<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K/A- 2
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER 0-5664
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ROYAL GOLD, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0835164
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202-1132
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 573-1660
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
NASDAQ STOCK MARKET/1/
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(Name of each exchange on which registered)
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 X No
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As of August 31, 1994, the average bid and asked price of the
Company's stock was $7.625. The aggregate market value of voting
stock held by non-affiliates was $67,472,073.
As of August 31, 1994, there were 13,826,244 shares of Common
Stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy
Statement for the Annual Meeting of Stockholders scheduled to be
held on December 6, 1994: Part III, Items 11, 12 and 13.
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 registrant's 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. [X]
Total Number of Pages: 60 Exhibit Index - Page 50
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TABLE OF CONTENTS
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PAGE
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Part I
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Items 1.
and 2. Business and Properties 3
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 14
Part II
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Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
Item 8. Financial Statements and Supplementary Data 20
Part III
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Item 10. Directors and Executive Officers of the
Registrant 47
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial
Owners and Management 50
Item 13. Certain Relationships and Related
Transactions 50
Part IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 50
Reports of Independent Auditors
on Financial Statement Schedules 54
Schedule V. Property and Equipment 55
Schedule VI. Accumulated Depreciation,
Depletion and Amortization of Property
and Equipment 56
Schedule X. Supplementary Income Statement
Information 57
Exhibit A. The Company and Its Subsidiaries 58
Signatures 59
2<PAGE>
PART I
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Items 1 and 2. BUSINESS AND PROPERTIES
General
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Royal Gold, Inc., (together with its subsidiaries, "Royal" or the
"Company"), is engaged in the gold and other precious metals
business, primarily through passive and joint ownership
arrangements, and is also engaged in the acquisition, exploration,
development, and sale of gold properties.
The Company's primary business strategy is to create and acquire
royalty and other passive ownership interests in gold mining
properties through exploration and development activity (and
subsequent transfer of the operating interest in the subject
properties to other firms), and through the direct acquisition of
such interests. Substantially all the Company's revenues are and
can be expected to be derived from passive royalty interests rather
than mining activity conducted by the Company.
During fiscal 1993, the Company re-acquired an important royalty
interest at South Pipeline (formerly, "Crescent Valley"). Royal
Gold's interest is fully carried, meaning that the Company is not
required to furnish any funding for the project. For the past two
years, the Company has actively monitored the drilling and mine
development programs ongoing at South Pipeline, and during the
spring of 1993, the Company also re-activated its search for new
exploration projects in Nevada.
The current status of the Company's mineral property interests is
as follows: under terms of a settlement agreement dated September
18, 1992, the Company has been granted a royalty interest in the
South Pipeline Project operated by Placer Dome U.S., Inc. ("PDUS")
in Crescent Valley, Nevada , on which gold production commenced
in June 1994 (see "Crescent Valley/South Pipeline Project"
below); the Company is attempting to farm-out its interest
in the Bob Creek project, in Eureka County, Nevada; the Company is
attempting to sell the patented mining claims it holds at Camp
Bird, in Ouray County Colorado; and the Company is conducting its
own exploration programs at Long Valley, in Mono County,
California, and at several recently-acquired prospects in Nevada,
Utah and Montana. The South Pipeline Project is the only
property in which the Company holds an interest that is currently
producing gold.
The Company is also engaged, through two wholly-owned subsidiaries,
Denver Mining Finance Company ("DMFC") and Environmental
Strategies, Inc. ("ESI"), in providing financial, operational, and
environmental consulting services to the mining industry and to
companies serving the mining industry. During fiscal 1994, the
Company revenue generated from its consulting businesses was not
material. DMFC provided general advisory services to a European
3<PAGE>
firm regarding gold exploration in Europe and DMFC provided advice
to U.S. and European investors who sought to acquire or manage
mining assets in the United States.
The Company was incorporated under the laws of the State of
Delaware on January 5, 1981. Its executive offices are located at
1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202. See
Exhibit 22, "The Company and Its Subsidiaries."
Significant Developments During Fiscal 1994: Private Placements,
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Union Pacific Exploration Agreement, and Commencement of Mining
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in Crescent Pit
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The most significant developments of fiscal 1994 were: (1) the
Company's completion, during December 1993 and January 1994, of two
private placement transactions involving the sale of a total of
1,425,000 shares of common stock for aggregate net proceeds of $6.6
million; (2) the execution, in May 1994, of an agreement pursuant
to which the Company may explore the entirety of Union Pacific
Corporation's mineral estate in Colorado and Wyoming (comprising
some six million acres of land), with a view to securing the
exclusive right to develop and/or farm out, over a three-year
period, gold and other precious mineral deposits on 50,000 acres of
such ground, as designated by Royal Gold; and (3) the commencement,
in June 1994, of mining operations at the "Crescent Pit," on South
Pipeline Project ground.
The completion of the private placement transactions ensures the
Company's ability to continue an aggressive exploration program,
both on the Union Pacific lands and with respect to those projects
that the Company has initiated in Nevada and elsewhere.
The arrangement with Union Pacific affords the Company the
opportunity to explore on six million acres of highly prospective
ground that has not previously been examined, in any systematic
way, for precious metal and diamond mineralization. The Company
has already identified ten prospect areas where it is conducting
geochemical sampling surveys, with a view to more intensive
exploration if the sampling proves favorable.
Under the agreement, the Company is obliged to expend a minimum of
$400,000 on exploration of the selected lands, such exploration to
be completed on or before August 1, 1995. In addition, the Company
may extend its exclusive rights for two additional twelve-month
terms, upon making additional exploration commitments of $600,000
and $1,000,000, respectively. Over the possible thirty-nine-month
term of the Agreement, then, projected exploration expenditures
total $2,000,000.
If the Company identifies attractive deposits on the Union Pacific
lands, it has the opportunity, under the terms of agreements that
have already been negotiated with Union Pacific, to assign further
4<PAGE>
exploration and development rights to third parties; to develop
such deposits in collaboration with Union Pacific; or to develop
such deposits for Royal Gold's own account. In all circumstances,
Union Pacific will retain a royalty interest, and will retain
various rights to participate on a working interest basis in the
development, and operation of any mineral deposit.
The extent of any such royalty will depend on market factors,
including among others, the desirability to a third party of the
particular deposit discovered on the Union Pacific property.
The Crescent Pit operation, which is projected to encompass some
320 acres within the 4,000 acre claim block of the South Pipeline
Project, is planned to recover some 217,000 recoverable ounces of
mill-grade gold over a four-year period. The Company expects that
it will receive royalty income from the Crescent Pit operation
within the last calendar quarter of 1994, or the first calendar
quarter of 1995.
Also during fiscal 1994, the Company acquired, through the
negotiation of mining leases or through self-initiated claim
location activity, seven additional exploration properties. The
Company conducted initial exploration programs on four of these
properties, and as a result of such activity, determined not to
proceed further with three of these properties; the fourth
property, Buckhorn South, warrants further exploration, and the
Company is presently conducting a drilling program at this property
and intends to explore its remaining properties in fiscal 1995.
The Company also plans to expend substantial resources (a minimum
of $400,000) in exploration activities on the Union Pacific ground.
Properties
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Recent activities at the Company's properties are described below.
Reference is made to footnotes in the financial statements for more
information on property histories.
The Company has estimated gold-bearing material by the use of
drilling, mapping, sampling, geological interpretation, assaying
and other standard evaluation methods generally applied by the
mining industry. The Company has relied on its joint venture
partners and previous owners of certain of its properties for the
preparation of certain data and other information. Any information
prepared by others has been reviewed by the Company and its
consultants.
South Pipeline Project (formerly referred to as "Crescent
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Valley")
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The South Pipeline royalty interest is now the Company's most
significant gold property interest.
5<PAGE>
Background. The South Pipeline Project is located in Lander
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County, Nevada, and covers over 4,000 acres of unpatented mining
claims. The Company initially leased the Gold Acres South claim
block (the "GAS Mining Claims") from ECM, Inc. and formed the
Crescent Valley Joint Venture ("CVJV") with Golden Bounty Resources
N.L. of Australia in May 1987. In turn, the CVJV then entered into
an agreement with the Cortez Gold Mines ("Cortez") joint venture
(the agreement created the "Crescent/Cortez JV") that would leave
the CVJV with a 20% carried interest after it had expended $1
million for exploration. The GAS Mining Claims included a portion
of claims owned by Cortez Gold Mines and another portion owned by
the CVJV pursuant to a lease from a third party, ECM, Inc.
Reverse circulation drilling programs conducted by the Company in
calendar 1988, 1989 and 1990 resulted in identification of one
sediment-hosted gold deposit in addition to other
gold anomalies, the one gold deposit being defined
with 16 holes drilled on adjacent 200-foot centers.
In May 1990, the Company purchased the interest of Golden Bounty
Resources, N.L., its co-venturer in the CVJV, for 176,165 shares of
Royal Gold's common stock, then valued at $264,000.
Due to serious liquidity problems in 1991, the Company felt it
necessary to consider the sale of its interest in the property.
Effective April 15, 1991, at a time when the Company had a 100%
interest in the CVJV, the Company and Cortez entered into an
agreement (the "Termination Agreement") which provided that the
Crescent/Cortez JV agreement be terminated; that the lease of the
GAS Mining Claims be terminated; and that the Company, Cortez, and
ECM, Inc. enter into a new set of agreements pursuant to which the
Company received a cash payment of $100,000, secured a release of
any further exploration obligations, and was conveyed two different
royalty interests relating to the GAS Mining Claims that now
comprise the South Pipeline Project. The two royalty interests
consist of a 1.5% NSR royalty/1/ (with a capped payout of
$750,000), and a 1.25% net proceeds interest royalty in the
project. See Note 2.A. to the Consolidated Financial Statements
that are included in Item 8 ("Note 2.A.").
____________________
/1/ "Net smelter returns" or "NSR royalty" interest means that the
royalty holder receives a defined percentage of the revenue
realized upon the sale of a unit of material as produced at
the ultimate processing facility for such material, with the
royalty holder's economic interest generally being reduced
only by the proportionate costs associated with the insuring
and shipment of ore-grade or concentrate material to the
ultimate processing facility, and being further reduced by the
proportionate treatment costs actually incurred at such
ultimate processing facility.
6<PAGE>
On December 2, 1991, the Company assigned one-half of its 1.5% NSR
royalty to Chipeta Mining Corporation to satisfy an obligation of
$209,000 that arose in connection with the termination of another
joint venture at another property. In order to fund
continuing liquidity needs, on December 30, 1991 the Company
(through an affiliated limited partnership) commenced a private
offering to raise $400,000 by offering for sale the remaining one-
half of the 1.5% NSR royalty and the 1.25% net proceeds royalty, as
more fully described in Note 2.A. of Notes to Financial Statements.
A subsidiary of the Company is a general partner of the limited
partnership and has a 2% interest in the partnership. Thus, after
the sale of these royalty interests the Company had only a nominal
interest in this property. However, as described below, the
Company recovered a 20% net profits interest in South Pipeline in
the settlement of its lawsuit against PDUS.
Litigation and Agreement with Placer Dome U.S. In the spring of
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1992, the Company came to believe that, during the negotiations
regarding termination of the Crescent/Cortez JV that the Company
held with PDUS, operator of the Cortez joint venture, during the
period March through August 1991, PDUS withheld material
information regarding the true value of the GAS Mining Claims that
were the subject of the Company's Crescent Valley joint venture
interest. On June 1, 1992, the Company filed suit against PDUS.
On September 18, 1992, the parties settled the litigation pursuant
to an agreement calling for:
1) The creation of the "South Pipeline Project," located on the
GAS Mining Claims in Crescent Valley, Lander County, Nevada,
approximately one-half mile south of the Pipeline gold
discovery announced by PDUS in November 1991.
Under the South Pipeline agreement, Cortez, a joint venture
operated by PDUS, will remain the manager and operator and has
committed to an exploration and development work program
totaling a minimum of $1.4 million through the end of 1994.
The Company will receive a 20% net profits royalty or, at its
election beginning with production and annually thereafter, an
NSR royalty according to a schedule tied to indexed gold
prices. The NSR royalty ranges from 2.5% for an indexed price
of $350 per ounce to 5.5% for an indexed price in excess of
$500 per ounce. Under either royalty arrangement, the Company
will be able to take its royalty in kind. The Company will
receive advance royalty payments of $150,000 per year,
commencing September 30, 1992, with the first four such
payments being guaranteed.
2) The purchase, by Cortez, for $800,000 of the following
securities: (1) 500,000 shares of the Company's common stock;
(2) a warrant to purchase, before March 31, 1996, 300,000
additional shares of the Company's common stock at $2.00 per
7<PAGE>
share; and (3) a warrant to purchase, before March 31, 1996,
an additional 300,000 shares of the Company's common stock at
$3.00 per share, if either Cortez or the Company has first
elected to put the South Pipeline Project into production.
3) If Cortez does not elect, by April 30, 1996, to put the
Project into production, then the Company may elect to put the
property into production, subject to its granting to Cortez a
production royalty identical to the one described above.
Royal would then be entitled to use, under a normal tolling
arrangement and as available, the Cortez milling facilities in
the vicinity, including any to be built for the Pipeline
project.
4) For a period of five years following the date of the
settlement agreement, without prior approval of the Company's
Board of Directors, Cortez, for itself and its affiliates,
agreed not to, directly or indirectly: (i) acquire any further
shares of the Company except with respect to the warrants;
(ii) join with any person or group in any effort to acquire
any such additional shares; (iii) propose, initiate or enter
into any tender offer, business combination or change of
control transaction involving the Company or its assets; (iv)
solicit proxies; or (v) vote on matters relating to South
Pipeline or other matters involving Cortez or its affiliates,
among other matters. Cortez will not sell any of the acquired
shares publicly except in accordance with Rule 144, any
underwritten public offering, in a tender offer, or privately
except subject to these standstill limitations by a person
unaffiliated with Cortez or its affiliates.
In terms of the Company's project portfolio, the most important
outcome of settling the PDUS lawsuit, as described above, is the
creation of the South Pipeline Project and the grant thereunder, at
the Company's annual election, of either a 20% net profits royalty
interest or a sliding scale 2.5% to 5.5% NSR royalty interest in
all production from the GAS Mining Claims. Under either royalty
interest, the Company will have the right to take its share of
production in kind.
Development. PDUS has conducted an aggressive program of
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exploration and development drilling at South Pipeline since
November 1992, having spent well over $10 million through June 30,
1994. The following list shows the history of announcements by
PDUS regarding its exploration program and gold mineralization at
South Pipeline:
. On February 3, 1993, PDUS announced a preliminary estimate of
mineralization for the South Pipeline Project of approximately
10 million tons of material , with an average grade
of 0.121 ounces of gold per ton, assuming a cut-off grade
of 0.05 ounces of gold per ton. (This cut-off grade
assumes an open pit mine
8<PAGE>
with conventional mill processing at a cash cost of
approximately $150/oz. and a gold price of $375.)
. On May 4, 1993, PDUS announced a new estimate of gold
mineralization for the South Pipeline property of 15.6 million
tons of material , with an average grade of
0.147 ounces of gold per ton.
. On August 5, 1993, the Company announced a new estimate of
gold mineralization for the South Pipeline Project of 31.4
million tons of material with an average grade of 0.106 ounces
of gold per ton, assuming a cut-off grade of 0.05 ounces per
ton. (This cut-off grade assumes an open pit mine with
conventional mill processing at a cash cost of approximately
$150/oz. and a gold price of $375.)
. On May 2, 1994, the Company announced a new estimate of gold
mineralization for the South Pipeline Project of 76.49 million
tons of material, with an average grade of 0.048 ounces of
gold per ton.
. On September 1, 1994, the Company announced an additional
estimate of gold mineralization for another deposit within the
South Pipeline property known as "Gaslight" of 15.6 million
tons of material grading 0.050 ounces of gold per ton, at a
cut-off grade of 0.01 ounces of gold per ton. (This cut-
off grade assumes an open pit, heap leach facility with cash
costs of approximately $180/oz. and a gold price of $375.)
Exploration drilling is scheduled to continue at South Pipeline in
calendar year 1995.
In addition to the South Pipeline gold deposits
that have been defined to date, other important
gold intercepts have been made on South Pipeline property, which
suggest there may be additional deposits on the GAS Mining Claims.
These developments, together with the start of operations at the
Crescent Pit, provide great encouragement that the South Pipeline
Project may be developed, and that the Company's royalty interest
in the project may generate revenue for a number of years to come.
9<PAGE>
Set forth below are charts showing the reserves and gold deposits
at South Pipeline:
<TABLE>
<CAPTION>
Proven and Probable Ore Reserves<F1>
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April 1994
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au<F2>
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<S> <C> <C> <C>
South Pipeline
Crescent Pit<F3> 1.967 0.125 217,000
<FN>
<F1> "Reserve." 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." Reserves for which (a) quantity
is computed from dimensions revealed in outcrops, trenches,
workings or drill holes; grade and/or quality are 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 size, shape, depth and mineral
content of reserves are well-established.
"Probable (Indicated) Reserves." Reserves for which quantity
and grade and/or quality 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,
although lower than that for proven (measured) reserves, is high
enough to assume continuity between points of observation.
<F2> Contained ounces shown are after an allowance for dilution of
ore in the mining process, and reflect ounces expected to be
recoverable at an assumed recovery rate of 88%.
<F3> The Company holds a 20% net profits interest in this property.
The reserves reported in the table for the Crescent Pit are
supported by a detailed economic feasibility study of the
project.
[/FN]
</TABLE>
<TABLE>
<CAPTION>
Gold Deposits/Mineralization<F1>
--------------------------------
Tons Average Grade
(in millions) (oz Au/ton)
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<S> <C> <C>
South Pipeline 76.49 0.048
(includes Crescent
Pit reserves)<F2><F3>
Gaslight<F3><F4> 15.6 0.05
<FN>
<F1> Gold mineralization has not been included in the proven and
probable ore reserve estimates because even though drilling,
trenching and/or underground work indicate a sufficient amount and
grade to warrant further exploration or development expenditures,
these resources do not qualify as commercially minable ore bodies
until further drilling and metallurgical work are completed, and
until other economic and technical feasibility factors based upon
such work are resolved.
<F2> Information as of April 1994.
<F3> The Company holds a 20% net profits interest in this property.
<F4> Information as of September 1, 1994.
</FN>
</TABLE>
10<PAGE>
Long Valley
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The Long Valley project is located 45 miles north of Bishop,
California, in Mono County. In April 1989, the Company entered
into a joint venture with Standard Industrial Minerals, Inc.
("Standard"), which holds the Long Valley property, and operates a
kaolin mine on the property.
As of 1989, the Company had delineated a gold deposit for a heap
leach project of 2.2 million tons averaging 0.023 ounces of gold
per ton. Additional work on the cost of bringing this
material into production is required before the
deposit could be classified as proven or probable reserves.
In December 1990, the Company and Standard entered into an
exploration and interest earning agreement with Battle Mountain
Exploration Company ("BMEC"). In March 1992, BMEC advised the
Company that it had discovered significant additional amounts of
low grade gold mineralization over an area of approximately four
square miles, but that it proposed to restructure the agreement
described above to encourage further exploration by the addition of
a fourth party. Efforts to identify a fourth party failed, and
BMEC terminated its interest in the property on January 1, 1993.
Effective November 30, 1993, the Company and Standard agreed to
restructure the joint venture agreement so that the Company now has
an option, exercisable through December 31, 1997, to acquire the
entirety of Standard's interest in Long Valley for $1,000,000.
During the term of the option, the Company is obliged to make
annual payments to Standard, totalling $125,000 over four years,
with $100,000 of such payments being creditable against the option
exercise payment. The Company has no work commitment, and also has
the right, at its election, to proceed with development of the
property as originally contemplated under the joint venture
agreement.
On July 9, 1994, the Company commenced a seven-hole exploration
drilling program at Long Valley at a cost of approximately
$215,000; the program was designed to test significant anomalies
that were identified, but not tested, by BMEC. The results of this
program were sufficiently encouraging that the Company plans to
conduct additional drilling in calendar 1994. The extent of such
drilling has not yet been determined.
Bob Creek Project
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The Company leases the 67 unpatented mining claims that constitute
the Bob Creek project, located in Eureka County, Nevada, from
Aquarian Mining and Mr. D.P. Ward (collectively, "Aquarian"). The
Bob Creek claims are subject to a NSR royalty in favor of Aquarian
that varies between 2.5% (at $400 per ounce of gold) and 8.0% (at
$900 per ounce of gold). The project was acquired in June 1987,
11<PAGE>
and has been explored for gold on a limited basis with surface
geochemistry, geophysics, and by drilling.
Effective March 1, 1991, Newmont acquired an interest in the
project by making an initial payment of $25,000 to the Company, and
by undertaking all of the obligations of the Aquarian lease. On
each of March 1, 1992 and 1993, Newmont made further payments of
$10,000 to the Company. The amounts paid by Newmont were treated
as a recovery of the capitalized cost of the Bob Creek project
during the quarters ended March 31, 1991, 1992, and 1993. Newmont
terminated its interest in the project in August 1993.
In August 1993, the Company leased an additional 36 claims from Mr.
Rex Steninger.
The Company is seeking a joint venture partner or an entity to
which it may farm-out its operating interest in the Bob Creek
Project.
Treasure King
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In 1988, the Company acquired the Treasure King gold property in
Yavapai County, Arizona, from Resource Exploration and Development
Company ("REDCO"), subject to a 10% net profits interest.
In 1988, the Company defined a gold deposit of 175,000 tons
averaging 0.063 ounces of gold per ton, which was minable at gold
prices extant at the time. Some of the permits required for a heap
leach gold operation were obtained. In 1989, the Company completed
a more detailed in-fill drilling program which reduced the gold-
bearing deposit to 152,000 tons averaging 0.052 ounces of gold per
ton. At current or foreseeable gold price levels, substantially
more tons would be needed to make the existing deposit economic to
mine.
During fiscal 1994, the Company determined to abandon the Treasure
King gold project.
Goldstripe
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The Goldstripe Mine is located two miles southwest of Canyon Dam,
California, near Lake Almanor in Plumas County, adjacent to the
historic Crescent Mills gold district. As described in previous
filings, the Company's mining operations ceased at Goldstripe after
the 1989 operating season, and most of the reclamation (regrading,
reseeding and ground water monitoring) required of the Company by
the U.S. Forest Service has been completed. Revegetation and
ground water monitoring activities continue. In 1992, the Company
surrendered a $341,000 reclamation bond to fund reclamation, which
was conducted by the U.S. Forest Service. The Company believes
that only approximately $250,000 of the $341,000 has been spent to
date, and that future additional costs, if any, are likely to be
immaterial.
12<PAGE>
See Item 3, "LEGAL PROCEEDINGS," below for further information
relating to actions initiated by the United States Forest Service.
The Company had been holding the property in anticipation of
reprocessing a processed ore residual pile located at the site, and
recovering gold from the residual material. However, during the
fourth quarter of fiscal 1994, the Company determined that such a
project would not be economic, due to anticipated increased costs
associated with such a project, and because of substantially higher
reclamation bonding requirements that would be imposed by federal
and state regulatory agencies. Accordingly, the Company has
determined to abandon the mill site claims pursuant to which it
holds the residual pile resource, and to write-off its interest in
Goldstripe.
Other Matters
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Sales Contracts
- ---------------
The Company had no sales of gold bullion in fiscal 1994, and
therefore there were no material relationships with metal traders
during the period.
Risks Inherent in the Mining Industry
- -------------------------------------
Mineral exploration and development is highly speculative, capital
intensive, and involves significant risks. Most exploration
programs do not result in the discovery of mineralization of
sufficient quantity or quality to be profitably mined. The
operations of the Company will be subject to all of the hazards and
risks normally incident to developing and operating mining
properties.
Regulation
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The Company's exploration and mining activities in the United
States are subject to various federal, state and local laws and
regulations governing prospecting, development, production, labor
standards, occupational health, mine safety, control of toxic
substances, other matters involving environmental protection, and
taxation. The environmental protection laws address, among other
things, the maintenance of air and water quality standards, the
preservation of threatened and endangered species of wildlife and
vegetation, the preservation of certain archaeological sites,
reclamation, and limitations on the generation, transportation,
storage and disposal of solid and hazardous wastes. The Company is
a party to a response action initiated by the U.S. Forest Service
with respect to Goldstripe, but based on information currently
available believes that no specific action on the part of the
Company is likely to be required. Therefore, the Company believes
that the response action will not result in any material adverse
effect on the Company. See "LEGAL PROCEEDINGS." The Company
13<PAGE>
believes that the operations in which it retains interests are
currently in material compliance with all such applicable laws and
regulations.
Fluctuations in the Market Price of Minerals
- --------------------------------------------
The profitability of gold mining operations is directly related to
the market price of gold. The market price of gold fluctuates
widely and is affected by numerous factors beyond the control of
the Company, including expectations with respect to the rate of
inflation, the exchange rates of the dollar and other currencies,
interest rates, global or regional political, economic or banking
crises, and a number of other factors. If the market price of gold
should drop dramatically, the value of the Company's properties
which are being explored or developed could also drop dramatically,
and the Company might not be able to recover its investment in
those properties. The decision to place a mine into production,
and the commitment of funds necessary for that purpose, must be
made long before the first revenues from production will be
received. Price fluctuations between the time that such a decision
is made and the commencement of production can drastically change
the economics of the mine.
The volatility of gold prices represents a substantial risk to the
mining industry, generally, which no amount of planning or
technical expertise can eliminate. The volatility in gold prices
is illustrated by the following table, which sets forth, for the
periods indicated, the high and low prices per ounce.
Year Gold Price Per Ounce
---- --------------------
High Low
---- ---
1989 412 360
1990 424 346
1991 403 350
1992 359 331
1993 406 327
January-June, 1994 395 370
At August 31, 1994, the gold price was $385.75 per ounce. In
previous years, the Company has used hedging and forward sales
techniques to reduce the impact of the volatility of the gold
prices. These techniques include the use of forward sales (usually
less than three-month delivery commitments) and option programs.
At present, the Company has no hedging programs in place. The
Company would consider hedging programs in the event certain
production levels are obtained and maintained, and market
conditions justify the economic use of hedging programs.
14<PAGE>
Competition
- -----------
There is aggressive competition within the minerals exploration
industry to discover and acquire properties considered to have
commercial potential. The Company competes for the opportunity to
participate in promising exploration projects with other entities,
many of which have greater resources than the Company. In
addition, the Company competes with others in efforts to obtain
financing to explore and develop mineral properties.
Company Personnel
- -----------------
At August 31, 1994, the Company had nine full-time employees
located in Denver, Colorado. The Company's employees are not
subject to a union labor contract or collective bargaining
agreement.
Consulting services, relating primarily to geologic and geophysical
interpretations, and advice with respect to metallurgical,
engineering, legal and such other technical matters as may be
deemed useful in the operation of the Company's business, are
provided by independent consultants and contractors.
Foreign Operations
- ------------------
The Company does not own any foreign gold mining properties or
interests.
Item 3. LEGAL PROCEEDINGS
Calgom Mining/Goldstripe Project
- --------------------------------
Following cessation of the Company's operations at the Goldstripe
site and in connection with obtaining funding for reclamation, on
August 5, 1992, the U.S. Forest Service notified the Company that
it had determined to initiate a response action, under the
Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA") at the Goldstripe site, in order to assess the
threat of a possible release of cyanide from the residual pile. To
date, the only action undertaken by the Forest Service in
connection with the response action notice has been to establish
four monitoring wells at the site, at an estimated cost of $27,000.
Although not formally related to the response action notice, on
October 5, 1992, the Company released a $341,000 reclamation bond
to fund reclamation performed by the Forest Service. The Company
believes approximately $250,000 of the $341,000 has been spent to
date. The Company believes that, based on verbal
communications with the Forest Service and the status of
reclamation at the site , no additional "response action" or
other remediation is likely to be undertaken by the
Forest Service under CERCLA or otherwise. See "BUSINESS AND
PROPERTIES-GOLDSTRIPE."
15<PAGE>
In August 1993, and again in May 1994, the Forest Service advised
the Company that its reclamation activities were substantially
completed (except for revegetation) and that the Forest Service
believed that such activities should satisfy all outstanding permit
requirements for reclamation, except for the post-reclamation
monitoring that is ongoing. However, it is also possible that
additional reclamation or water quality monitoring could be
required by the Forest Service or the California Regional Water
Quality Control Board, which, if required, could result in
additional cost to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended June 30, 1994. Annual meeting results will be
described in Item 4 to the Company's report filed on Form 10-Q, for
the quarter ended December 31, 1994.
PART II
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------
1994 1993 1992 1991 1990
Selected Statement of ---- ---- ---- ---- ----
Operations Data (Amounts in thousands, except per share data)
- --------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Bullion sales $ - $ - $ - $ 213 $ 3,002
Royalty income 153 150 - - -
Exploration expense 499 57 86 36 2,253
General and administrative
expense 1,037 765 725 941 1,236
Loss from continuing
operations (1,452) (618) (638) (8,940) (1,892)
Net loss (1,452) (618) (638) (8,940) (1,480)
Net income (loss) per share:
Continuing operations $ (.11) $ (.06) $ (.07) $ (1.00) $ (.22)
Discontinued operations - - - - .05
------- ------ ------ ------- -------
$ (.11) $ (.06 ) $ (.07) $ (1.00) $ (.17)
======= ======= ======= ======= =======
<CAPTION>
As of June 30,
--------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Selected Balance Sheet Data (Amounts in thousands, except per share data)
- --------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 8,183 $ 2,727 $ 1,877 $ 2,609 $11,427
Working capital (deficit) 6,884 1,229 (272) (236) 7
Long-term obligations 131 193 453 406 442
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
On June 30, 1994, the Company had current assets of $7,122,000
compared to current liabilities of $238,000 for a current ratio of
16<PAGE>
29.9 to 1. This compares to current assets of $1,474,000 and current
liabilities of $245,000, at June 30, 1993, resulting in a current
ratio of 6.0 to 1. The Company's current assets include
approximately $4,898,000 of marketable securities that consist of
U.S. treasury securities with maturities of 15 months or less, which
the Company typically holds to maturity. The Company's initial cost
and current value at June 30, 1994 of these marketable securities
were $4,944,901 and $4,897,626, respectively, which results in an
unrealized loss of $47,276 at June 30, 1994.
During fiscal 1994, liquidity needs were met from: (i) proceeds of
two private placements of the Company's common stock which raised net
proceeds of $6.6 million, (ii) the Company's available cash resources
and interest income, (iii) cash payments of $155,000 received from
companies seeking to explore the Company's properties ($150,000 from
Cortez with respect to South Pipeline, and $5,000 from American
Resources with respect to Goldfield), and (iv) earnings from
financial and environmental consulting services. The Company's
operating activities utilized approximately $1,400,000 of cash during
the fiscal year ended June 30, 1994.
The only material commitments of the Company that cannot be
terminated at the sole discretion of the Company are (i) the Union
Pacific Agreement that requires $400,000 to be spent on exploration
prior to August 1, 1995; (ii) employment agreements with four
officers calling for minimum payments of approximately $400,000 for
fiscal 1995; and (iii) office lease payments of $43,000 for fiscal
1995. The Union Pacific Agreement provides that the Company can
extend the agreement for two additional 12-month terms upon making
additional exploration commitments of $600,000 and $1,000,000,
respectively (if the Company exercises its rights to extend, total
exploration expenditures under the agreement are estimated to be
$2,000,000 over its 39-month term).
The Company anticipates total expenditures for fiscal 1995 for
general and administrative expenses to be approximately $1,200,000
and expenditures for exploration and property holding costs to be
approximately $1,000,000 (including $400,000 under the Union Pacific
Agreement). These amounts could increase or decrease significantly
based on exploration results and decisions about releasing or
acquiring additional properties, among other factors.
The Company's farm-out strategy has led to successful elimination
of several major commitments relating to mineral properties
(e.g., the elimination of obligations to construct a gold processing
plant at Long Valley at a potential cost of $2 million). This
strategy has also strengthened the Company's cash position. The
Company will continue to explore its remaining properties and to
acquire new projects, with a view to enhancing them prior to possible
farm out to major mining company partners.
17<PAGE>
During fiscal 1991 and 1992, management implemented strict measures
to reduce costs, to restructure obligations, and to preserve capital.
Following these efforts and the re-acquisition of the South Pipeline
Project royalty interest, the Company's liquidity outlook now is
favorable, as demonstrated by the Company's successful completion of
six private placements of equity capital which generated $8.8 million
over the past three years. The proceeds of these investments will be
used for general corporate purposes, including primarily exploration
and general and administrative expenses. The Company continues to
monitor closely its general and administrative expenses, rely on
consultants rather than add full time employees and maintain efforts
to control costs.
Current financial resources and sources of income should be adequate
to cover the Company's general and administrative costs for at least
the next twelve months. The Company is greatly encouraged that
development work being carried out now at South Pipeline and the June
1994 commencement of mining at the Crescent Pit could lead to
sustained gold production over the next several years which then
could mean the Company's long-term liquidity needs would be supported
by cash flow from the South Pipeline Project. Meanwhile, if
increased general and administrative costs arise from new business in
the financial and environmental consulting sectors, or if the Company
develops a new mining operation, additional revenues would also be
expected.
RESULTS OF OPERATIONS
- ---------------------
Fiscal Year Ended June 30, 1994 Compared with Fiscal Year Ended
- ---------------------------------------------------------------
June 30, 1993
- -------------
For the year ended June 30, 1994, the Company recorded a net loss of
$1,452,000, or $.11 per share, as compared to a net loss of $618,000,
or $.06 per share, for the year ended June 30, 1993. The net loss
for the current period resulted mainly from ongoing administrative
expense after receipt of $155,000 in advance minimum royalty and
other property payments. General and administrative costs of
$1,037,000 for the fiscal year ended June 30, 1994 include
approximately $20,000 as an adjustment to the accrual of retirement
benefits for a former officer and director.
Other costs and expenses included $164,000 in lease maintenance and
holding costs in 1994 relating to 12,520 acres, up from $17,000 in
1993. Exploration costs increased from $57,000 for the year ended
June 30, 1993, to $499,000 for the year ended June 30, 1994, due to
the Company's renewed emphasis on exploration projects.
General and administrative expenses of $1,037,000 for the year ended
June 30, 1994, increased from those of $765,000 for the year ended
June 30, 1993, as a result of increased staffing and increased
compensation. General and administrative expenses consist primarily
of employee compensation and benefits, leasehold
18<PAGE>
expense, office equipment expenses, travel and communications
costs.
Interest and other income was $143,000 in fiscal 1994, up from
$34,000 in fiscal 1993, due primarily to increased funds available
for investing from stock placements. In fiscal 1993, $48,000 was
recognized for the gain on sale of investments in restricted common
stock. At June 30, 1994, the Company has had an unrecognized loss of
$47,000 in its U.S. Treasury securities portfolio (which securities
are typically held to maturity by the Company).
Depreciation and amortization declined from $37,000 for fiscal 1993
to $26,000 for fiscal 1994, due to assets which became fully
depreciated and fully amortized during fiscal 1993, and because of
assets that were sold during fiscal 1993, which did not have a full
year of depreciation expense associated with them.
During fiscal 1994 mining assets were written down by $749,350,
primarily related to the abandonment of Calgom/Goldstripe and
Treasure King, versus none in fiscal 1993.
During fiscal 1994 the Company recognized a deferred tax asset of
$750,000 associated with the proven reserve at Crescent Pit versus
none in fiscal 1992.
Fiscal Year Ended June 30, 1993 Compared with Fiscal Year Ended
- ---------------------------------------------------------------
June 30, 1992
- -------------
For the year ended June 30, 1993, the Company recorded a net loss of
$618,000, or $.06 per share, as compared to a net loss of $638,000,
or $.07 per share, for the year ended June 30, 1992. The net loss
for the current period resulted mainly from ongoing administrative
expense after receipt of $165,000 in advance minimum royalty income
and other property payments and receipt of $81,000 resulting from
sales of equipment and securities. General and administrative costs
of $765,000 for the fiscal year ended June 30, 1993, include
approximately $20,000 as an adjustment to the accrual of retirement
benefits for a former officer and director.
Other costs and expenses included $17,000 in lease maintenance and
holding costs in 1993, down from $66,000 in 1992. Exploration costs
declined from $86,000 for the year ended June 30, 1992, to $57,000
for the year ended June 30, 1993, due to the Company's concentration
on monitoring the South Pipeline situation.
Net revenues from financial and environmental consulting services
were $28,000 compared with $83,000 in fiscal 1992, again due to
Management's concentration on the South Pipeline Project. General
and administrative expenses of $765,000 for the year ended June 30,
1993, do not differ materially from those of $725,000 for the year
ended June 30, 1992, as a result of cost saving efforts discussed
under Liquidity and Capital Resources, above.
-------------------------------
19<PAGE>
Interest and other income was $34,000 in fiscal 1993, down from
$40,000 in fiscal 1992, due primarily to lower prevailing interest
rates. In fiscal 1992, a gain of $193,000 was recognized on the sale
of the Company's Crescent Valley interests to a limited partnership,
whereas there were no mineral property sales in fiscal 1993. In
fiscal 1993, $48,000 was recognized for the gain on sale of
investments in restricted common stock.
Depreciation and amortization declined from $57,000 for fiscal 1992
to $37,000 for fiscal 1993, due to assets which became fully
depreciated and fully amortized during fiscal 1993, and because of
assets that were sold during fiscal 1992 and 1993, which did not have
a full year of depreciation expense associated with them.
Impact of Inflation
- -------------------
The Company's operations have been subject to general inflationary
pressures, which have not had a significant impact on its operating
costs.
20<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized.
ROYAL GOLD, INC.
Date: June __ , 1995 By: PETER B. BABIN
---------------------------
Peter B. Babin
Senior Vice President
