Stock
during its third fiscal quarter of 2008, which resulted in the Company recognizing a deemed
dividend of $2.0 million for the three and nine months ended March 31, 2008. There were no tax
consequences to the Company upon conversion of the Mandatory Preferred Stock.
Treasury Stock
On January 25, 2008, the Company announced that its board of directors authorized the repurchase of
up to $30.0 million of its common stock in the open market through March 31, 2008. The timing and
number of shares repurchased through March 31, 2008, depended on market conditions and other
corporate considerations. As of March 31, 2008, the Company repurchased 196,986 common shares, at
an average price of $28.00 per common share for a total cost of approximately $5.5 million. The
common share repurchases were funded through cash and cash equivalents. The total cost to
reacquire the 196,986 common shares was included in Treasury Stock on the Companys consolidated
balance sheets as of March 31, 2008. The repurchase program, pursuant to the January 25, 2008,
announcement, ended on March 31, 2008.
On April 2, 2008, the Company retired the 196,986 common shares repurchased, pursuant to the
January 25, 2008, repurchase announcement. The 196,986 common shares retired have been returned to
the Companys authorized but unissued amount of common stock. Also, on June 20, 2008, the Company
retired the remaining 229,224 common shares included in treasury stock. The 229,224 common shares
retired have been returned to the Companys authorized but unissued amount of common stock. As of
June 30, 2008, the Company has zero common shares included in treasury stock.
Stockholders Rights Plan
On September 10, 2007, the Company amended and restated its Rights Agreement, dated September 10,
1997 (the Existing Agreement) pursuant to the First Amended and Restated Rights Agreement, dated
September 10, 2007 (the Amended Agreement). The Amended Agreement extends the Final Expiration
Date from September 10, 2007 to September 10, 2017. The Amended Agreement was approved by the
Companys board of directors (the Board).
77
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
The Amended Agreement, like the Existing Agreement, is intended to deter coercive or abusive tender
offers and market accumulations. The Amended Agreement is designed to encourage an acquirer to
negotiate with the Board and to enhance the Boards ability to act in the best interests of all the
Companys shareholders.
Under the Amended Agreement, each shareholder of the Company holds one preferred stock purchase
right (a Right) for each share of Company common stock held. The Rights generally become
exercisable only in the event that an acquiring party accumulates 15 percent or more of the
Companys outstanding shares of common stock. If this were to occur, subject to certain
exceptions, each Right (except for the Rights held by the acquiring party) would allow its holders
to purchase one one-thousandth of a newly issued share of Series A junior participating preferred
stock of Royal Gold or the Companys common stock with a value equal to twice the exercise price of
the Right, initially set at $175 under the terms and conditions set forth in the Amended Agreement.
Common Stock Issuances
Fiscal 2008
During the fiscal year ended June 30, 2008, options to purchase 101,750 shares were exercised,
resulting in proceeds of $0.7 million.
On March 10, 2008, we issued 3,977,683 shares of our common stock as part of the conversion of our
Mandatory Preferred Stock. Please refer to Mandatory Convertible Preferred Stock above for
further information regarding the Mandatory Preferred Stock.
On October 24, 2007, we issued 1,144,025 shares of our common stock to Battle Mountain shareholders
as part of the Companys acquisition of 100% of the issued and outstanding shares of Battle
Mountain. Refer to Note 2 for further discussion regarding the acquisition of Battle Mountain.
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 of 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 merger with Battle Mountain.
Fiscal 2007
During the fiscal year ended June 30, 2007, options to purchase 46,467 shares were exercised,
resulting in proceeds of $0.6 million.
As discussed in Note 3, on January 24, 2007, we issued 577,434 shares of our common stock as part
of the Peñasquito royalty acquisition.
In April 2007, we sold 4,400,064 shares of our common stock, at a price of $29.25 per share,
resulting in proceeds of approximately $121.9 million, which is net of the underwriters discount
of approximately $6.3 million and transaction costs of approximately $650,000. A portion of the
net proceeds in this equity offering were used to pay a previously outstanding balance under our
revolving credit facility with HSBC Bank, as discussed in Note 6, while the remaining net proceeds
were used to fund the acquisition and financing of additional royalty interests and for general
corporate purposes.
78
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
Fiscal 2006
During the fiscal year ended June 30, 2006, options to purchase 276,777 shares were exercised,
resulting in proceeds of approximately $3.9 million.
In September 2005, we sold 2,227,912 shares of our common stock in an underwritten public offering,
at a price of $26.00 per share, resulting in proceeds of approximately $54.7 million, which is net
of the underwriters discount of $2.9 million and transaction costs of approximately $0.3 million.
The net proceeds in this equity offering were used to fund the acquisition and financing of
additional royalty interests and for general corporate purposes.
10. EARNINGS PER SHARE (EPS) COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended June 30, 2008 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Net income |
|
$ |
26,108 |
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(2,802 |
) |
|
|
|
|
|
|
|
|
Preferred stock deemed dividend upon
conversion |
|
|
(1,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders for basic earnings per
share |
|
$ |
21,320 |
|
|
|
31,054,725 |
|
|
$ |
0.69 |
|
Effect of dilutive securities |
|
|
|
|
|
|
335,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
21,320 |
|
|
|
31,390,293 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,600 shares of common stock, at a purchase price of $32.40 per share, were
outstanding at June 30, 2008, 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 Year Ended June 30, 2007 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
19,720 |
|
|
|
24,827,319 |
|
|
$ |
0.79 |
|
Effect of dilutive securities |
|
|
|
|
|
|
247,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
19,720 |
|
|
|
25,075,086 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,600 shares of common stock, at a purchase price of $32.40 per share, were
outstanding at June 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.
79
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended June 30, 2006 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders |
|
$ |
11,350 |
|
|
|
22,863,784 |
|
|
$ |
0.50 |
|
Effect of dilutive securities |
|
|
|
|
|
|
270,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
11,350 |
|
|
|
23,134,034 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
As of June 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.
11. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current federal tax expense |
|
$ |
12,811 |
|
|
$ |
10,310 |
|
|
$ |
5,974 |
|
Deferred tax benefit |
|
|
(32 |
) |
|
|
(813 |
) |
|
|
(873 |
) |
|
Increase in deferred tax asset valuation
allowance |
|
|
147 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,926 |
|
|
$ |
9,549 |
|
|
$ |
5,101 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes for the fiscal years ended June 30, 2008, 2007 and 2006, differs
from the amount of income tax determined by applying the applicable United States statutory federal
income tax rate to pre-tax income (net of minority interest in income of consolidated subsidiary
and loss from equity investment) from operations as a result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total expense computed by applying federal rates |
|
$ |
13,662 |
|
|
$ |
10,244 |
|
|
$ |
5,758 |
|
State income taxes, net of federal benefit |
|
|
137 |
|
|
|
84 |
|
|
|
192 |
|
Adjustments of valuation allowance |
|
|
147 |
|
|
|
52 |
|
|
|
|
|
Excess depletion |
|
|
(1,456 |
) |
|
|
(956 |
) |
|
|
(922 |
) |
Other |
|
|
436 |
|
|
|
125 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,926 |
|
|
$ |
9,549 |
|
|
$ |
5,101 |
|
|
|
|
|
|
|
|
|
|
|
80
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
The tax effects of temporary differences and carryforwards, which give rise to our deferred tax
assets and liabilities at June 30, 2008 and 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Non-cash stock-based compensation |
|
$ |
1,595 |
|
|
$ |
927 |
|
Net operating losses |
|
|
1,451 |
|
|
|
|
|
Other |
|
|
381 |
|
|
|
206 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
3,427 |
|
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(199 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
3,228 |
|
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Mineral property basis |
|
|
(28,112 |
) |
|
|
(6,536 |
) |
Other |
|
|
(1,100 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(29,212 |
) |
|
|
(6,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred taxes |
|
$ |
(25,984 |
) |
|
$ |
(5,757 |
) |
|
|
|
|
|
|
|
As of June 30, 2008 and 2007, our valuation allowance was associated with foreign net operating
loss carryforwards attributed to RGCL. The net operating loss associated with RGCL is
approximately $1.2 million. There is an unlimited carryback and carryforward period to use such
losses.
The Company adopted the provisions of FIN 48 on July 1, 2007, with no impact on its financial
statements. As a result of the acquisition of Battle Mountain on October 24, 2007, the Company
recorded a liability for unrecognized tax benefits of approximately $0.4 million. The liability
for unrecognized tax benefits is reflected within Other long-term liabilities on the Companys
consolidated balance sheets.
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.
Interest and penalties associated with the liability for unrecognized tax benefits is approximately
$47,000 at June 30, 2008, and is included in Other long-term liabilities on the Companys
consolidated balance sheets.
81
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
12. SUPPLEMENTAL CASH FLOW INFORMATION
The Companys supplemental cash flow information for the fiscal years ending June 30, 2008, 2007
and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Interest |
|
$ |
|
|
|
$ |
801 |
|
|
$ |
|
|
Income taxes, net of refunds |
|
$ |
13,292 |
|
|
$ |
10,293 |
|
|
$ |
4,611 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
$ |
11,571 |
|
|
$ |
6,289 |
|
|
$ |
5,058 |
|
Conversion of preferred stock to common stock |
|
$ |
116,946 |
|
|
|
|
|
|
|
|
|
Battle Mountain acquisition (with common stock) |
|
$ |
35,832 |
|
|
$ |
|
|
|
$ |
|
|
Acquisition of royalty interest in mineral
property (with common stock) |
|
$ |
|
|
|
$ |
18,495 |
|
|
$ |
|
|
13. MAJOR CUSTOMERS
In each of fiscal years 2008, 2007 and 2006, we received approximately $30.8 million, $28.2 million
and $23.1 million, respectively, of our royalty revenue from the same operator, Barrick, but not
from the same mine.
14. SIMPLIFIED EMPLOYEE PENSION (SEP) PLAN
We maintain a Simplified Employee Pension Plan (SEP Plan) in which all employees are eligible to
participate. We contribute a minimum of 3% of an employees compensation to an account set up for
the benefit of the employee. If an employee chooses to make additional contributions to the SEP
Plan through salary withholdings, we will match such contributions to a maximum of 7% of the
employees salary. We contributed $0.2 million, $0.1 million and $0.2 million in fiscal years
2008, 2007 and 2006, respectively.
15. COMMITMENTS AND CONTINGENCIES
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 $0.1
million, which we deposited into
82
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
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 matter.
Contractual Obligations
Our long-term contractual obligations as of June 30, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Note payable(1) |
|
$ |
17,732 |
|
|
$ |
529 |
|
|
$ |
17,203 |
|
|
$ |
|
|
|
$ |
|
|
Operating leases(2) |
|
|
904 |
|
|
|
186 |
|
|
|
631 |
|
|
|
87 |
|
|
|
|
|
Long-term retirement
obligation |
|
|
94 |
|
|
|
26 |
|
|
|
53 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,730 |
|
|
$ |
741 |
|
|
$ |
17,887 |
|
|
$ |
102 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal ($15.75 million) and estimated interest payments ($2.0
million) assuming no early extinguishment. See Note 7 for further detail. |
|
(2) |
|
We lease office space under a lease agreement, which expires October 31, 2012. |
Employment Agreements
We have one-year employment agreements with some of our officers which, under certain
circumstances, require total minimum future base compensation, at June 30, 2008, of approximately
$1.0 million. The terms of each of these agreements automatically extend annually, for one
additional year, unless terminated by Royal Gold or the officer, according to the terms of the
agreements.
16. 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 Cortez. 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 one other member of our board of
directors hold an aggregate 35.56% 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.
83
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain
other limited partners, sell their pro-rata shares of such gold immediately and receive
distributions in cash, while CVP holds gold for certain other limited partners. Such gold
inventories, which totaled 27,552 ounces of gold as of June 30, 2008, 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 approximately $11.2 million and $10.6 million as of
June 30, 2008 and 2007, respectively, while the fair value of such ounces was approximately $25.6
million and $17.9 million as of June 30, 2008 and 2007, respectively. None of the gold currently
held in inventory as of June 30, 2008 and 2007, is attributed to Royal Gold, as the gold allocated
to Royal Gold is typically sold within five days of receipt.
17. STAFF ACCOUNTING BULLETIN NO. 108
In September 2006, the SEC issued SAB 108. The Company elected early application of SAB 108 during
its third quarter of fiscal year 2007, with effect from July 1, 2006. Prior to SAB 108, there have
been two widely-recognized methods for quantifying the effects of financial statement
misstatements: the roll-over method and the iron curtain method. The roll-over method focuses
primarily on the impact of a misstatement on the income statement including the reversing effect
of prior year misstatements but its use can lead to the accumulation of misstatements in the
balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of
correcting the period-end balance sheet with less emphasis on the reversing effects of prior year
misstatements on the income statement. Prior to our application of the guidance in SAB 108, we
used the roll-over method for quantifying financial statement misstatements.
SAB 108 permits existing public companies to initially apply its provisions by either (i) restating
prior financial statements as if the dual approach had always been applied, or (ii) recording the
cumulative effect of initially applying the dual approach as adjustments to the carrying value of
assets and liabilities with an offsetting adjustment to the opening balance of retained earnings.
The Company has elected to record the effects of applying SAB 108 as an adjustment to the carrying
value of assets and liabilities, however, due to the nature of such adjustments (described below),
no offsetting adjustment was necessary to the Companys beginning of the year retained earnings.
Using its pre-SAB 108 methodology for assessing misstatements, the Company has determined that the
effect of such error on any previously issued financial statement was not material.
Consolidation of CVP
CVP was formed as a limited partnership in April of 1992. It owns a 1.25% net value royalty on
production of minerals from a portion of Cortez. Denver Mining Finance Company, our wholly-owned
subsidiary, is the general partner and holds a 2% interest in the partnership. In addition, we
hold 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.
Historically, the Company recorded its proportional interest (31.6%) in CVPs assets, liabilities,
revenues and expenses pursuant to Emerging Issues Task Force 00-1: Investor Balance Sheet and
Income Statement under the Equity Method for Investments in Certain Partnerships and Other
Ventures.
In connection with the preparation of its financial statements for the quarter ended March 31,
2007, the Company determined that due to the legal structure of CVP and certain related factors,
CVP should have
84
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
been fully consolidated, effective December 31, 2003, pursuant to the guidance of FASB
Interpretation No. 46 Consolidation of Variable Interest Entities, (as revised, FIN 46R), rather
than consolidated based on the Companys proportional interest in CVP. On a fully consolidated
basis, all of the assets, liabilities, revenues and expenses of CVP would have been reflected in
the Companys consolidated financial statements, including a minority interest equivalent to the
net assets of CVP representing the ownership share of royalty interests in mineral properties and
inventory held for others. Fully consolidating CVP would not have changed the Companys
proportionate share of earnings from CVP, nor would it have changed the Companys consolidated
earnings or shareholders equity for any previous periods.
As indicated above, the Company determined that the effect of proportionately, rather than fully,
consolidating CVP was not material to any previously issued financial statements based on the
Companys pre-SAB 108 methodology. However, the cumulative effect of correcting the error in the
quarter ended March 31, 2007, would be material to that quarter as well as to the estimated results
of operations for fiscal 2007. As such, the Company has elected to apply the transition provisions
of
SAB 108 by adjusting the opening carrying value of the following assets and liabilities for fiscal
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
Adjusted |
|
|
Reported |
|
|
SAB 108 |
|
|
July 1, 2006 |
|
|
|
Balance |
|
|
Adjustment |
|
|
Balance |
|
Royalty interests in mineral properties,
net |
|
$ |
84,590 |
|
|
$ |
97 |
|
|
$ |
84,687 |
|
Inventory restricted |
|
$ |
|
|
|
$ |
9,374 |
|
|
$ |
9,374 |
|
Total assets |
|
$ |
172,260 |
|
|
$ |
9,471 |
|
|
$ |
181,731 |
|
Total liabilities |
|
$ |
10,600 |
|
|
$ |
|
|
|
$ |
10,600 |
|
Minority interest in subsidiary |
|
$ |
|
|
|
$ |
9,471 |
|
|
$ |
9,471 |
|
Total stockholders equity |
|
$ |
161,660 |
|
|
$ |
|
|
|
$ |
161,660 |
|
Total liabilities and stockholders equity |
|
$ |
172,260 |
|
|
$ |
9,471 |
|
|
$ |
181,731 |
|
As indicated above, the adoption of SAB 108 had no impact on the Companys retained earnings.
Accordingly, no adjustment was necessary to record the cumulative effect on the opening balance of
retained earnings at July 1, 2006.
The Company does not believe, based on its pre-SAB 108 methodology, that the effect of
proportionately, rather than fully, consolidating CVP was material in any of the periods since
December 31, 2003, the effective date of FIN 46R to the Company. In reaching that determination,
the Company considered the following incremental adjustments to our reported annual financial
statements, for fiscal year 2006.
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
Ended June 30, |
|
|
|
2006 |
|
Royalty revenue |
|
$ |
1,507 |
|
Cost of operations |
|
$ |
59 |
|
Depreciation, depletion and amortization |
|
$ |
21 |
|
Income before income taxes and minority
interest |
|
$ |
1,427 |
|
Minority interest in income of
consolidated subsidiaries |
|
$ |
(1,427 |
) |
Net income |
|
$ |
|
|
85
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, per ounce and per pound amounts)
18. SUBSEQUENT EVENT
On July 30, 2008, we entered into a definitive agreement to acquire a portfolio of royalties from
Barrick in exchange for net cash consideration of $150 million and a restructuring of certain Royal
Gold royalty positions at Cortez, which is operated by subsidiaries of Barrick. The Barrick
royalty portfolio consists of royalties on 77 properties, including eight producing royalties, 2
development stage royalties and 67 exploration stage projects. The restructuring of certain Cortez
royalty positions includes the reduction of the GSR2 sliding-scale royalty rate ranging from
0.72%-9.0%, to match the current GSR1 sliding-scale royalty rate ranging from 0.40%-5.0%. In
addition, we will also eliminate our interest in the 0.71% GSR3 and the NVR1 (non-consolidated
minority interest portion) royalties on the mining claims that comprise the undeveloped Crossroads
deposit at Cortez. The GSR3 and NVR1 royalties which cover areas outside of the Crossroads deposit
will not be affected by this transaction. The purchase price for the acquisition will be paid from
cash on hand at closing. The acquisition is subject to customary closing conditions and is
expected to close on October 1, 2008. The Company is currently evaluating the accounting treatment
for this transaction.
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
Diluted |
|
|
|
Royalty |
|
|
Operating |
|
|
|
|
|
|
Earnings |
|
|
Earnings |
|
|
|
Revenues |
|
|
Income |
|
|
Net Income |
|
|
Per Share |
|
|
Per Share |
|
Fiscal Year 2008 Quarter Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
$ |
12,817 |
|
|
$ |
7,364 |
|
|
$ |
5,762 |
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
December 31 |
|
|
15,396 |
|
|
|
7,041 |
|
|
|
5,065 |
|
|
|
0.13 |
|
|
|
0.13 |
|
March 31 |
|
|
19,516 |
|
|
|
9,747 |
|
|
|
7,420 |
|
|
|
0.12 |
|
|
|
0.12 |
|
June 30 |
|
|
21,664 |
|
|
|
11,771 |
|
|
|
7,861 |
|
|
|
0.24 |
|
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
69,393 |
|
|
$ |
35,923 |
|
|
$ |
26,108 |
|
|
$ |
0.69 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2007 Quarter Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
$ |
9,929 |
|
|
$ |
6,634 |
|
|
$ |
4,960 |
|
|
$ |
0.21 |
|
|
$ |
0.21 |
|
December 31 |
|
|
12,855 |
|
|
|
7,836 |
|
|
|
5,636 |
|
|
|
0.24 |
|
|
|
0.24 |
|
March 31 |
|
|
11,209 |
|
|
|
5,691 |
|
|
|
3,438 |
|
|
|
0.14 |
|
|
|
0.14 |
|
June 30 |
|
|
14,364 |
|
|
|
8,345 |
|
|
|
5,686 |
|
|
|
0.20 |
|
|
|
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,357 |
|
|
$ |
28,506 |
|
|
$ |
19,720 |
|
|
$ |
0.79 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
During the fiscal year ended June 30, 2008, there were no changes in or disagreements with our
Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, over accounting and
financial disclosure.
86
ITEM 9A. CONTROLS AND PROCEDURES
Conclusions Regarding Disclosure Controls and Procedures
Our President and Chief Executive Officer and Chief Financial Officer and Treasurer evaluated the
effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
under the Securities Exchange Act of 1934, as amended, as of June 30, 2008. Our President and
Chief Executive Officer and our Chief Financial Officer and Treasurer, based on their evaluation of
our disclosure controls and procedures concluded that as of June 30, 2008, our disclosure controls
and procedures were effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time period specified in the SEC rules and forms, and that such
information is accumulated and communicated to our management, including our President and Chief
Executive Officer and Chief Financial Officer and Treasurer, as appropriate, to allow timely
decisions regarding their disclosure.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles.
Management assessed the effectiveness of our internal control over financial reporting as of June
30, 2008. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on our assessment and those criteria, management concluded that, as of June 30,
2008, our internal control over financial reporting is effective.
Our management, including our President and Chief Executive Officer and Chief Financial Officer and
Treasurer, does not expect that our disclosure controls and procedures or our internal controls
will prevent all error and all fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been
detected.
PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm audited the
financial statements included in this Annual Report on Form 10-K, has also audited managements
assessment of the effectiveness of the Companys internal control over financial reporting as of
June 30, 2008, as stated in their report, which is included herein.
Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers report on the Companys internal control over financial reporting is
contained within Item 8 of this Annual Report on Form 10-K and is incorporated by reference herein.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended) during our fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
87
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears under the section headings Proposal 1 Election of
Class III Directors, Directors and Officers and Section 16(a) Beneficial Ownership Reporting
Compliance included in the Companys Proxy Statement for its 2008 Annual Stockholders Meeting to
be filed with the SEC within 120 days after June 30, 2008, and is incorporated by reference in this
Annual Report on Form 10-K.
The Companys Code of Business Conduct and Ethics within the meaning of Item 406 of Regulation S-K
adopted by the SEC under the Exchange Act that applies to our principal executive officer and
principal financial officer is available on the Companys website at www.royalgold.com and in print
without change to any stockholder who requests a copy. Requests for copies should be directed to
Royal Gold, Inc., Attention Karen Gross, 1660 Wynkoop Street, Suite 1000, Denver, Colorado, 80202.
The Company intends to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any
amendment to, or a waiver from, a provision of the Companys Code of Business Conduct and Ethics by
posting such information on the Companys website.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the section heading Executive Compensation
included in the Companys Proxy Statement for its 2008 Annual Stockholders Meeting to be filed with
the SEC within 120 days after June 30, 2008, and is incorporated by reference in this Annual Report
on Form 10-K.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this item appears under the sub-section heading Equity Compensation
Plan Information and section heading Security Ownership of Certain Beneficial Owners and
Management included in the Companys Proxy Statement for its 2008 Annual Stockholders Meeting to
be filed with the SEC within 120 days after June 30, 2008, and is incorporated by reference in this
Annual Report on Form 10-K.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information required by this item appears under the sub-section heading Certain Relationships
and Related Transactions and Independence of Directors in the Companys Proxy Statement for its
2008 Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2008, and
is incorporated by reference in this Annual Report on Form 10-K.
88
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item appears under the sub-section heading Independent Registered
Public Accountants and the section heading Proposal 3 Ratification of Appointment of
Independent Registered Public Accountants included in the Companys Proxy Statement for its 2008
Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2008, and is
incorporated by reference in this Annual Report on Form 10-K.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The Consolidated Financial Statements, together with the report thereon of PricewaterhouseCoopers
LLP dated August 19, 2008, are included as part of Item 8, Financial Statements and Supplementary
Data, commencing on page 53 above.
Index to Financial Statements
|
|
|
|
|
Page |
Report of Independent Registered Public Accounting Firm |
|
54 |
|
Consolidated Balance Sheets |
|
55 |
|
Consolidated Statements of Operations and Comprehensive Income |
|
56 |
|
Consolidated Statements of Stockholders Equity |
|
57 |
|
Consolidated Statements of Cash Flows |
|
58 |
|
Notes to Consolidated Financial Statements |
|
59 |
(b) Exhibits
Reference is made to the Exhibit Index beginning on page 91 hereof.
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: August 19, 2007 |
By: |
/s/ Tony Jensen
|
|
|
|
Tony Jensen |
|
|
|
President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
|
Date: August 19, 2008 |
By: |
/s/ Tony Jensen
|
|
|
|
Tony Jensen |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ Stefan L. Wenger
|
|
|
|
Stefan L. Wenger |
|
|
|
Chief Financial Officer |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ Stanley Dempsey
|
|
|
|
Stanley Dempsey |
|
|
|
Executive Chairman |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ S. Oden Howell, Jr.
|
|
|
|
S. Oden Howell, Jr. |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ John W. Goth
|
|
|
|
John W. Goth |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ Merritt E. Marcus
|
|
|
|
Merritt E. Marcus |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ M. Craig Haase
|
|
|
|
M. Craig Haase |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ James W. Stuckert
|
|
|
|
James W. Stuckert |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ Donald J. Worth
|
|
|
|
Donald J. Worth |
|
|
|
Director |
|
|
|
|
|
Date: August 19, 2007 |
By: |
/s/ William M. Hayes
|
|
|
|
William M. Hayes |
|
|
|
Director |
|
90
Exhibit Index
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.2
|
|
Amended and Restated Agreement and Plan of Merger, dated
July 30, 2007, among Battle Mountain Gold Exploration
Corp., Royal Gold, Inc. and Royal Battle Mountain, Inc.
(filed as Exhibit 2.1 to the Companys Current Report on
Form 8-K on August 2, 2007 and incorporated herein by
reference) |
|
|
|
3.1
|
|
Restated Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Companys Quarterly Report on February
8, 2008 and incorporated herein by reference) |
|
|
|
3.2
|
|
Amended and Restated Bylaws, as amended (filed as Exhibit
3.1 to the Companys Quarterly Report on Form 10-Q on May
1, 2008 and incorporated herein by reference) |
|
|
|
3.3
|
|
Amended and Restated Certificate of Designations of Series
A Junior Participating Preferred Stock of Royal Gold, Inc.
(filed as Exhibit 3.1 to the Companys Current Report on
Form 8-K 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 on
September 10, 2007 and incorporated herein by reference) |
91
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.1
|
** |
|
Equity Incentive Plan (filed as part of the Companys proxy
statement for its 1996 Annual Meeting of Stockholders on November
25, 1996
and incorporated herein by reference) |
|
|
|
|
10.2
|
|
|
Exploration and Development Option Agreement between Placer Dome
United States, Inc. and Royal Gold, Inc. dated effective July 1,
1998 (filed as Exhibit 10(v) to the Companys Annual Report on
Form 10-K on September 28, 1998 and incorporated herein by
reference) |
|
|
|
|
10.3
|
|
|
Royalty Agreement between Royal Gold, Inc. and the Cortez Joint
Venture dated April 1, 1999 (filed as part of Item 5 of the
Companys Current Report on Form 8-K on April 12, 1999 and
incorporated herein by reference) |
|
|
|
|
10.4
|
|
|
Firm offer to purchase royalty interest of Idaho Group between
Royal Gold, Inc. and Idaho Group dated July 22, 1999 (filed as
Attachment A to the Companys Current Report on Form 8-K on
September 2, 1999 and incorporated herein by reference) |
|
|
|
|
10.5
|
** |
|
Amendment to Equity Incentive Plan (filed as Appendix A to the
Companys proxy statement on October 15, 1999 and incorporated
herein by reference) |
|
|
|
|
10.6
|
|
|
Assignment and Assumption Agreement, dated December 6, 2002 (filed
as Exhibit 10.2 to the Companys Current Report on Form 8-K on
December 23, 2002 and incorporated herein by reference) |
|
|
|
|
10.7
|
|
|
Production Payment Agreement between Genesis Inc. and Royal Gold,
Inc. dated October 13, 2004 (filed as Exhibit 10.1(a) to the
Companys Current Report on Form 8-K on October 18, 2004 and
incorporated herein by reference) |
|
|
|
|
10.8
|
|
|
Royalty Deed between Genesis Inc. and Royal Gold, Inc. dated
October 13, 2004 (filed as Exhibit 10.1(b) to the Companys
Current Report on Form 8-K on October 18, 2004 and incorporated
herein by reference) |
|
|
|
|
10.9
|
|
|
Agreement between Genesis Inc. and Royal Gold, Inc. dated
October 13, 2004 (filed as Exhibit 10.1(c) to the Companys
Current Report on Form 8-K on October 18, 2004 and incorporated
herein by reference) |
|
|
|
|
10.10
|
** |
|
Form of Incentive Stock Option Agreement (filed as Exhibit 10.01
to the Companys Current Report on Form 8-K on February 25, 2005
and incorporated herein by reference) |
|
|
|
|
10.11
|
** |
|
Form of Nonqualified Stock Option Agreement (filed as Exhibit
10.02 to the Companys Current Report on Form 8-K on February 25,
2005 and incorporated herein by reference) |
92
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.12
|
** |
|
Form of Restricted Stock Agreement (filed as Exhibit 10.03 to the
Companys Current Report on Form 8-K on February 25, 2005 and
incorporated herein by reference) |
|
|
|
|
10.13
|
** |
|
Form of Performance Share Agreement. (filed as Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q on May 9, 2006 and
incorporated herein by reference) |
|
|
|
|
10.14
|
** |
|
Agreement dated February 18, 2005, by and between Royal Gold, Inc.
and Stefan Wenger (filed as Exhibit 10.05 to the Companys Current
Report on Form 8-K on February 25, 2005 and incorporated herein by
reference) |
|
|
|
|
10.15
|
** |
|
Royal Gold, Inc. 2004 Omnibus Long-Term Incentive Plan (filed as
Exhibit 99.2 to the Companys Current Report on Form 8-K on
September 21, 2005 and incorporated herein by reference) |
|
|
|
|
10.16 |
** |
|
Form of Employment Contract (filed as Exhibit 99.3 to the Companys
Current Report on Form 8-K on September 22, 2005, together with the
Schedule of Executive Officers Parties thereto (filed as Exhibit
99.1 to the Companys Current Report on Form 8-K on September 4,
2007), and incorporated herein by reference) |
|
|
|
|
10.17
|
|
|
Royalty Assignment and Agreement, effective as of December 26,
2002, between High Desert Mineral Resources, Inc. and High Desert
Gold Corporation (filed as Exhibit 99.4 to the Companys Current
Report on
Form 8-K on September 22, 2005 and incorporated herein by reference) |
|
|
|
|
10.18
|
|
|
Royalty Assignment, Confirmation, Amendment, and Restatement of
Royalty, and Agreement, dated as of November 30, 1995, among
Barrick Bullfrog Inc., Barrick Goldstrike Mines Inc. and Royal Hal
Co. (filed as Exhibit 99.5 to the Companys Current Report on Form
8-K on September 22, 2005 and incorporated herein by reference) |
|
|
|
|
10.19
|
|
|
Amendment to Royalty Assignment, Confirmation, Amendment, and
Restatement of Royalty, and Agreement, effective as of October 1,
2004, among Barrick Bullfrog Inc., Barrick Goldstrike Mines Inc.
and Royal Hal Co. (filed as Exhibit 99.6 to the Companys Current
Report on Form 8-K on September 22, 2005 and incorporated herein by
reference) |
|
|
|
|
10.20
|
|
|
Proceeds Agreement with HSBC Bank USA (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K on December 20, 2005 and
incorporated herein by reference) |
|
|
|
|
10.21
|
|
|
Purchase Agreement, between Kennecott Minerals Company and Royal
Gold, Inc., dated December 22, 2005 (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K on December 29, 2005 and
incorporated herein by reference) |
93
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.22
|
|
Amended and Restated Funding Agreement dated as of February 22,
2006, between Société des Mines de Taparko, also known as Somita,
SA, and Royal Gold, Inc. (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K on March 7, 2006 and incorporated herein
by reference) |
|
|
|
10.23
|
|
Conveyance of Tail Royalty and Grant of Milling Fee dated as of
February 22, 2006, between Société des Mines de Taparko, also known
as Somita, SA, and Royal Gold, Inc. (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K on March 7, 2006 and
incorporated herein by reference) |
|
|
|
10.24
|
|
Conveyance of Production Payment dated as of February 22, 2006,
between Société des Mines de Taparko, also known as Somita, SA, and
Royal Gold, Inc. (filed as Exhibit 10.3 to the Companys Current
Report on Form 8-K
on March 7, 2006 and incorporated herein by reference) |
|
|
|
10.25
|
|
Guaranty and Agreement in Support of Somita Funding Agreement dated
as of February 22, 2006, from High River Gold Mine Ltd. to and for
the benefit of Royal Gold Inc. (filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q on May 9, 2006 and
incorporated herein by reference) |
|
|
|
10.26
|
|
Pledge Agreement dated as of February 22, 2006, between High River
Gold Mines (International) Ltd., High River Gold Mines (West Africa)
Ltd. and Royal Gold, Inc. (filed as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q on May 9, 2006 and incorporated herein
by reference) |
|
|
|
10.27
|
|
Guarantee Agreement dated as of February 22, 2006, by High River
Gold Mines Ltd. in favor of Royal Gold, Inc. (filed as Exhibit 10.3
to the Companys Quarterly Report on Form 10-Q on May 9, 2006 and
incorporated herein by reference) |
|
|
|
10.28
|
|
Pledge of Securities dated as of February 22, 2006, by High River
Gold Mines Ltd. in favor of Royal Gold, Inc. (filed as Exhibit 10.4
to the Companys Quarterly Report on Form 10-Q on May 9, 2006 and
incorporated herein by reference) |
94
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.29
|
|
|
Contribution Agreement in Support of Somita Funding Agreement
dated as of February 22, 2006, from High River Gold Mine Ltd. to
and for the benefit of Royal Gold Inc. (filed as Exhibit 10.5 to
the Companys Quarterly Report on Form 10-Q on May 9, 2006 and
incorporated herein by reference) |
|
|
|
|
10.30
|
** |
|
Form of Indemnification Agreement with Directors and Officers
(filed as Exhibit 10.1 to the Companys Current Report on Form 8-K
on November 13, 2006, together with the Schedule of Certain
Officers Parties thereto (filed as Exhibit 99.2 to the Companys
Current Report on Form 8-K on September 4, 2007), and incorporated
herein by reference) |
|
|
|
|
10.31
|
|
|
Purchase and Sale Agreement for Peñasquito and Other Royalties
among Minera Kennecott S.A. DE C.V., Kennecott Exploration Company
and Royal Gold, Inc., dated December 28, 2006 (filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q on February 9,
2007 and incorporated herein by reference) |
|
|
|
|
10.32
|
|
|
Shares for Debt Agreement between Kennecott Exploration Company
and Royal Gold, Inc., dated December 28, 2006 (filed as Exhibit
10.3 to the Companys Quarterly Report on Form 10-Q on February 9,
2007 and incorporated herein by reference) |
|
|
|
|
10.33
|
|
|
Contract for Assignment of Rights Granted, by Minera Kennecott,
S.A. de C.V. Represented in this Agreement by Mr. Dave F. Simpson,
and Minera Peñasquito, S.A. de C.V., Represented in this Agreement
by Attorney, Jose Maria Gallardo Tamayo (filed as Exhibit 10.4 to
the Companys Quarterly Report on Form 10-Q on February 9, 2007
and incorporated herein by reference) |
|
|
|
|
10.34
|
|
|
Second Amended and Restated Loan Agreement among Royal Gold, Inc.,
High Desert Mineral Resources, Inc. and HSBC Bank USA, National
Association, dated January 5, 2007 (filed as Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q on February 9, 2007 and
incorporated herein by reference) |
|
|
|
|
10.35
|
|
|
Supplemental Mortgage, Deed of Trust, Security Agreement, Pledge
and Financing Statement between High Desert Mineral Resources,
Inc. and HSBC USA Bank, National Association, dated January 5,
2007 (filed as Exhibit 10.6 to the Companys Quarterly Report on
Form 10-Q on February 9, 2007 and incorporated herein by
reference) |
|
|
|
|
10.36
|
|
|
Amended and Restated Mortgage, Deed of Trust, Security Agreement,
Pledge and Financing Statement between Royal Gold and HSBC USA
Bank, National Association, dated January 5, 2007 (filed as
Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q on
February 9, 2007 and incorporated herein by reference) |
|
|
|
|
10.37
|
|
|
Second Amended and Restated Promissory Note between Royal Gold,
High Desert Mineral Resources, Inc. and HSBC USA Bank, National
Association, dated January 5, 2007 (filed as Exhibit 10.8 to the
Companys Quarterly Report on Form 10-Q on February 9, 2007 and
incorporated herein by reference) |
95
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.38
|
|
|
Assignment of Rights Agreement among Mario Ivan Hernández Alvarez,
Royal Gold Chile Limitada and Royal Gold Inc., dated January 16,
2007 (filed as Exhibit 10.9 to the Companys Quarterly Report on
Form 10-Q on February 9, 2007 and incorporated herein by
reference) |
|
|
|
|
10.39
|
|
|
Term Loan Agreement between Royal Gold Chile Limitada and HSBC
Bank USA, National Association, dated as of March 1, 2007 (filed
as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q on
May 4, 2007 and incorporated herein by reference) |
|
|
|
|
10.40
|
|
|
Guaranty between Royal Gold, Inc. and HSBC Bank USA, National
Association, dated as of March 1, 2007 (filed as Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q on May 4, 2007 and
incorporated herein by reference) |
|
|
|
|
10.41
|
|
|
First Amendment to Second Amended and Restated Loan Agreement by
and among Royal Gold, Inc., High Desert Mineral Resources, Inc.
and HSBC Bank USA, National Association, dated as of January 23,
2008 (filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K on January 29, 2008) |
|
|
|
|
10.42
|
* |
|
Letter of Intent between Royal Gold, Inc. and MinEx Projects Pty
Ltd dated April 3, 2008 |
|
|
|
|
10.43
|
* |
|
Extension letter dated June 30,
2008, of the letter of Intent between Royal Gold, Inc. and MinEx
Projects Pty Ltd. (filed as Exhibit 10.42 herewith) |
|
|
|
|
10.44
|
* |
|
Royalty Purchase and Sale Agreement between Royal Gold, Inc. and
Barrick Gold Corporation dated July 30, 2008 |
|
|
|
|
10.45
|
* |
|
Extension letter dated August 14,
2008, of the letter of Intent between Royal Gold, Inc. and MinEx
Projects Pty Ltd. (filed as Exhibit 10.42 herewith) |
|
|
|
|
21.1
|
* |
|
Royal Gold and Its Subsidiaries |
|
|
|
|
23.1
|
* |
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
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 |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Identifies each management contract or compensation plan or
arrangement. |
96