SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Fiscal Year Ended June 30, 1997.
Commission File No. 0-5664
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 (Zip Code)
Executive Offices)
(303) 573-1660
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(Registrant's Telephone Number, including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value NASDAQ National Market System
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(Title of Class) Name of 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 ninety (90) days.
Yes X No
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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 ]
As of August 29, 1997, the average bid and asked price of the Company's
stock was $7.75. The aggregate market value of voting stock held by non-
affiliates was $79,757,000. As of August 29, 1997, there were 16,080,176
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 2, 1997: Part III, Items 11, 12 and 13.
Total Number of Pages: 56 Exhibit Index - Page 54
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TABLE OF CONTENTS
PAGE
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Part I
Items 1.
and 2. Business and Properties 1
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21
Item 8. Financial Statements and Supplementary Data 25
Part III
Item 10. Directors and Executive Officers of the
Registrant 49
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial
Owners and Management 51
Item 13. Certain Relationships and Related
Transactions 51
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 54
Exhibit A. The Company and Its Subsidiaries 54
Signatures 55
Cautionary "Safe Harbor" Statement Under the Private Securities
Litigation Reform Act of 1995. With the exception of historical
matters, the matters discussed in this report are forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from projections or estimates
contained herein. Such forward-looking statements include
statements regarding planned levels of exploration and other
expenditures, anticipated mine lives, timing of production and
schedules for development. Factors that could cause actual
results to differ materially include, among others, decisions and
activities of Cortez regarding Pipeline and South Pipeline,
unanticipated grade, geological, metallurgical, processing or
other problems, conclusions of feasibility studies, changes in
project parameters as plans continue to be refined, the timing of
receipt of governmental permits, the failure of plant, equipment
or processes to operate in accordance with specifications or
expectations, results of current exploration activities,
accidents, delays in start-up dates, environmental costs and
risks, changes in gold prices, as well as other factors described
elsewhere in this report. Most of these factors are beyond the
Company's ability to predict or control. The Company disclaims
any obligation to update any forward-looking statement made
herein. Readers are cautioned not to put undue reliance on
forward-looking statements. See "Business and Properties - Risk
Factors".
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PART I
Items 1 and 2. BUSINESS AND PROPERTIES
GENERAL
Royal Gold, Inc. (together with its subsidiaries, "Royal" or the
"Company"), is a gold royalty company engaged in the acquisition,
exploration and development of gold properties.
The Company conducts exploration and development activity on gold
and other precious minerals properties and seeks to obtain
royalty and other carried ownership interests in these properties
through the subsequent transfer of operating interests to other
mining companies. The Company also seeks to acquire existing
royalties. Substantially all the Company's revenues are and can
be expected to be derived from royalty interests, rather than
from mining operations conducted by the Company.
The Company's principal mineral property interest is a carried
20% net profits royalty interest in the South Pipeline property,
operated by Cortez Gold Mines. South Pipeline is located in
Crescent Valley, Nevada, and gold production commenced at that
property in September 1994 (see "South Pipeline Property" below).
In fiscal 1997, the Company generated revenues of $8,202,000 from
its royalty interest at South Pipeline. The Company also
conducted its own development program at Long Valley, in Mono
County, California; and is engaged in exploration at Buckhorn
South, in Eureka County, Nevada, and at several other prospects
in Nevada, Utah, Wyoming and Colorado. The Company is also
evaluating opportunities in Europe and Australia.
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 1997, income generated from consulting services was not
material.
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 21, "The Company and Its Subsidiaries."
Developments During Fiscal 1997
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The highlights of fiscal 1997 were:
(1) The Company achieved record profitability for the year ended
June 30, 1997. This profitability resulted from increased royalty
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payments attributable to expanded production of mill-grade ore at
the Crescent Pit on the South Pipeline property. Higher output
resulted from the availability of the Cortez Mill #2, which came
on line in March 1997. For fiscal 1997, the Company received
18,003 ounces of gold, which produced revenues of $6,855,000,
from its net profits interest in the mill-grade ore at the
Crescent Pit. This was based on gold sales from the Crescent Pit
of 149,380 ounces of gold from mill-grade production.
(2)During fiscal 1997, the Crescent Pit heap leach operation
produced net profits to Royal Gold of $1,580,000.
(3) The Company's estimate of the mineralized deposit at South
Pipeline was increased to 113 million tons of mineralized
material, with an average grade of 0.046 ounces of gold per ton
based on drilling during the period September 1994 through
calendar year 1996 carried out by Cortez.
(4) The Company's reserve estimate at the Long Valley property
was increased to 39.1 million tons, at an average grade of 0.018
ounce per ton of gold, containing 704,000 ounces of gold. (See
"Properties - Long Valley" below.)
(5) The Company formed an entity that will seek to acquire
existing gold royalties in Australia as well as invest in junior
Australian resource companies with emerging projects or advanced
exploration plays. The new company, Royal Gold Australia Pty Ltd
(RGA) is based in Perth, Western Australia.
(6) GRAMEX, a Bulgarian company owned equally by Royal Gold and
Silver & Baryte Ores Mining Co. joined with Phelps Dodge
Exploration Company to form a Bulgarian Company named Sofia
Minerals Ltd. (SOMIN). SOMIN is a joint venture company held
equally by GRAMEX and Phelps Dodge which will explore, evaluate
and develop properties in Bulgaria.
PROPERTIES
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Recent activities at each of the significant properties in which
the Company has an interest are described below. Reference is
made to footnotes in the financial statements for more
information on property histories.
In all instances, 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.
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South Pipeline Property
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The South Pipeline property royalty interest is the Company's
most significant gold property interest. The South Pipeline
Project is operated by Cortez Gold Mines ("Cortez"), a joint
venture of Placer Dome U.S. ("PDUS") and Kennecott
Corporation. The South Pipeline Project is located in
Lander County, Nevada, approximately 60 miles southwest of Elko.
The project involves over 4,000 acres of unpatented mining claims
(the "GAS Mining Claims"), which Cortez leases from ECM, Inc.
("ECM").
The Company currently holds a fully-carried royalty interest in
the South Pipeline Project. (That is, the Company is never
obliged to advance any of the costs of exploration, development
or production at South Pipeline.) After payback of capital
expenditures, the Company, at its annual election, can either
receive 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 may
elect to take its share of production in-kind. In November 1996,
the Company made its annual election to receive its production
in-kind for the next year.
Background
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As has been described extensively in prior years, the Company has
been involved with this property since 1987. The Company, as the
original operator of a joint venture with Cortez, conducted the
initial exploration work at South Pipeline, which was then
referred to as "Crescent Valley". Reverse circulation drilling
programs conducted by the Company in calendar years 1988, 1989
and 1990 resulted in identification of one sediment-hosted,
"Carlin-type", disseminated gold deposit and the identification
of other gold anomalies.
In 1991, the Company decided to sell its interest in the property
to Cortez. In September 1992, however, the Company recovered a
20% net profits interest on the South Pipeline property following
settlement of litigation brought by the Company against Cortez.
Under the Agreement, Cortez, as operator and manager, committed
to an exploration and development work program and also agreed to
pay the Company an advance minimum royalty of $150,000 per year.
The Company's royalty will be subject to payback of capital
expenditures by Cortez for each new mining unit put into
production. After payback, the Company will receive a 20% net
profits royalty or, at its election beginning with production and
__________________________
* "Net smelter returns" or "NSR" royalty interest means that
the royalty holder receives a defined percentage of the gross
revenue, less a proportionate share of incidental
transportation, insurance and processing costs.
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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 may elect to take its royalty "in-kind."
If Cortez does not elect to put any deposit containing at least
300,000 ounces of gold into production within two years of its
identification, then the Company may elect to put that deposit
into production, thereby securing 100% of the working interest
therein, subject to granting a 20% net profits interest royalty
to Cortez identical to the one described above. Royal Gold would
then also be entitled to use, under a normal tolling arrangement
and as available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
Finally, Cortez entered into a five year standstill agreement
with respect to further acquisition of shares of the Company or
other actions regarding efforts to acquire or control the
Company. During the standstill period, Cortez may not sell any
of the acquired shares except pursuant to Rule 144 and certain
other specified transactions. This standstill agreement expired
in September 1997.
Development
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Since November 1992, Cortez has conducted an aggressive program
of exploration and development drilling at South Pipeline, and
has spent over $17 million through June 30, 1997.
On December 31, 1996, Cortez announced that the mineral deposit
at South Pipeline was estimated to contain 86.1 million tons,
with an average grade of 0.048 ounces of gold per ton. Cortez
also announced that it will spend $2.4 million on exploration
drilling at South Pipeline during calendar year 1997. In May
1997, the Company announced that its estimate of the mineral
deposit at South Pipeline had increased to 112.9 million tons at
an average grade of 0.046 ounces of gold per ton.
In June 1994, Cortez began open pit mining at the Crescent Pit, a
near-surface portion of the South Pipeline deposit. Initially,
Cortez combined the Crescent Pit ore with ore from another mine
(in which the Company has no interest), and processed all such
ore at the Cortez mill, a 2,000 ton per day facility that is
located a few miles east of the Crescent Pit. In February 1996,
however, Cortez notified the Company that it would stop
commingling ores at the Cortez mill and that it would mill
Crescent Pit ore exclusively, at least through the end of
calendar year 1996. Beginning in March 1997, Cortez committed
100% of the capacity of its new Mill #2 to Crescent Pit ore.
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This new mill, constructed by Cortez for the processing of its
Pipeline deposit, was designed for throughput of 10,000 tons per
day. With this increase in processing capacity, the production
at the Crescent Pit increased substantially and was completed on
June 24, 1997.
In addition to the South Pipeline gold deposits that have been
defined to date, other important gold intercepts have been made
on the South Pipeline property, which suggests that additional
deposits may exist on the property. Additional exploration was
conducted during fiscal 1997, as Cortez focused on expanding the
South Pipeline reserve. Based on this drilling, Cortez increased
the reserve at South Pipeline to 52.0 million tons, at an average
grade of 0.054 ounces per ton, containing 2.8 million ounces.
This increase in reserves is net of all production at the
Crescent Pit.
In September 1996, Cortez filed its "1996 Amendment to the
Pipeline Plan of Operations for the South Pipeline Project" with
the Bureau of Land Management. (Pipeline is an open pit project
immediately to the north that is operated by Cortez. Royal Gold
has no interest in the Pipeline deposit.) In this amendment,
Cortez states that the pre-stripping of the open pit mine at
South Pipeline is expected to take about 18 months and will begin
at the end of the third year of mining activity at Pipeline.
Processing of the Pipeline Deposit commenced on June 28, 1997.
The mine life of Pipeline is estimated to be five plus years
after commissioning of a mill with throughput of 10,000 tons per
day. Cortez also stated that South Pipeline ore will be processed
after mining of the Pipeline deposit has been completed. The
majority of the South Pipeline Project ore will be processed in
the Pipeline processing facilities, extending the Pipeline/South
Pipeline Project life by an additional eight years. Timing of
production at the South Pipeline deposit remains subject to
permitting and decisions of the operator. The Company continues
to monitor the progress of development of the South Pipeline
deposit, and it meets periodically with PDUS to ensure that
timely development occurs in accordance with the agreement. Most
recently, PDUS advised the Company that Cortez is continuing to
evaluate alternative mining and production scenarios for South
Pipeline, all with a view to maximizing the value of the South
Pipeline deposit.
Crescent Pit Operations
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The Crescent Pit operation, encompasses some 320 acres within the
4,000 acre claim block of the South Pipeline Project, was planned
to recover some 217,000 ounces of mill-grade gold over a four-
year period. In July 1995, production commenced at the Crescent
Pit heap leach facility and it was anticipated that 34,000 ounces
of gold would be recovered from the heap leach material over a
five year period. Gold production from the Crescent Pit exceeded
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initial expectations, for both mill-grade and heap leach
material.
Crescent Pit Production
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Set forth below is a chart showing the production by quarter from
the Crescent Pit mill-grade ore during fiscal 1997, in which the
Company holds a 20% Net Profits Interest:
Average
Tons Grade Recoveries Recovered
(millions) (oz Au/ton) (percentage) ounces
-------- --------- ---------- ---------
Quarter ended:
9/30/96 189.0 .202 91.4 34,902
12/31/96 178.9 .222 87.9 34,924
3/31/97 335.4 .118 87.6 34,656
6/30/97 844.2 .092 86.9 67,493
Fiscal 1997 1,547.6 .126 88.1 171,974
Additionally, 24,709 ounces of gold were produced from the
Crescent Pit heap leach material during fiscal 1997. (These
production amounts represent 100% of the production at the
Crescent Pit. The Company holds a 20% net profits interest in
this property.) All Crescent Pit mill-grade ore was processed by
June 30, 1997, except for work in process material estimated to
be 20,975 ounces of gold. The net profits for this production
will be recorded as revenues in the first quarter of fiscal 1998.
Reserves and Other Mineralization
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Set forth below is a chart showing the reserves that have been
defined at the South Pipeline property, in which the Company owns
a 20% Net Profits Interest:
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Proven and Probable Reserves (1)
June 30, 1997 adjusted for Crescent Pit Production
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
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South Pipeline Property
Crescent Pit:
Heap Leach Ore (3) 0.59 0.023 14,000
South Pipeline Deposit:
Mill Grade Ore (3) 25.4 0.091 2,299,000
Heap Leach Ore (3) 26.6 0.020 519,000
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(1) "Reserve" is that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the
reserve determination.
"Proven (Measured) Reserves" are reserves for which (a)
quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes and the grade is computed from
the results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so closely and
the geologic character is so well defined that the size, shape,
depth and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which
the quantity and grade are computed from information similar to
that used for proven (measured) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance of
probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological
continuity between points of observation.
(2) Contained ounces shown are before an allowance for dilution
of ore in the mining process. The assumed recovery rates are 84%
for Crescent Pit mill-grade ore, 86% for South Pipeline mill-
grade ore, and 50% for heap leach material. During fiscal 1997,
Cortez actually recovered 87.2% of the assayed head grade of the
Crescent Pit mill-grade ore, and 66% of the assayed head grade of
the Crescent Pit heap leach material. These reserves are based
on an expected gold price of $375 per ounce.
(3) Amounts shown represent 100% of the reserves. The Company
holds a 20% net profits interest in this property.
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Set forth below is a chart showing the additional gold deposit
that has been defined at the South Pipeline property, in which
the Company owns a 20% Net Profits Interest:
Gold Deposits/Mineralization (1)(2)
June 30, 1997
Average
Tons Grade
(millions) (oz Au/ton)
-------- ---------
South Pipeline Deposit 60.9 0.039
Including Deep Zone
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(1) 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 quantity
and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are completed, and until other economic and technical feasibility
factors based upon such work are resolved.
(2) Amounts shown represent 100% of the deposits. The Company
holds a 20% net profits interest in this property.
Long Valley
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The Long Valley project consists of 160 unpatented mining claims
located 45 miles north of Bishop, California, in Mono County.
The Company has been involved with this property since 1989, when
it entered into a joint venture with Standard Industrial
Minerals, Inc. ("Standard"). Standard owns 105 of the claims
that comprise the Long Valley project, and operates a kaolin mine
that is adjacent to the property. The Company located the
additional 55 claims.
Under the joint venture agreement, the Company 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, totaling $125,000 over four years, with
$100,000 of such payments being creditable against the option
exercise payment. The Company has no specific work commitment.
During 1994, the Company completed 18 reverse circulation holes,
aggregating some 16,000 feet. Based on the results of such
drilling, and data generated by predecessors in interest, Royal
Gold determined the existence of two new areas of gold
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mineralization (the "Hilton Creek Zone" and the "Southeast
Zone"), separated by about 2,000 feet, and estimated that such
zones contain a total of 49,640,000 tons of gold mineralization,
with an average grade of 0.018 ounces of gold per ton.
Royal Gold has continued to drill at Long Valley since 1994, and,
through June 30, 1997, has completed more than 550 reverse-
circulation holes, aggregating more than 168,000 feet of
drilling. The program has confirmed the existence of continuous
mineralization between the Hilton Creek and Southeast Zones and
has discovered additional mineralization to the north and to the
south of the Hilton Creek Zone.
Based on the results of the drilling, the Company commissioned a
reserve study. Based on this study, the Company has determined
that Long Valley contains reserves, suitable for open pit mining,
as set forth below. Based on these reserves the Company
designated this project as a development property as of July 1,
1995. All costs incurred at Long Valley in fiscal 1996 and
fiscal 1997 have been capitalized.
Subsequent to June 30, 1997, the Company formed an agreement with
AMAX Gold Inc. This agreement provides that AMAX Gold has an
option, exercisable through December 31, 1997, to enter into a
lease and become responsible for further exploration, permitting,
and development of Long Valley, and for construction and
operation of any mine that may be developed. If AMAX Gold
exercises its option, it will then pay $300,000 to Royal Gold and
make advance minimum royalty payments of $250,000 per year to
Royal Gold until the Long Valley property is in production. AMAX
Gold can terminate the agreement at any time, but would thereby
relinquish any interest in the property. After Long Valley is in
production, and upon payback of the investments made by both
Royal Gold and AMAX Gold, Royal Gold will receive 22% of net
operating cash flow from the property or, at Royal Gold's
election, a sliding scale net smelter returns royalty that is
indexed to the price of gold and capped at 5.5%. Upon execution
of this agreement the Company received a payment of $150,000. The
Company maintains the obligation to pay the $900,000 property
purchase price due in December 1997.
Reserves and Other Mineralization
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Set forth is a chart showing the proven and probable reserves
that have been defined at Long Valley:
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Proven and Probable Reserves (1)(3)
June 30, 1997
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
-------- --------- ---------
Long Valley 39.1 0.018 704,000
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(1) "Reserve" is that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the
reserve determination.
"Proven (Measured) Reserves" are reserves for which (a)
quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes and the grade is computed from
the results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so closely and
the geologic character is so well defined that the size, shape,
depth and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which
the quantity and grade are computed from information similar to
that used for proven (measured) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance of
probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological
continuity between points of observation.
(2) Contained ounces shown are before an allowance for dilution
of ore in the mining process. The assumed recovery rate for heap
leach material is 70%.
(3) These reserves were computed using a gold price of $350 per
ounce and a cut-off grade of 0.010 ounces per ton of gold.
Gold mineralization at Long Valley includes an additional 7.9
million tons of material at an average grade on 0.018 ounces of
gold per ton. This 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
quantity and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are completed, and until other economic and technical feasibility
factors based upon such work are resolved.
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In addition to the above identified reserves at Long Valley, the
Company has identified additional mineralization of 7.9 million
tons at an average grade of 0.018 ounces of gold per ton. This
gold mineralization has not been included in the proven and
probable ore reserve estimates because even though drilling,
trenching and/or underground work indicates a sufficient quantity
and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are complete, and until other economic and technical feasibility
factors based upon such work are resolved.
Union Pacific Exploration Project
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Under its agreement with Union Pacific Resources Group, Inc.
("UPR"), originally executed in May 1994, the Company conducted
reconnaissance on some 7.5 million acres of UPR land in Utah,
Wyoming and Colorado, including the State Line District of
Wyoming and Colorado. The Company conducted preliminary
exploration throughout UPR's holdings and then designated 50,000
acres for more extensive exploration.
During fiscal 1996, Royal Gold and UPR amended their agreement,
to reflect additional expenditure levels, and an emphasis on
diamond exploration on the State Line District of Colorado and
Wyoming. The entire term of the agreement remains unchanged,
expiring on December 31, 1999, with aggregate exploration
commitments totaling $2.375 million. Royal Gold may also elect
to terminate the agreement after spending at least $375,000 in
either of calendar years 1997 or 1998, and the Company will
exceed the threshold amount in calendar year 1997.
The Company has already identified ten large prospect areas in
the State Line District where it has conducted geochemical
sampling surveys, that have yielded indicator minerals. These
indicator minerals suggest the presence of kimberlites and the
potential for diamond discoveries, in drainages where kimberlites
were not previously known to exist. Royal Gold's stream sediment
sampling program involved taking samples of approximately 90
pounds each of material able to pass through a 3mm screen.
Samples were taken on approximately one kilometer centers.
Additional sampling occurred in fiscal 1997, and more sampling is
planned for fiscal 1998. Exploring for diamonds is a long and
complicated process which is both expensive and time consuming.
At this early stage of exploration, there is no assurance that
kimberlites or commercial quantities of diamonds will be found.
If the Company identifies attractive deposits on the UPR lands,
it has the opportunity, under the terms of its agreements with
UPR, to assign further exploration and development rights to
third parties; to develop such deposits in collaboration with
UPR; or to develop such deposits for Royal Gold's own account.
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In all circumstances where UPR does not itself elect to become
operator, UPR will retain a royalty interest. Under certain
other circumstances, UPR may elect both a minority working
interest plus a royalty interest.
The extent of any such UPR royalty will depend on market factors,
including, among others, the desirability to a third party of the
particular deposit that may be discovered on the UPR property.
Buckhorn South
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The Buckhorn South project is located in Eureka County, Nevada,
approximately 50 miles southwest of Elko. The property consists
of 265 unpatented mining claims.
Of the 265 claims that comprise Buckhorn South, the Company
leases 131 such claims from Ronald and Arlene Damele, et al., and
the Company staked the balance of the project area. Over the
next fiscal year, the Company is obliged to pay the lessor
$210,000 in advance minimum royalties. The leased claims are
burdened by cumulative royalties equal to a 4% NSR; the remaining
claims are subject to a 1% NSR.
A predecessor in interest at the property completed some 10,400
feet of drilling, and on the basis of such work and other
exploration had, by 1984, estimated that the "Zeke" deposit
contains two million tons of mineralization with an average grade
of 0.056 ounces of gold per ton.
During 1994, the Company conducted geophysical surveys and
drilled nine holes aggregating 6,800 feet. Through its work, the
Company identified new areas of gold mineralization about one
mile south of the Zeke deposit, and also identified structurally
complex areas that may contain significant alteration and
sulfides.
During 1995, the Company drilled 24 reverse-circulation holes,
totaling 13,825 feet. As anticipated, gold mineralization was
discovered, and several of the drill holes contained intervals
exceeding 0.01 ounce per ton of gold.
During fiscal 1997, seven additional reverse-circulation holes
were drilled. Gold mineralization in five of these drill holes
contained intervals exceeding 0.045 ounces per ton of gold.
Ferber
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The Ferber project is located in Elko County, Nevada,
approximately 80 miles southeast of Elko, and consists of 98
unpatented mining claims. Royal Gold leases 51 of the claims
from Donald Jennings, and Royal Gold located the other 47 claims.
The Jennings lease involves advance minimum royalties of $10,000
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<PAGE>
per year, expiring in February 1998, and a royalty burden of 2%
NSR. The Company also has work commitments of $100,000 per year
in 1999 and 2000, and $150,000 per year through 2003. In April
1995, five reverse circulation holes were completed totaling
3,020 feet. These holes were drilled to test for mineralization
along the southwestern margin of an intrusive where copper and
gold are known to occur in skarns. Three of the holes
encountered strongly anomalous gold and copper in both the skarn
and the intrusive. The presence of such anomalous intervals in
the intrusive opens large areas of the district for further
exploration. Additional drilling was conducted in October 1995.
Other Exploration Properties
- ----------------------------
During fiscal 1997, the Company explored four additional
properties in Nevada and Utah. Two of these properties yielded
interesting results that will require additional work. The other
two properties were dropped. The Company will continue to acquire
and explore other properties, to the extent that the Company
believes they have the potential to host major gold deposits. It
can be anticipated, because of the nature of the business, that
exploration on many of these properties will prove unsuccessful
and that the Company will terminate its interest in such
properties. As significant results are generated at any
exploration property, the Company will re-evaluate the property,
and the Company may substantially increase or decrease the level
of expenditures on any particular property, at any time.
Sales Contracts
- ---------------
The Company sold 10,000 ounces of gold bullion in fiscal 1997,
utilizing one metal trader during the period. The Company
maintains trading relationships with a number of metal traders.
The Company is currently receiving its net profits interest
royalty in-kind. This gold is being held with a view towards
sale at a higher gold price.
Competition
- -----------
There is aggressive competition within the minerals 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, and
it also competes with others in efforts to purchase gold royalty
interests.
-13-
<PAGE>
Company Personnel
- -----------------
At September 1, 1997, the Company had fourteen 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 contractors.
Regulation
- ----------
The Company's 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. There can be
no assurances that all the required permits and governmental
approvals can be obtained on a timely basis and maintained as
required. In 1992, the Company received notice of a response
action initiated by the U.S. Forest Service with respect to
Goldstripe, but based on information currently available believes
that no further action by 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 believes that the property and
operations in which it retains interests are currently in
material compliance with all applicable laws and regulations.
Foreign Operations
- ------------------
The Company owns a 50% interest in Greek American Exploration
Ltd. ("GRAMEX"), a Bulgarian private limited company that has
entered into an agreement with the Bulgarian Committee of Geology
and Mineral Resources to conduct geological research and
exploration over 700 square kilometers in the Krumovgrad and
Ivaylovgrad areas of Bulgaria.
This cancelable agreement was for an initial term of two years,
requiring expenditures of $100,000 per year by GRAMEX. The
agreement was extended for an additional two year period,
expiring 1999. The Company is obligated to fund 50% of GRAMEX's
expenditures.
-14-
<PAGE>
GRAMEX and Phelps Dodge Exploration Corporation ("PDX") joined
together to form a Bulgarian company named Sofia Minerals Ltd.
("SOMIN"). SOMIN is a joint venture company held equally by
GRAMEX and PDX. SOMIN will explore, evaluate and develop
properties in Bulgaria. SOMIN has signed a concession agreement
with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research in two major areas in Bulgaria.
The Company has also formed an entity that will seek to acquire
existing gold royalties in Australia as well as invest in junior
Australian resource companies with emerging or advanced
exploration play. Investment may be by way of loans with a
convertibility element to royalties at a later stage. The new
company, Royal Gold Australia Pty Ltd, is based in Perth, West
Australia, and the Company has a 67% interest in the entity. The
remainder of the equity in the new entity is held by affiliates
of Resource Finance Corporation ("RFC"). RFC is an investment
and merchant banking firm that caters to natural resource firms.
RISK FACTORS
Risks of Passive Ownership
- --------------------------
At present, the Company's principal asset is its interest in the
South Pipeline property. The Company's success is dependent on
the extent to which South Pipeline proves to be successful and on
the extent to which Royal Gold is able to acquire or create other
lucrative royalty interests.
The holder of a royalty interest typically has no executive
authority regarding development or operation of a mineral
property. Therefore, unless the Company is able to secure and
enforce certain extraordinary rights, it can be expected that the
Company will not be in control of basic decisions regarding
development and operation of the other properties in which the
Company may have an interest.
Thus, the Company's strategy of having others operate properties
in which it retains a royalty or other passive interest puts the
Company generally at risk to the decisions of others regarding
all basic operating matters, including permitting, feasibility
analysis, mine design and operation, and processing, plant and
equipment matters, among others. While the Company attempts to
obtain contractual rights that will permit the Company to protect
its position, there can be no assurance that such rights will be
sufficient or that the Company's efforts will be successful in
achieving timely or favorable results.
Risks Inherent in the Mining Industry
- -------------------------------------
Mineral exploration and development is highly speculative and
capital intensive. Most exploration efforts are not successful,
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<PAGE>
in that they do not result in the discovery of mineralization of
sufficient quantity or quality to be profitably mined. The
operations of the Company are also indirectly subject to all of
the hazards and risks normally incident to developing and
operating mining properties. These risks include insufficient
ore reserves, fluctuations in production costs that may make
mining of reserves uneconomic; significant environmental and
other regulatory restrictions; labor disputes; geological
problems; failure of pit walls or dams; force majeure events; and
the risk of injury to persons, property or the environment.
Uncertainty of Reserves and Mineralization Estimates
- ----------------------------------------------------
There are numerous uncertainties inherent in estimating proven
and probable reserves and mineralization, including many factors
beyond the control of the Company. The estimation of reserves
and 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 justify revision of such estimates. No assurances can be
given that the volume and grade of reserves recovered and rates
of production will not be less than anticipated. Assumptions
about prices are subject to greater uncertainty and gold 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
uneconomic to exploit. Changes in operating and capital costs
and other factors including, but not limited to, 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.
Proposed Federal Legislation
- ----------------------------
The U.S. Congress is currently considering a proposed major
revision of the General Mining Law, which governs the creation of
mining claims and related activities on federal public lands in
the United States. A bill has been introduced in the Senate
which would amend the current mining laws, and it is possible
that a new law could be enacted. The Company expects that if and
when the new law is effective, it will impose a royalty upon
production of minerals from federal lands and will contain new
requirements for mined land reclamation, and similar
environmental control and reclamation measures. It remains
unclear to what extent any such new legislation may affect
existing mining claims or operations. The effect of any such
revision of the General Mining Law on the Company's operations in
the United States cannot be determined conclusively until such
revision is enacted; however, such legislation could materially
increase costs at Long Valley and at a number of the Company's
-16-
<PAGE>
other exploration properties in Nevada and Utah, each of which is
located entirely on federal lands, and such revision could also
impair the Company's ability to develop, in the future, any
mineral prospects that are located on unpatented mining claims.
Fluctuations in the Market Price of Minerals
- --------------------------------------------
The profitability of gold mining operations (and thus the value
of the Company's royalty interests and exploration properties) 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 any mining company. These factors include
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 royalty interests and
exploration properties could also drop dramatically, and the
Company might not be able to recover its investment in those
interests or properties. The selection 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 such
decisions are made and the commencement of production can
drastically affect the economics of a mine.
The volatility in gold prices is illustrated by the following
table, which sets forth, for the periods indicated, the high and
low prices in U.S. dollars per ounce.
Year Gold Price Per Ounce($)
High Low
---- ----
1992 359 331
1993 406 327
1994 396 370
1995 393 372
1996 416 368
January-June, 1997 367 335
At August 29, 1997, the gold price was $325.35 per ounce. At
present, the Company has no hedging programs in place. At June
30, 1997, the Company held 8,509 ounces of gold bullion in
inventory. Additionally, at June 30, 1997, the Company had a
royalty receivable of 7,601 ounces. 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.
-17-
<PAGE>
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. Insurance against environmental risks (including
potential liability for pollution or other hazards as a result of
the disposal of waste products occurring from exploration and
production) is not generally available to the Company (or to
other companies within the gold industry) at a reasonable price.
To the extent that the Company becomes subject to environmental
liabilities, the satisfaction of any such liabilities would
reduce funds otherwise available to the Company and could have a
material adverse effect on the Company. Laws and regulations
intended to ensure the protection of the environment are
constantly changing, and are generally becoming more restrictive.
Title to Properties
- -------------------
The validity of unpatented mining claims, which constitute a
significant portion of the Company's property holdings in the
United States, is often uncertain, and such validity is always
subject to contest. Unpatented mining claims are unique property
interests and are generally considered subject to greater title
risk than patented mining claims, or real property interests that
are owned in fee simple. The Company has not yet filed a patent
application for any of its properties that are located on federal
public lands in the United States and, under proposed legislation
to change the General Mining Law, patents may be hard to obtain.
Although the Company has attempted to acquire satisfactory title
to its undeveloped properties, the Company does not generally
obtain title opinions until financing is sought to develop a
property, with the attendant risk that title to some properties,
particularly title to undeveloped properties, may be defective.
Foreign Operations
- ------------------
The Company's foreign activities are subject to the risks
normally associated with conducting business in foreign
countries, including exchange controls and currency fluctuations,
limitations on repatriation of earnings, foreign taxation, laws
or policies of particular countries, labor practices and
disputes, and uncertain political and economic environments, as
well as risks of war and civil disturbances, or 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.
Foreign operations could also be adversely impacted by laws and
policies of the United States affecting foreign trade, investment
and taxation. The Company currently has exploration projects in
Bulgaria, and is actively seeking other gold exploration and gold
-18-
<PAGE>
royalty acquisition or development opportunities in several
countries, including Australia, Europe, Russia and other
republics of the former Soviet Union.
Item 3. LEGAL PROCEEDINGS
Goldstripe Project
- ------------------
In May 1997, the Forest Service reconfirmed to the Company that
its reclamation activities were substantially completed at the
Goldstripe property, located in Plumas County California, and
that the Forest Service believed that such activities should
satisfy all outstanding permit requirements for reclamation,
except for ongoing post-reclamation monitoring of water quality.
However, it is possible that additional reclamation or water
quality monitoring could be required, and that any such
requirement could result in additional cost to the Company.
Following cessation of the Company's operations at Goldstripe,
and in connection with efforts to obtain funding for reclamation,
on August 5, 1992, the U.S. Forest Service notified the Company
that it had determined to initiate a response action at the
Goldstripe site, under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), in order to assess
the threat of a possible release of cyanide from a processed
material residue pile. To date, the only action undertaken by the
Forest Service in connection with the response action 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 $341,000 in cash
security for a reclamation bond to fund reclamation to be
performed at Goldstripe by the Forest Service. The Company
believes, based on oral communications with the Forest Service,
that approximately $325,000 of the $341,000 has been spent to
date. The Company also believes, based on such communications
over several years, and the current status of reclamation at the
site, that no additional "response action" or other remediation
is likely to be undertaken by the Forest Service under CERCLA or
under any other governmental regulation.
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, 1997. Annual meeting results will be
described in Item 4 to the Company's report that will be filed on
Form 10-Q, for the quarter ended December 31, 1997.
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<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the National Market
System of the National Association of Securities Dealers, under
the symbol "RGLD." The following table shows the high and low
closing sales prices for the Common Stock for each quarter since
June 30, 1995.
Sales Prices
High Low
Fiscal Year Closing Closing
------- -------
1996:
First Quarter (July, Aug., Sept. - 1995) $ 9 3/8 $ 7 7/8
Second Quarter (Oct., Nov., Dec. - 1995) $ 8 1/2 $ 7 1/2
Third Quarter (Jan., Feb., March - 1996) $ 11 $ 8
Fourth Quarter (April, May, June - 1996) $ 15 5/8 $11
1997:
First Quarter (July, Aug., Sept. - 1996) $ 14 1/2 $ 9 7/8
Second Quarter (Oct., Nov., Dec. - 1996) $ 14 1/8 $12
Third Quarter (Jan., Feb., March - 1997) $ 13 1/2 $10
Fourth Quarter (April, May, June - 1997) $ 10 3/4 $ 8 1/4
As of August 30, 1997, there were approximately 3,000
shareholders of record of the Company's common stock.
Dividends
- ---------
The Company has never paid any cash dividends on its Common Stock
and does not have any current plans to pay such dividends.
Item 6. SELECTED FINANCIAL DATA
For the Year Ended June 30,
--------------------------------------------
Selected Statement of 1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Operations Data (Amounts in thousands, except per share data)
Royalty income $ 8,202 $ 3,680 $ 470 $ 153 $ 150
Exploration expense 1,738 1,434 1,485 686 151
General and administrative
expense 1,706 1,204 1,015 753 582
Net income (loss) 4,054 589 (2,025) (1,452) (618)
Net income (loss)
per share $ .26 $ .04 $ (.14) $ (.11) $ (.06)
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<PAGE>
As of June 30,
--------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Selected Balance Sheet Data (Amounts in thousands)
Total assets $ 18,981 $14,063 $10,273 $ 8,183 $2,727
Working capital 13,942 11,130 8,723 6,884 1,229
Long-term obligations 134 111 117 131 193
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997, the Company had current assets of $15,056,000
compared to current liabilities of $1,114,000 for a current ratio
of 14 to 1. This compares to current assets of $11,659,000 and
current liabilities of $530,000, at June 30, 1996, resulting in a
current ratio of 22 to 1. The Company's current assets include
$4,995,000 of marketable securities that consist of U.S. treasury
securities with maturities of 18 months or less. The Company's
initial cost of these marketable securities was $4,998,000.
During fiscal 1997, liquidity needs were met from: (i) $8,884,000
in revenues from production at the Crescent Pit (of which
$5,390,000 is maintained as gold inventory and royalty
receivables in gold), (ii) the Company's available cash resources
and interest income of $413,000 and (iii) cash receipts from the
exercise of options and warrants of $242,000. The Company's
operating activities provided approximately $2,080,000 of cash
during the fiscal year ended June 30, 1997.
During the fiscal year, the Company spent $2,238,000 on
development at the Long Valley property.
The only material commitments of the Company that cannot be
terminated at the sole discretion of the Company are (i) the
Union Pacific Agreement which requires approximately $125,000 to
be spent on exploration during the period July 1, 1997 through
December 31, 1997; (ii) employment agreements with four officers,
calling for minimum payments of approximately $335,000 through
January 1998; and (iii) office lease payments of $304,935 through
the lease period ending October 1999.
The Union Pacific Agreement provides that the Company can extend
the agreement for two additional terms of 12 months each upon
making additional exploration commitments of $375,000 and
$1,000,000, respectively. (If the Company exercises all of its
rights to extend the agreement, total exploration expenditures
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<PAGE>
under the agreement are estimated to be $2,375,000 over the full
55-month term, which commenced in 1994.)
The Company anticipates total expenditures for fiscal 1998 for
general and administrative expenses to be approximately
$1,400,000 and expenditures for exploration and property holding
costs to be approximately $1,400,000 (including amounts spent
under the Union Pacific Agreement). Development costs at Long
Valley are anticipated to be $1,200,000 which includes the
$900,000 payment to Standard Industrial Minerals. Exploration
and holding cost expenditures include $325,000 for Buckhorn
South, $250,000 for the Union Pacific project, $200,000 for the
Royal High Desert joint venture, and $250,000 for generative
exploration. These amounts could increase or decrease
significantly, at any time during the fiscal year, based on
exploration results and decisions about releasing or acquiring
additional properties, among other factors.
The Company will continue to explore its remaining properties and
intends to acquire new projects, all with a view to enhancing the
value of such properties prior to possible farm out to major
mining company partners.
The Company's current financial resources and sources of income
should be adequate to cover the Company's anticipated
expenditures for general and administrative costs, exploration
and leasehold expenses, and capital expenditures for at least the
next fiscal year.
The Company anticipates utilizing its $635,000 net deferred tax
asset, based on the Company's estimate of projected sales of gold
inventory. This net deferred tax asset is evaluated quarterly
and could increase based on the production of reserves at South
Pipeline, or at Long Valley or at other new discoveries.
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1997 Compared with Fiscal Year Ended
June 30, 1996
For the year ended June 30, 1997, the Company recorded net income
of $4,055,000, or $0.26 per share, as compared to a net income of
$589,000, or $0.04 per share, for the year ended June 30, 1996.
The net income for the current fiscal year resulted mainly from
the increased royalty revenue related to the Company's interest
in the Crescent Pit.
The Company received net profits interest royalty income from the
Crescent Pit of $6,855,000 relating to mill-grade material and
$1,580,000 relating to heap leach material. This was reduced by
an unrealized loss on gold held in inventory, as of June 30,
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<PAGE>
1997, of $689,000. As of June 30, 1997, all of the Crescent Pit
mill-grade material had been processed. It is anticipated that
the remaining heap leach material will be processed during fiscal
1998. As a result, the Company's NPI royalty income from South
Pipeline will decrease significantly in fiscal 1998.
Costs of operations increased over the prior year, which related
to the payment of Nevada Net Proceeds Tax associated with the
increased production at the Crescent Pit.
General and administrative expenses of $1,706,000, for the year
ended June 30, 1997, increased from $1,204,000 for the year ended
June 30, 1996, as a result of increased employee compensation,
the cost of listing on the NASDAQ National Market System,
increased investor relations expenses and increased office
expenses. General and administrative expenses consist primarily
of employee compensation and benefits, office lease expense,
investor relations expenses, office equipment expenses, travel
and communication costs.
Exploration costs increased from $1,435,000 in fiscal 1996 to
$1,737,000 in fiscal 1997, due to expenditures at the Royal High
Desert joint venture and increased expenses related to analysis
of potential gold royalty acquisitions.
Lease maintenance and holding costs remained flat, at $266,000 in
fiscal 1997 and $275,000 in fiscal 1996, as the Company
maintained its level of property holding costs.
Interest and other income was $413,000 in fiscal 1997, down from
$442,000 in fiscal 1996, due primarily to decreased funds
available for investing.
Depreciation and amortization decreased from $229,000 for fiscal
1996 to $51,000 for fiscal 1997, primarily due to the depletion
associated with the Company's capped net smelter return royalty
at South Pipeline.
Fiscal Year Ended June 30, 1996 Compared with Fiscal Year Ended
June 30, 1995
For the year ended June 30, 1996, the Company recorded net income
of $589,000, or $.04 per share, as compared to a net loss of
$2,025,000, or $.14 per share, for the year ended June 30, 1995.
The net income for the current fiscal year resulted mainly from
the increased royalty revenue related to the Company's interest
in the Crescent Pit.
The Company received net profits interest royalty income from the
Crescent Pit of $3,045,000 relating to mill-grade material,
$444,000 relating to heap leach material, and $258,000 relating
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<PAGE>
to the Company's capped royalty. This was reduced by an
unrealized loss on gold held in inventory, as of June 30, 1996,
of $77,000. Based on the current rate of production, the
Crescent Pit mill-grade material will be exhausted by the end of
fiscal 1997.
Costs of operations increased over the prior year, which related
to the payment of Nevada Net Proceeds Tax associated with the
increased production at the Crescent Pit.
Consulting revenues and costs of consulting revenues decreased
over the prior year primarily because of the termination of one
consulting arrangement.
General and administrative expenses of $1,204,000, for the year
ended June 30, 1996, increased from those of $1,015,000 for the
year ended June 30, 1995, as a result of increased employee
compensation and office expenses. General and administrative
expenses consist primarily of employee compensation and benefits,
office lease expense, office equipment expenses, travel and
communication costs.
Exploration costs remained flat, at $1,485,000 in fiscal 1995 and
$1,434,000 in fiscal 1996, as the Company continued its active
exploration program.
Lease maintenance and holding costs increased, from $190,000 in
fiscal 1995 to $229,000 in fiscal 1996, due to scheduled
increased holding costs at Buckhorn South.
Interest and other income was $442,000 in fiscal 1996, up from
$386,000 in fiscal 1995, due primarily to increased funds
available for investing. At June 30, 1996, the Company had an
unrealized loss of $37,000 on its U.S. treasury securities
portfolio versus a gain of $76,000 in fiscal 1995 due to the
increase in short term interest rates during the year.
Depreciation and amortization increased, from $102,000 for fiscal
1995 to $229,000 for fiscal 1996, primarily due to the depletion
associated with the Company's capped net smelter return royalty
at South Pipeline.
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.
-24-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL GOLD, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 26
REPORT OF INDEPENDENT AUDITORS 27
FINANCIAL STATEMENTS
Consolidated Balance Sheets 28
Consolidated Statements of Operations 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 35
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Royal Gold, Inc.:
We have audited the accompanying consolidated balance sheets of Royal
Gold, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Royal Gold, Inc. and Subsidiaries as of June 30,
1997 and 1996, and the consolidated results of its operations and its
cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Denver, Colorado
September 11, 1997
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Royal Gold, Inc.
We have audited the accompanying consolidated statements of
operations, stockholders' equity, and cash flows of Royal Gold, Inc.
and Subsidiaries for the year ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statements referred to
above. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
results of operations and cash flows of Royal Gold, Inc. and
Subsidiaries for the year ended June 30, 1995, in conformity with
generally accepted accounting principles.
Williams, Richey & Co.
Denver, Colorado
August 28, 1995
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<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1997 and 1996
ASSETS
1997 1996
----------- -----------
Current Assets
Cash and equivalents (including $270,000
and $250,000, respectively, subject
to repurchase agreements) $ 3,333,298 $ 3,308,292
Marketable securities 4,995,370 5,015,000
Trade and other receivables 77,546 336,162
Royalty receivable in gold 2,542,975 1,637,573
Gold inventory 2,872,366 1,205,406
Prepaid expenses and other 599,091 131,718
Deferred income tax benefit, net 635,000 25,000
----------- -----------
Total current assets 15,055,646 11,659,151
Property and equipment, at cost
Mineral properties 4,070,390 1,832,091
Furniture, equipment and improvements 814,976 756,016
----------- -----------
4,885,366 2,588,107
Less accumulated depreciation
and depletion (982,950) (931,997)
----------- -----------
Net property and equipment 3,902,416 1,656,110
Other Assets
Other 22,767 22,767
Deferred income tax benefit 0 725,000
----------- -----------
Total other assets 22,767 747,767
Total Assets $18,980,829 $14,063,028
=========== ===========
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
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<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
as of June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
--------- ---------
Current Liabilities
Accounts payable $ 961,059 $ 487,252
Accrued liabilities
Retirement benefits 26,400 26,400
Other 126,455 15,877
--------- ---------
Total current liabilities 1,113,914 529,529
Retirement benefit liabilities 133,897 110,549
Commitments and contingencies
(Notes 2, 5 & 9)
Stockholders' equity
Common stock, $.01 par value, authorized
40,000,000 shares; and issued
15,877,202 and 15,478,152 shares,
respectively 158,772 154,782
Additional paid-in capital 47,447,397 47,200,643
Accumulated deficit (29,797,978) (33,852,502)
---------- ----------
17,808,191 13,502,923
Less treasury stock, at cost
(15,026 and 15,986 shares, respectively) (75,173) (79,973)
---------- ----------
Total stockholders' equity 17,733,018 13,422,950
Total liabilities and stockholders' equity $18,980,829 $14,063,028
========== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
-29-
<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Royalty income $8,202,049 $3,680,145 $470,421
Consulting revenue 18,585 31,544 163,681
Costs and expenses
Costs of operations 645,627 371,777 217,109
Costs of consulting 5,796 13,215 108,216
General and administrative 1,705,649 1,203,846 1,014,761
Exploration 1,737,798 1,434,264 1,484,599
Lease maintenance and
holding costs 266,245 274,864 189,921
Depreciation and depletion 50,953 228,936 102,398
--------- --------- ---------
Total costs and expenses 4,412,068 3,526,902 3,117,004
Operating income (loss) 3,808,566 184,787 (2,482,902)
Interest and other income 412,523 441,728 386,036
Gain (loss)on marketable securities (23,895) (37,320) 75,721
Interest and other expense (27,670) 0 (4,075)
--------- --------- ---------
Income (loss) before
income taxes 4,169,524 589,195 (2,025,221)
Income tax expense 115,000 0 0
--------- --------- ---------
Net income (loss) $ 4,054,524 $ 589,195 $(2,025,221)
========= ========= =========
Net income (loss) per share $ 0.26 $ 0.04 $ (0.14)
========= ========= =========
Weighted average shares
outstanding 15,615,729 14,868,109 14,265,462
The accompanying notes are an integral
part of these consolidated financial statements.
-30-
<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1997, 1996 and 1995
Additional
Common Stock Paid-In
Shares Amount Capital
---------- -------- ----------
Balance, June 30, 1994 13,835,712 $138,357 $40,176,895
Issuance of common stock for:
Exercise of options 139,750 1,398 314,977
Exercise of warrants 17,500 175 23,855
Private placement 500,000 5,000 3,795,000
Issuance of treasury shares
for lease bonus payment 3,875
Net loss for the year
ended June 30, 1995
---------- ------- ----------
Balance, June 30, 1995 14,492,962 144,930 44,314,602
---------- ------- ----------
Issuance of common stock for:
Exercise of options 11,190 112 22,521
Exercise of warrants 974,000 9,740 2,863,520
Net income for the year
ended June 30, 1996
---------- ------- ----------
Balance, June 30, 1996 15,478,152 154,782 47,200,643
---------- ------- ----------
Issuance of common stock for:
Exercise of options 168,550 1,685 110,414
Exercise of warrants 230,500 2,305 127,820
Issuance of treasury shares
for lease bonus payment 8,520
Net income for the year
ended June 30, 1997
---------- ------- ----------
Balance, June 30, 1997 15,877,202 $158,772 $47,447,397
========== ======= ==========
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
-31-
<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
for the years ended June 30, 1997, 1996 and 1995
Total
Stock-
Accumulated Treasury Stock holders'
Deficit Shares Amount Equity
---------- ------ ------- ---------
Balance, June 30, 1994 ($32,416,476) 16,986 ($ 84,973) $7,813,803
Issuance of common stock for:
Exercise of options 316,375
Exercise of warrants 24,030
Private placement 3,800,000
Issuance of treasury shares
for lease bonus payment (1,000) 5,000 8,875
Net loss for the year
ended June 30, 1995 (2,025,221) (2,025,221)
---------- ------ ------ ---------
Balance, June 30, 1995 (34,441,697) 15,986 (79,973) 9,937,862
---------- ------ ------ ---------
Issuance of common stock for:
Exercise of options 22,633
Exercise of warrants 2,873,260
Net income for the year
ended June 30, 1996 589,195 589,195
---------- ------ ----- ----------
Balance, June 30, 1996 (33,852,502) 15,986 (79,973)13,422,950
---------- ------ ------ ----------
Issuance of common stock for:
Exercise of options 112,099
Exercise of warrants 130,125
Issuance of treasury shares
for lease bonus payment (960) 4,800 13,320
Net income for the year
ended June 30, 1997 4,054,524 4,054,524
---------- ------ ------ ----------
Balance, June 30, 1997 ($29,797,978) 15,026 ($75,173)$17,733,018
========== ====== ====== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
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<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities
Net income (loss) $4,054,527 $589,195 ($2,025,221)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and depletion 50,953 228,936 102,398
Unrealized (gain) loss on
marketable securities 23,895 37,320 (75,721)
Deferred tax expense 115,000 0 0
Non cash lease bonus expense 13,320 0 8,875
(Increase) decrease in:
Trade and other receivables 258,616 (128,478) (16,980)
Marketable securities (4,265) (40,750) (38,224)
Royalties receivable in gold (905,402) (1,608,738) (28,835)
Gold inventory (1,666,960) (1,051,168) (154,238)
Prepaid expenses and other (467,373) (41,811) (24,058)
Restricted investments 0 0 (10,000)
Increase (decrease) in:
Accounts payable and
accrued liabilities 584,385 311,052 8,198
Retirement and other
liabilities 23,348 (6,400) (42,134)
--------- --------- ---------
Total adjustments (1,974,483) (2,300,037) 270,719
--------- --------- ---------
Net cash provided by (used in)
operating activities 2,080,041 (1,710,842) (2,295,940)
--------- --------- ---------
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
-33-
<PAGE>
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS, Continued
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Cash flows from investing activities
Capital expenditures for
property and equipment (2,297,259) (1,300,853) (363,283)
--------- --------- ---------
Net cash provided by (used in)
investing activities (2,297,259) (1,300,853) (363,283)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of
common stock 242,224 2,895,893 4,140,405
--------- --------- ---------
Net cash provided by
financing activities 242,224 2,895,893 4,140,405
--------- --------- ---------
Net increase (decrease) in cash
and equivalents 25,006 (115,802) 1,481,182
--------- --------- ---------
Cash and equivalents at beginning
of year 3,308,292 3,424,094 1,942,912
--------- --------- ---------
Cash and equivalents at end of year $3,333,298 $3,308,292 $3,424,094
========= ========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
-34-
<PAGE>
1. Operations and Summary of Significant Accounting Policies
---------------------------------------------------------
Operations:
----------
Royal Gold, Inc. (the "Company" or "Royal Gold"), was
incorporated under the laws of the state of Delaware on January
5, 1981, and is a gold royalty company engaged in the
acquisition, exploration, development, and sale of gold
properties, and in the acquisition of gold royalty interests.
The Company also provides financial, operational, and
environmental consulting services to companies serving the mining
industry. Substantially all the Company's revenues are and can
be expected to be derived from royalty interests rather than
mining activity conducted by the Company.
Summary of Significant Accounting Policies:
-------------------------------------------
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management 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 from those estimates.
Basis of Consolidation:
The consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and its
proportionate share of the accounts of unincorporated joint
ventures. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. At June 30, 1997, the Company held $270,000
of U.S. government securities under an agreement to resell
in July 1997. Due to the short term nature of the
agreement, the Company did not take possession of the
securities, which were instead held in the Company's
safekeeping account by FBS Investments Services, Inc. At
June 30, 1997, cash equivalents included approximately
$2,758,000 of temporary cash investments in an uninsured
government securities money market fund.
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<PAGE>
Marketable securities:
Marketable securities are classified as trading and
recorded at market value. At June 30, 1997, the Company
held U.S. treasury securities in a principal amount of
$5,000,000. The Company acquired these securities, with
maturities ranging from September 1997 to November 1998, at
a cost of $4,997,890. At June 30, 1997, the market value
of these securities was $4,995,370. Included in the
statement of operations is the net change in unrealized
(losses) for the trading securities of $(23,895) and
$(37,320) for the years ended June 30, 1997 and 1996,
respectively.
Royalties Receivable in Gold:
Royalties receivable consists of gold held by Cortez, the
operator of the South Pipeline Project, prior to making in-
kind royalty payments. These quarterly, in-kind royalty
payments are received one month and one day after the
production quarter. At June 30, 1997, 7,601 ounces of gold
related to the June 30 quarterly production is recorded as
a receivable valued at current market value. This gold was
received on August 1, 1997. Royal Gold has exposure for
any changes in gold price on this receivable between the
end of the quarter and the time of receipt.
Gold Inventory:
Gold inventory on the balance sheet consists of refined
gold bullion held in uninsured accounts. This gold is
leased by gold traders or stored by the Company's refiner
in Utah. The inventory is carried at market value with
unrealized gains or losses included in the results of
operations for the period. At June 30, 1997, the Company
held 8,509 ounces of gold bullion in inventory.
Mineral Properties:
Acquisition costs relating to mineral properties with a
known mineralization are deferred until the properties are
put into commercial production, sold or abandoned.
Exploration costs, including an allocation of employee
salaries and related costs, are charged to operations when
incurred. Mine development costs incurred to develop new
ore bodies, to expand or rehabilitate the capacity of
operating mines, or to develop areas substantially in
advance of production are deferred. For properties placed
-36-
<PAGE>
in production, the related deferred costs are depleted
using the units-of-production method over the life of the
reserves. Deferred costs applicable to sold or abandoned
properties are charged against operations at the time of
sale or abandonment of the property. Upon disposition of a
portion of a mineral property, including equipment sales,
any proceeds are treated as a reduction of the carrying
value of the portion of the property retained. The
recoverability of the carrying value of development
projects is evaluated based upon estimated future net cash
flows from each property using estimates of contained
mineralization expected to be classified as proven and
probable reserves upon completion of a feasibility study.
Reductions in the carrying value of each property are
recorded to the extent that the Company's carrying value in
each property exceeds its estimated future discounted cash
flows.
Management's estimates of gold prices, recoverable proven
and probable reserves, operating, capital and reclamation
costs are subject to certain risks and uncertainties which
may affect the recoverability of the Company's investment
in property, plant and equipment. Although management has
made its best estimate of these factors based on current
conditions, it is possible that changes could occur in the
near term which could adversely affect management's
estimate of the net cash flows expected to be generated
from properties in operation.
Office Furniture, Equipment and Improvements:
The Company depreciates its office furniture, equipment and
improvements over estimated useful lives of 3 to 15 years
using the straight-line method. The cost of normal
maintenance and repairs is charged to expense as incurred.
Significant expenditures which increase the life of the
asset are capitalized and depreciated over the estimated
remaining useful life of the asset. Upon retirement or
disposition of office furniture, equipment, or
improvements, related gains or losses are recorded in
operations.
Income Taxes:
Deferred income taxes reflect the expected future tax
consequences of temporary differences between the tax basis
amounts and financial statement carrying amounts of assets
and liabilities at each year end and the expected future
-37-
<PAGE>
benefits of net operating loss carryforwards, tax credits
and other carryforwards.
Reclassifications:
Certain accounts in the prior period financial statements
have been reclassified for comparative purposes to conform
with the presentation in the current period financial
statements.
Net Income and Net Income or Loss Per Share:
Net income or loss per share is computed by dividing the
net income or loss by the weighted average number of common
shares outstanding during each year. Common stock
equivalents have been excluded from the computation since
the effect is immaterial or antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share("SFAS 128"),
which is required to be adopted for both interim and annual
financial statements for periods ending after December 15,
1997. SFAS 128 will change the computation, presentation
and disclosure requirements for earnings per share. SFAS
128 requires presentation of "basic" and "diluted" earnings
per share, as defined, on the face of the income statement.
Beginning with the first quarter of fiscal 1998, the
Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Management has not determined the effect of this
statement on earnings per share as presented.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130
(" SFAS 130"), Comprehensive Income. SFAS 130 establishes
standards for the reporting and display of comprehensive
income and its components in financial statements.
Comprehensive income generally represents all changes in
shareholders' equity except those resulting from
investments by or distributions to shareholders.
Management is currently evaluating the requirements of SFAS
130.
2. Property and Equipment
The net carrying value of the Company's property and equipment
consists of the following components at June 30, 1997 and 1996:
-38-
<PAGE>
1997 1996
--------- ---------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
South Pipeline-
Capped NSR Royalty - 3,831
Long Valley 3,675,281 1,436,981
Camp Bird 120,110 120,110
--------- ---------
3,795,391 1,560,922
Office furniture, equipment
and improvements 107,025 95,188
--------- ---------
Net property and equipment $3,902,416 $1,656,110
========= =========
The Company's mining operations and exploration activities are
subject to various federal, state, and local laws and
regulations governing protection of the environment. These
laws are continually changing and, as a general matter, are
becoming more restrictive. Management believes that the
Company is in material compliance with all applicable laws and
regulations.
Presented below is a discussion of the status of each of the
Company's currently significant mineral properties.
A. South Pipeline Project
The Company owns a royalty interest in the South Pipeline
Project, a sediment-hosted gold deposit located in Lander
County, Nevada, and covers over 4,000 acres of unpatented
mining claims. The South Pipeline Project is operated by Cortez
Gold Mines ("Cortez"), a joint venture of Placer Dome North
America ("PDNA") and Kennecott Minerals Company.
Under a royalty interest agreement, Cortez, as operator,
committed to an exploration and development work program.
After payback, as defined in the agreement, the Company will
receive a 20% net profits royalty or, at its election beginning
with production and annually thereafter, a Net Smelter Returns
("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
may elect to take its royalty "in-kind."
The Company receives advance royalty payments of $150,000 per
year, and all such payments are to be recouped by Cortez from
production royalty payments.
-39-
<PAGE>
If Cortez does not diligently proceed with development of the
Project, then the Company may elect to put the Project into
production, thereby securing 100% of the working interest
therein, subject to granting a 20% production royalty to Cortez
identical to the one described above. Royal Gold would then be
entitled to use, under a normal tolling arrangement and as
available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
B. Long Valley
In April 1989, the Company entered into a joint venture
agreement with Standard Industrial Minerals, Inc. ("Standard")
to explore and develop a property located in Mono County,
California (the "Long Valley Project").
In November 1993, the Company and Standard amended the joint
venture agreement to provide for the Company's option,
exercisable through December 31, 1997, to acquire the entirety
of Standard's interest at Long Valley upon payment of
$1,000,000. Option consideration payments aggregating $125,000
are payable each November of 1993, 1994, 1995 and 1996, with
$125,000 of such sum having been paid. Up to $100,000 of such
payments (the total of the payments made in 1995 and 1996) are
creditable against the option exercise amount.
The Company has conducted substantial drilling programs at Long
Valley in fiscal 1995, fiscal 1996, and fiscal 1997 and has
discovered additional deposits of gold mineralization.
Based on the results of the drilling, the Company has
determined that a proven/probable reserve exists at the Long
Valley property as of July 1, 1995.
Subsequent to June 30, 1997, the Company formed an agreement
with AMAX Gold Inc. This agreement provides that AMAX Gold has
an option, exercisable through December 31, 1997, to enter into
a lease and become responsible for further exploration,
permitting, and development at Long Valley. Royal Gold will
retain a royalty interest.
C. Camp Bird Mine
The Camp Bird Venture (the "Venture") was formed in August
1986, primarily for the purpose of re-opening the Camp Bird
Mine, located in Ouray County, Colorado, as a gold and silver
mine.
-40-
<PAGE>
At June 30, 1996, capitalized costs of $120,110 reflect the
Company's ownership of these patented mining claims.
Management believes these claims are valuable both for their
mineral and real estate potential.
3. Retirement Benefits
In 1987, the Company's Board of Directors agreed to provide
retirement benefits for the remaining lifetime of a former
executive officer. At June 30, 1997, the liability of $160,297
represents the net present value of estimated future payments
to this former officer.
4. Income Taxes
The tax effects of significant temporary differences and
carryforwards which give rise to the Company's deferred tax
assets and liabilities at June 30, 1997 and 1996, are as
follows:
1997 1996
--------- ---------
Net operating loss carryforwards $ 8,994,000 $ 8,787,000
Mineral property basis 0 0
Mineral properties 265,000 265,000
Other 235,000 135,000
--------- ---------
Total gross deferred tax assets 9,494,000 9,187,000
Valuation allowance (6,354,000) (7,174,000)
--------- ---------
Net deferred tax assets 3,140,000 2,013,000
Gold Inventory (1,918,000) (995,000)
Mineral property basis (576,000) (204,000)
Mineral properties 0 0
Deferred taxable income 0 (53,000)
Other (11,000) (11,000)
--------- ---------
Total deferred tax liabilities (2,505,000) (1,263,000)
--------- ---------
Total net deferred taxes $ 635,000 $ 750,000
========= =========
At June 30, 1997, the Company has approximately $25.6 million
of net operating loss carryforwards which, if unused, will
expire during the years 2001 through 2011. The Company's
ability to generate future taxable income to realize the
benefit of its tax assets will depend primarily on the timing
and amount of royalty revenue from its South Pipeline net
profits interest royalty. Based upon the potential timing of
-41-
<PAGE>
sales of gold inventory, management has estimated that it is
more likely than not that the Company will have some net future
taxable income within the net operating loss carryforward
period. Accordingly, a valuation allowance against the
deferred tax asset has been established such that operating
loss carryforwards will be utilized primarily to the extent of
estimated future taxable income from the net profits interest
royalty and reversals of existing deferred tax liabilities.
The components of income tax expense (benefit) for the years
ended June 30, 1997, 1996 and 1995, are as follows:
1997 1996 1995
------- ------- -------
Current tax expense $ - $ - $ -
Deferred tax expense(benefit) 935,000 136,000 (685,000)
Increase (decrease) in
deferred tax asset
valuation allowance (820,000) (136,000) 685,000
------- ------- -------
$ 115,000 $ - $ -
======= ======= =======
The provision for income taxes for the years ended June 30,
1997, 1996 and 1995, differs from the amount of income tax
determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax loss from operations as a result of
the following differences:
1997 1996 1995
--------- ------- -------
Total expense(benefit)
computed by applying
statutory rate $ 1,418,000 $ 200,000 $(689,000)
Adjustments of valuation
allowance (1,310,000) (227,000) 685,800
Other 7,000 27,000 4,000
--------- ------- --------
$ 115,000 $ - $ -
========= ======= ========
Included in the fiscal 1997 adjustments of valuation allowance
is $820,000 related to fiscal 1997 and $490,000 related to
fiscal 1996 caused by changes in fiscal 1996 taxable temporary
differences.
Included in the fiscal 1996 adjustments of valuation allowance
is $136,000 related to fiscal 1966 and $91,000 related to
fiscal 1995 caused by changes in fiscal 1995 temporary
differences.
-42-
<PAGE>
5. Commitments
Operating Lease
The Company leases office space under a lease agreement
which expires October 31, 1999. Future minimum cash rental
payments are as follows:
Years ending June 30,
1998 128,823
1999 132,084
2000 44,028
-------
$ 304,935
=======
The lease may be terminated at any time after October 31,
1997, upon proper notice and payment of a termination fee
equal to the next nine months' ensuing rent.
Rent expense charged to operations for the years ended June
30, 1997, 1996, and 1995, amounted to $122,300, $143,300 and
$122,052, respectively. The Company subleased a portion of
its premises on a month-to-month basis. The Company
recorded sublease rental income of $0, $14,870, and $35,831,
for the years ended June 30, 1997, 1996 and 1995,
respectively.
In order for the Company to maintain its current exploration
and development properties through fiscal 1998, the Company
would incur lease maintenance and holding costs of
$1,200,000, which includes the $900,000 payment at the Long
Valley property. It can be anticipated, because of the
nature of the business, that exploration on many of these
properties will prove unsuccessful and that the Company will
terminate its interest in these properties rather than
continue to pay holding costs.
Employment Agreements
The Company has one-year employment agreements with four of
its officers which require total minimum future
compensation, at June 30, 1997, of $335,000 through January
1998. The terms of each of these agreements automatically
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<PAGE>
extend, every February, for one additional year, unless
terminated by the Company or the officer, according to the
terms of the agreements.
6. Stockholders' Equity
Preferred Stock:
The Company has 10,000,000 authorized and unissued shares of
$.01 par value Preferred Stock.
Private Placements:
During fiscal 1995, the Company completed a private
placement for net proceeds of $3,800,000, from the sale of
500,000 shares at $8.00 per share.
During fiscal 1996, warrants to purchase a total of 974,000
shares were exercised, providing proceeds to the Company of
$2,864,000.
During fiscal 1997, warrants to purchase a total of 230,500
shares were exercised, providing proceeds to the Company of
$130,125.
Stock Options and Warrants:
During fiscal 1990, the Directors Stock Option Plan
("Directors Plan") was adopted and the Company reserved
200,000 shares of common stock for issuance under this Plan.
Only non-employee directors are eligible to participate.
Options granted under the Directors Plan are exercisable at
prices equal to the market value of the Company's common
stock at the date of grant. The options are exercisable for
a period of five years and terminate three months after the
director resigns or is removed from office. During fiscal
1996, no options were exercised. Additionally, options for
an additional 30,000 shares were issued during the year. As
of June 30, 1996, options are outstanding for 90,000 shares
at an average exercise price of $6.49 per share.
On February 5, 1993, the Board of Directors granted to a
director, who is a former president of the Company and
currently a consultant to the Company, a non-incentive
option to acquire up to 150,000 shares of the Company's
common stock, at a price of $3.75 per share. During each of
fiscal years 1995 and 1994, such director exercised options
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<PAGE>
for 75,000 shares, generating proceeds to the Company, in
each year, of $281,250.
During fiscal 1989, an Employee Stock Option Plan ("Employee
Plan") was adopted. In December 1994, shareholders approved
an amendment increasing the aggregate number of shares
available for issuance under the Employee Plan to 2,150,000.
Provisions of the Employee Plan provide for the issuance of
either incentive or non-qualified stock options or stock
appreciation rights.
In December 1996, shareholders approved the adoption of an
Equity Incentive Plan to replace it stock option plan. A
total of 800,000 shares of the Company's common stock have
been reserved for issuance under the new plan. The options
are exercisable at prices equal to the market value of the
Company's common stock as of the date of grant and, in the
event of incentive options, expire ten years after the date
of grant. (The non-qualified options expire five years
after the date of grant.) There have been no stock
appreciation rights granted under either the Employee Plan
nor the Equity Incentive Plan. During fiscal 1997, options
were exercised for 168,550 shares for a total of $112,099.
The following schedules detail activity related to options
and warrants for the years ended June 30, 1995, 1996 and
1997:
Optioned Average
Shares Option Prices
--------- ----
Options Outstanding, June 30, 1994 1,122,470 $0.67
Granted 229,250 7.88
Exercised (139,750) 2.26
--------- ----
Options Outstanding, June 30, 1995 1,211,970 1.85
--------- ----
Granted 191,000 8.50
Exercised (11,190) 3.25
Surrendered or expired (1,810) 7.88
--------- ----
Options Outstanding, June 30, 1996 1,389,970 2.75
--------- ----
Granted 204,000 14.13
Exercised (168,550) 0.67
--------- ----
Options Outstanding, June 30, 1997 1,425,420 4.63
========= ====
-45-
<PAGE>
Warranted Average
Shares Warrant Prices
--------- ----
Warrants Outstanding, June 30, 1994 1,425,000 $2.34
Exercised (17,500) 1.37
--------- ----
Warrants Outstanding, June 30, 1995 1,407,500 2.35
--------- ----
Exercised (974,000) 2.95
--------- ----
Warrants Outstanding, June 30, 1996 433,500 1.00
--------- ----
Exercised (230,500) 0.56
--------- ----
Warrants Outstanding, June 30, 1997 203,000 1.50
========= ====
At June 30, 1997, under the Directors and Employee Plans and
otherwise, the following options are outstanding:
Number of Exercise Expiration
Shares Price Total Date
-------- ------- --------- -------------
7,500 2.1875 $ 16,406 December 1997
21,500 4.00 86,000 December 1998
10,000 9.125 91,250 April 1999
40,000 7.875 315,000 December 1999
41,000 8.50 348,500 December 2000
45,000 14.125 635,625 December 2001
755,920 .125 94,490 December 2001
14,000 4.00 56,000 December 2003
181,500 7.875 1,429,313 December 2004
150,000 8.50 1,275,000 December 2005
159,000 14.125 2,245,875 December 2006
--------- ---------
1,425,420 $6,593,459
========= =========
Additionally, warrants to purchase the Company's common
shares are outstanding, as follows:
Number of Exercise Expiration
Shares Price Total Date
-------- ------ -------- ----------
203,000 1.50 304,500 July 1997
------- -------
203,000 $ 304,500
======= =======
The shares and exercise prices listed above are generally
subject to adjustment in accordance with anti-dilution
provisions of each of the warrant agreements.
-46-
<PAGE>
The Company measures compensation cost as prescribed by APB
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees. No compensation cost has been recognized in the
financial statements as the exercise price of all options
grants is equal to the market price of the Company's common
stock at the date of grant. In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"). SFAS
defines a "fair value" based method of accounting for
employee options or similar equity instruments. Had
compensation cost been determined under the provisions of
SFAS 123, the following pro forma net income (loss) and per
share amounts would have been recorded.
1997 1996
--------- -------
Net income
As reported $4,054,503 $589,195
Pro Forma $3,187,290 $ 82,878
Net income per share
As reported $ 0.26 $ 0.04
Pro Forma $ 0.20 $ 0.01
The pro forma amounts were determined using the Black
Scholes model with the following assumptions:
1997 1996
--------- --------
Expected volatility 53.2 % 53.2 %
Expected option term
10 year options 5.5 years 5.5 years
5 year options 3.5 years 3.5 years
Risk-free Interest rate
10 year options 6.2 % 6.2 %
5 year options 6.0 % 6.0 %
Forfeiture rate 5 % 5 %
Preferred Stock Purchase Rights:
On September 10, 1997, the Company's board of directors
adopted a stockholders' rights plan in which preferred stock
purchase rights ("Rights") were distributed as a dividend at
the rate of one Right for each share of common stock held as
of the close of business on September 11, 1997. The terms
of the Rights plan provide that if any person or group were
-47-
<PAGE>
to announce an intention to acquire or were to acquire 15
percent or more of the Company's outstanding common stock,
then the owners of each share of common stock (other than
the acquiring person or group) would become entitled to
exercise a right to buy one one-hundredth of a newly issued
share of Series A junior Participating Preferred Stock of
the Company at an exercise price of $50 per Right.
7. Major Customers
In each of fiscal years 1997, 1996, and 1995, $8,202,049,
$3,680,145 and $444,411, respectively, of the Company's
royalty income was received from the same source. (See Note
2.A.)
8. Simplified Employee Pension ("SEP") Plan
The Company maintains a SEP Plan in which all employees are
eligible to participate. The Company contributes a minimum
of 3% of an employee's compensation to an account set up for
the benefit of the employee. If an employee chooses also
to contribute to the SEP Plan through salary reduction
contributions, the Company will match such contributions to
a maximum of 7% of the employee's salary. The Company
contributed $67,041, $59,157 and $50,271, in fiscal years
1997, 1996, and 1995, respectively.
9. Contingencies
The Goldstripe Mine was an open pit, heap leach facility
located in Plumas County, California. A subsidiary of the
Company operated Goldstripe, but discontinued mining
operations after the 1989 season. The Company completed
required reclamation work on the mine pits and at the plant
facility site, and disposed of all major mining and crushing
equipment.
The Forest Service has advised the Company that all
outstanding requirements, except for post-reclamation
groundwater monitoring, have been satisfied.
At this time, the Company believes that it will have no
further reclamation liability related to the Goldstripe
property, unless post-reclamation groundwater monitoring
indicates unanticipated migration of residual cyanide into
ground or surface waters.
-48-
<PAGE>
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stanley Dempsey
- ---------------
Age 58, Director Since August 1984; Term Expires 1997
Chairman of the Board and Chief Executive Officer of the Company
since April 4, 1988. President and Chief Operating Officer of
the Company from July 1, 1987 to April 4, 1988. Consultant to
the Company from 1986 to 1987. Member of the Board of Directors
of Dakota Mining Corporation, Hazen Research, Inc. and Behre
Dolbear and Company, Inc. Prior to 1986, was a Vice President of
AMAX, Inc., Greenwich, Connecticut, and Sydney and Perth,
Australia, and an attorney at law in private practice. (1)
Edwin W. Peiker, Jr.
- --------------------
Age 66; Director Since May 1987; Term Expires 1999
Director. President and Chief Operating Officer of the Company
from April 4, 1988, until retirement on February 1, 1992. Vice
President of Engineering of the Company from May 1987 to April 4,
1988. From 1983 to 1986, Mr. Peiker was engaged in mineral
consulting activities. Mr. Peiker was also a principal in Denver
Mining Finance Company from 1984 until 1986. During the period
1966-1983, Mr. Peiker was with the Climax Molybdenum division of
AMAX involved in exploration activities worldwide. (1) (2)
John W. Goth
- ------------
Age 70; Director Since August 1988; Term Expires 1997
Director. Director of Development of the Minerals Information
Institute and a consultant to the mining industry. Mr. Goth was
formerly a senior executive of AMAX, Inc. and a Director of Magma
Copper Company. Mr. Goth is a Director of U.S. Gold Corporation,
U.S. Zeolites Inc. and Banro Resources Corp. (2) (3)
James W. Stuckert
- -----------------
Age 59; Director Since September 1989; Term Expires 1998
Director. Chairman and CEO of Hilliard Lyons, Inc. Mr. Stuckert
is also a Director of Hilliard, Lyons, Inc., DataBeam
Corporation, McBar Medical Industries, and Lawson United
Corporation and a Board Member of the Security Industries
Association. (2) (3)
Pierre Gousseland
- -----------------
Age 75; Director Since June 1992; Term Expires 1998
Director. Financial Consultant. From 1977 until January 1986,
Mr. Gousseland was Chairman and Chief Executive Officer of AMAX,
Inc. Mr. Gousseland is a director of Guyanor Ressources, S.A.,
Hanover Gold Company, and SMB North America Inc. Mr. Gousseland
was Chairman and Chief Executive Officer of AMAX, Inc. Formerly,
Director of the French American Banking Corp. of New York, the
American International Group, Inc., Union Miniere, S.A.
(Belgium), Degussa AG (Germany) and IBM World Trade Europe/Middle
-49-
<PAGE>
East Africa Corporation. Mr. Gousseland has served on the Chase
Manhattan and Creditanstaldt (Vienna, Austria) International
Advisory Boards and is Past President of the French American
Chamber of Commerce in the United States. (3)
S. Oden Howell, Jr.
- -------------------
Age 57; Director Since December 1992; Term Expires 1999
Director. Secretary and Treasurer of H&N Constructors, Inc., a
contractor specializing in remodeling and rehabilitation of
government facilities. From 1972 until 1988, Mr. Howell was
Secretary/Treasurer of Howell & Howell, Inc. He is currently
Director of Florafax International, Inc., and Lawson United
Corporation.
Merritt Marcus
- --------------
Age 63; Director Since December 1992; Term Expires 1998
Director. President and Chief Executive Officer of Marcus Paint
Company, a manufacturer of industrial coatings and Performance
Powders, LLC, a manufacturer of industrial powder coatings. Mr.
Marcus is also a Director of Lawson United Corporation, and has
served several terms as a Director of National Paint and Coatings
Association.
Peter B. Babin: Age 43
- ----------------------
President of the Company since December 1996, formerly Executive
Vice President from July 1995 through December 1996 and Senior
Vice President from July 1993 through June 1995. From 1989 until
1993, Mr. Babin was a consultant to the Company. From 1986
through 1989, Mr. Babin was Senior Vice President and General
Counsel of Medserv Corporation.
Thomas A. Loucks: Age 48
- ------------------------
Executive Vice President and Treasurer of the Company. From
August 1985 until August 1988, Mr. Loucks was a Business
Development Analyst with Newmont Mining Company.
Karen P. Gross: Age 43
- ----------------------
Vice President of the Company since June of 1994. Corporate
Secretary of the Company since 1989. From 1987 until 1989, Ms.
Gross was the Assistant Secretary to the Company and Executive
Assistant.
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
The officers of the Company have one-year employment agreements
that renew for an additional year in February each year.
-50-
<PAGE>
ITEMS 11, 12, and 13
The information called for by Item 11, "Executive Compensation,"
Item 12, "Security Ownership of Certain Beneficial Owners and
Management," and Item 13, "Certain Relationships and Related
Transactions," is incorporated by reference to the Company's
definitive proxy statement to be filed with respect to the
upcoming Annual Meeting of Stockholders to be held December 10,
1996, in Denver, Colorado.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following is a list of documents filed as part of this
report and are included herewith (*) or have been filed
previously:
(1) Financial Statements included in Item 8.
(2) Financial Statement schedules:
All Schedules are omitted because the information
called for is not applicable or is not required or
because the required information is set forth in the
financial statements or notes thereto.
(3) The following exhibits are filed with this annual
report on Form 10-K. The exhibit numbers correspond
to the numbers assigned in Item 601 of Regulation
S-K. Those exhibits that have been marked with an
asterisk are filed herewith; all other exhibits have
been previously filed with the Commission pursuant to
the Company's various reports on Forms 10-K, 10-Q,
8-K, 8-A, S-1 and S-8, and are incorporated herein by
reference.
Exhibit
Number
-------
3 (a) Certificate of Incorporation - Exhibit (b)
to the Company's Form 10-K for the fiscal
year ended December 31, 1980.
(b) Amendment to Certificate of Incorporation -
Exhibit (c) to the Company's Form 10-K for
the fiscal year ended December 31, 1980.
(c) Amendment to Certificate of Incorporation
dated February 2, 1983 - Exhibit 3 (c) of
Registration Statement on Form S-1,
Registration No. 2-84642.
-51-
<PAGE>
Exhibit
Number
-------
(d) Amendments to Articles of Incorporation
dated May 7, 1987 - Exhibit (xiv) to the
Company's Form 10-K for the year ended
June 30, 1987.
(e) Amendment to Articles of Incorporation
dated February 2, 1988 - Exhibit 3(f) to
the Company's Form 10-K for the year ended
June 30, 1990.
(f) By-Laws - Exhibit (d) to the Company's Form
10-K, for the fiscal year ended December
31, 1980.
10 (a) Employee Stock Option Plan - Exhibit 4(a)
to the Company's Form S-8 dated February 6,
1990.
(b) Directors' Stock Option Plan - Exhibit 4(b)
to the Company's Form S-8 dated February 6,
1990.
(c) Lease of premises at 1660 Wynkoop Street,
Denver, Colorado, dated November 1, 1989 -
Exhibit 10 (c) to the Company's Form 10-K
for the year ended June 30, 1990.
(d) Agreement for Resolution of Disputes and
Litigation and for the Formation of the
South Pipeline Project, dated September 18,
1992, between Royal Crescent Valley, Inc.,
and Placer Dome U.S. Inc - Exhibit 10(l) to
the Company's Form 10-K for the year ended
June 30, 1992.
(e) Memorandum of Royalty Interest executed
September 18, 1992, by Royal Gold, Inc. and
Cortez Gold Mines - Exhibit 10(m) to the
Company's Form 10-K for the year ended June
30, 1992.
(f) Mining Lease and Purchase Option, dated
effective August 23, 1993, between Royal
Gold, Inc. and Donald K. Jennings, relating
to the "Ferb" claims, in Elko County,
Nevada - Exhibit 10(o) to the Company's
Form 10-K for the year ended June 30, 1993.
-52-
<PAGE>
Exhibit
Number
-------
(g) Mining Claim and Purchase Option Agreement,
dated effective November 30, 1993, between
Standard Industrial Minerals, Inc. and
Royal Long Valley, Inc - Exhibit 10(p) to
the Company's Form 10-K for the year ended
June 30, 1994.
(h) Option Agreement and Grant of Exploration
Rights, dated effective May 1, 1994,
between Union Pacific Minerals, Inc. and
Royal Gold, Inc - Exhibit 10(q) to the
Company's Form 10-K for the year ended June
30, 1994.
(i) Amendment to Option Agreement and Grant of
Exploration Rights between Union Pacific
Minerals, Inc. and Royal Gold, Inc., dated
effective November 30, 1994, - Exhibit
10(k) to the Company's Form 10-K for the
year ended June 30, 1995.
(j) Assignment Agreement dated effective
December 1, 1994, between Royal Gold, Inc.
and Santa Fe Pacific Gold Corporation,
relating to the Bob Creek Project -
Exhibit 10(l) to the Company's Form 10-K
for the year ended June 30, 1995.
(k) Second Amendment to Option Agreement and
Grant of Exploration Rights between Union
Pacific Minerals, Inc. and Royal Gold,
Inc., dated effective January 1, 1996 -
Exhibit 10(k) to the Company's Form 10-k
for the year ended June 30, 1996.
(l) Third Amendment to Option Agreement and
Grant of Exploration Rights between Union
Pacific Minerals, Inc. and Royal Gold,
Inc., dated effective August 15, 1996 -
Exhibit 10(l) to the Company's Form 10-K
for the year ended June 30, 1996.
(m) Consent of Independent Accountants
(n) Consent of Independent Accountants
-53-
<PAGE>
Exhibit
Number
------
(o) Shareholders' Rights Agreement Exhibit B to
the Company's Form 8-A dated September 11,
1997.
(p)* Restated Option Agreement and Grant of
Exploration Rights between Union Pacific
Minerals, Inc. and Royal Gold, Inc. dated
effective August 22, 1997.
(q)* Letter agreement among Royal Gold, Inc. and
Amax Gold Inc. - Lease and Option to
Purchase dated effective August 1, 1997.
21 *(a) The Company and Its Subsidiaries.
(b) Reports on Form 8-K:
1. None.
* - Filed herewith.
EXHIBIT 21
THE COMPANY
AND ITS SUBSIDIARIES
ROYAL GOLD, INC. AND SUBSIDIARIES
Denver Mining Finance Company (1)
Royal Trading Company (1)
Calgom Mining, Inc. (1)(4)
Royal Long Valley, Inc. (1)
Royal Camp Bird, Inc. (1)
Royal Crescent Valley, Inc. (1)
Royal Kanaka Creek Corporation (1)
Environmental Strategies, Inc. (2)
GRAMEX LTD (3)
SOMIN LTD (5)
Royal Gold Australia (3)
(1) Owned 100% by Royal Gold, Inc.
(2) Owned 100% by Denver Mining Finance Company
(3) Owned 50% by Royal Gold, Inc.
(4) Owns a 100% interest in the Goldstripe Project.
(5) Owned 25% by Royal Gold, Inc.
-54-
<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 report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROYAL GOLD, INC.
Date: September 29, 1997 By: /s/Stanley Dempsey
-------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer,
and Director
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: September 29, 1997 By: /S/Stanley Dempsey
------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer,
and Director
Date: September 29, 1997 By: /S/Thomas A. Loucks
-------------------------
Thomas A. Loucks,
Treasurer
Date: September 29, 1997 By: /S/John Skadow
-------------------------
John Skadow
Controller
Date: September 29, 1997 By: /S/Edwin W. Peiker, Jr.
-------------------------
Edwin W. Peiker, Jr.,
Director
Date: September 29, 1997 By: /S/John W. Goth
--------------------------
John W. Goth,
Director
Date: September 29, 1997 By: /S/James W. Stuckert
-------------------------
James W. Stuckert,
Director
Date: September 29, 1997 By: /S/Pierre Gousseland
-------------------------
Pierre Gousseland,
Director
-55-
<PAGE>
Date: September 29, 1997 By: /S/Merritt E. Marcus
-------------------------
Merritt E. Marcus
Director
Date: September 29, 1997 By: /S/S. Oden Howell, Jr.
--------------------------
S. Oden Howell, Jr.
Director
-56-
EXHIBIT 10(m)
Coopers & Lybrand
Consent of Independent Accountants
To the Board of Directors
Royal Gold, Inc.:
We consent to the incorporation by reference in the Form S-8
(File No. 33-58920) of Royal Gold, Inc. of our report dated September 11, 1997
on our audit of the consolidated financial statements of Royal Gold, Inc. as
of June 30, 1997 and 1996, and for the years then ended, which report is
included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Denver, Colorado
September 29, 1997
EXHIBIT 10(n)
Williams Richey
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Royal Gold, Inc.:
We consent to the incorporation by reference in the Form S-8
(File No. 33-58920) of Royal Gold, Inc. of our report dated August 28, 1995,
on our audit of the consolidated financial statements of Royal Gold, Inc. as
of June 30, 1995, and for the year then ended, which report is included in
this Annual Report on Form 10-K.
Williams Richey
Denver, Colorado
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 3,333,298 3,333,298
<SECURITIES> 4,995,370 4,995,370
<RECEIVABLES> 2,620,521 2,620,521
<ALLOWANCES> 0 0
<INVENTORY> 2,872,366 2,872,366
<CURRENT-ASSETS> 14,445,646 14,445,646
<PP&E> 4,885,366 4,886,366
<DEPRECIATION> 982,950 982,950
<TOTAL-ASSETS> 18,980,829 18,980,829
<CURRENT-LIABILITIES> 1,113,914 1,113,914
<BONDS> 0 0
0 0
0 0
<COMMON> 47,606,169 47,606,169
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 18,980,829 18,980,829
<SALES> 0 0
<TOTAL-REVENUES> 2,584,276 8,220,634
<CGS> 0 0
<TOTAL-COSTS> 1,447,803 4,412,068
<OTHER-EXPENSES> (27,670) (27,670)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,197,981 4,169,524
<INCOME-TAX> 115,000 115,000
<INCOME-CONTINUING> 1,082,981 4,054,524
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,082,981 4,054,524
<EPS-PRIMARY> 0.07 0.26
<EPS-DILUTED> 0.07 0.26
</TABLE>
AMAX LONG VALLEY GOLD CORPORATION
9100 East Mineral Circle
Englewood, Colorado 80112
August 1, 1997
Royal Gold, Inc.
Royal Long Valley, Inc.
1660 Wynkoop Street
Suite 1000
Denver, CO 80202-1132
Attn: Mr. Peter B. Babin, President
Re: Long Valley Gold Project, Mono County, California
Dear Mr. Babin:
This letter sets forth the terms of our binding agreement in principle
effective as of August 1, 1997 (the "Agreement"), among Royal Gold, Inc., a
Delaware corporation ("RG"), Royal Long Valley, Inc. a Nevada corporation
("RLV"), andAmax Long Valley Gold Corporation, a Delaware corporation
("Amax") relating to a lease and option to purchase granted by RLV to Amax
pertaining to certain property and interests now owned or to be acquired by
RLV known as the Long Valley gold project (the "Project") in Mono County,
California, as more specifically described in Exhibit A to this Agreement
(the "Property").
1. Grant of Lease and Purchase Option. In consideration for the sum of
$150,000.00 paid by Amax to RLV on execution of this letter and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, RLV hereby leases the Property to Amax (the "Lease") and grants to
Amax an exclusive irrevocable option (the "Purchase Option") to purchase the
Property, both on the terms and conditions set forth below. The term of the
Lease shall be from August 1, 1997 to and including January 31, 2003 (the
"initial term"), with the right of Amax at its option to extend the Lease on
the same terms and conditions to and including January 31, 2008 (the "extended
term") (the initial and extended terms being hereinafter referred to as the
"Lease Term"). Amax shall have the right to sooner terminate the Lease
pursuant to Section 6 and to exercise the Purchase Option pursuant to Section
7 at any time during the Lease Term. The Purchase Option may be exercised by
Amax upon the delivery to RLV of both a "positive" feasibility study and an
affirmative production decision for the Property. Upon transfer of title
pursuant to exercise of the Purchase Option, the Lease shall terminate.
2. Standard Minerals Option and Representations of RG and RLV.
A. RLV shall timely exercise the purchase option under that certain
Mining Claim Exploration and Purchase Option Agreement dated as of November
30, 1993 between Standard Industrial Minerals, Inc. ("Standard") and RLV, as
amended (the "Standard Purchase Option Agreement"), under which, on or before
December 31, 1997, RLV must pay Standard the sum of $900,000 in order to
acquire a 100 % interest in the Property.
B. RG and RLV hereby represent and warrant to Amax as follows:
(i) To the best of the knowledge, information and belief of RG and RLV
and subject only to the provisions of the Joint Venture Agreement dated April
4, 1989 between Standard and RG, as amended (the "Standard Venture Agreement")
and to the provisions of the Standard Purchase Option Agreement, Standard owns
a full and undivided interest in and to each of the LV 1 through LV 122
unpatented mining claims included in the Property as of the date hereof (with
the possible exception that it may be necessary to relocate the discovery
monuments of LV 60, LV 61 and LV 62, to avoid conflict with the patented
ground in Section 15, T3S, R28E);
(ii) RG owns a full and undivided interest in and to each of the LV 123
through RLV 160 unpatented mining claims included in the Property as of the
date hereof;
(iii) To the best of the knowledge, information and belief of RG and
RLV, all such claims have been validly located and maintained in accordance
with all applicable laws and regulations;
(iv) All such claims are free and clear of all liens, claims, and
encumbrances whatsoever, subject only to the paramount interest of the United
States of America; all taxes, if any, which may be or which may become a lien
upon the Property, as of the date hereof, have been paid;
(v) Excepting only the impact of the Standard Venture Agreement and the
Standard Purchase Option Agreement, the Property is not in any manner
encumbered as a result of any conduct or activity of RG or RLV or, to the best
of the knowledge, information and belief of RG and RLV, as a result of any
conduct or activity of Standard; and
(vi) Having secured the approval of their respective boards of directors
to the terms and conditions of this agreement, the Standard Venture Agreement
and the Standard Purchase Option Agreement, RG and RLV have full and complete
authority to execute this agreement and to grant the rights herein conferred
on Amax; and
(vii) RG and RLV have no knowledge that any of the mining claims
comprising the property are invalid, or that there are other senior or junior
mining or placer claims in conflict with any of such claims and, to the best
knowledge, information and belief of RG and RLV, Standard has no such
knowledge; and
(viii) Each of the Standard Venture Agreement and the Standard
Purchase Option Agreement (a) is in full force and effect, is enforceable
against RG or RLV, as the case may be (and, to the best of the knowledge,
information and belief of RG or RLV, by RG or RLV against all other parties
thereto) in accordance with its terms, subject, as to enforceability only, to
applicable laws relating to bankruptcy and the enforceability of creditors'
rights generally, and (b) no default or event or condition which with notice,
lapse of time or both could constitute a default thereunder has
occurred and is continuing.
3. Lease Payments and Other Payments.
A. During the Lease Term, Amax shall make the following
payments to RLV:
(i) The sum of $300,000, on or before December 31,
1997.
(ii) The sum of $250,000 commencing July 1, 1998, and
on each anniversary date thereafter ("annual advance minimum royalty").
Upon Amax's termination of the Lease under Section 6, the foregoing payments
in this Section 3 shall cease.
B. Following Amax's exercise of the Purchase Option under
Section 7 and resulting termination of the Lease as provided in Section 1,
Amax shall pay to RLV the higher of the annual advance minimum royalty or
RLV's percentage of net operating cash flow under Section 8D. Amax's
obligation to pay the advance minimum royalty shall terminate on the first to
occur of (i) Payback for RLV (as defined in Section 8D); (ii) completion by
Amax of mining operations and residual leaching at Long Valley or (iii) other
decision of Amax to terminate operations at Long Valley and, if RLV so
desires, to reconvey the property to RLV once reclamation and other
environmental obligations have been satisfied.
C. All payments shall be paid in immediately available funds.
All lease payments (including annual advance minimum royalty payments made
during the Lease Term), together with any annual advance minimum royalty
payments made after exercise of the Purchase Option, shall be subject to
recoupment by Amax under Section 8D.
4. Work Expenditures. During the Lease Term, until terminated by Amax
under Section 6 or until the Purchase Option is exercised under Section 7,
Amax shall make work expenditures ("Work Expenditures") on or for the benefit
of theProperty in the following amounts:
A. The sum of $500,000 on or before January 31, 1998. This is a
firm commitment. If Amax fails to perform the total amount of such Work
Expenditures, Amax shall pay RLV the deficiency in immediately available
funds.
B. The sum of $500,000 on or before January 31 of each year
thereafter.
Any excess of Work Expenditures in any year (or during the period prior to
January 31, 1998) shall be carried forward to the succeeding year. If Work
Expenditures in any year after the period ended January 31, 1998 are deficient
and Amax desires to maintain the Lease and Purchase Option in effect, Amax
shall pay RLV in immediately available funds a sum equal to 50% of the
deficiency. Work Expenditures may include any and all sums spent or incurred
by Amax in exploration, evaluation, and development of the Property,
including without limitation all costs for land acquisition and maintenance;
drilling, sampling, assaying, and ore reserve calculation; metallurgical and
engineering analyses; environmental and permitting analyses and activities;
title examination and curative; feasibility studies; and financing
investigations; plus 5% of such direct costs in lieu of headquarters overhead
and general and administrative expenditures. All Work Expenditures shall
be subject to recoupment by Amax under Section 8D, but any cash payments in
lieu of Work Expenditures made by Amax to RLV under this Section 4 shall not
be subject to recoupment by Amax.
5. Rights and Obligations During Lease Term. The parties shall have
the following rights and obligations during the Lease Term:
A. Access to Property and Provision of Data. Amax shall have full
access to the Property to conduct such investigations and examinations as Amax
may deem desirable and to all information and data in RLV's possession and
control pertaining to the Property necessary or desirable to enable Amax to
fully evaluate the Property and its commercial feasibility. RLV agrees to
cooperate fully with Amax in its investigation.
B. Activities by Amax. Amax shall have exclusive possession of the
Property, subject to the paramount rights of the United States with respect to
unpatented mining claims included in the Property, and shall have the
exclusive right to conduct such exploration, evaluation, and development
activities on the Property (including bulk sampling) as Amax may desire. RLV
shall provide all reasonable assistance to Amax for the obtaining of any
permits, licenses, and third party consents needed for such work. Amax shall
also have the right to contact the pertinent federal, state, and local
permitting agencies, and to negotiate with such agencies.
C. Maintenance of Property. Amax shall maintain in good standing
all unpatented mining claims that comprise the Property. Amax shall have the
right to amend or relocate in the name(s) of the then owner(s) any unpatented
mining claims included in the Property, to locate different types of claims on
ground covered by existing claims, and to locate any fractions.
D. Decisions. All decisions with respect to exploration,
evaluation, and development of the Property shall be made by Amax in its sole
discretion.
E. Sharing of Data. During each year of the Lease Term, Amax will
share with RLV all information (including interpretive and non-interpretive
data, subject to typical disclaimers regarding interpretive data and
statements that RLV may not rely upon the same) obtained from the
exploration, evaluation, and development activities pertaining to the
Property, including providing a copy of any geological and other principal
reports relating to the Property, and will report to RLV in writing at least
quarterly regarding the progress of the exploration and evaluation work and
Work Expenditures made during the period.
F. RLV Access to Property. RLV may have access to the Property at
ts sole risk on reasonable notice, and shall be entitled to conduct tours of
the Property for investor relations and financing activities. RLV's exercise
of its access rights shall not interfere in any way with Amax's operations on
the Property, which shall take precedence in the event of any conflict.
6. Right to Terminate. Amax may terminate this Agreement or the Lease
at any time at its sole option by giving RLV 30 days' prior written notice,
upon which all rights and obligations of the parties under this Agreement
shall cease, except for any limitation of liability, indemnification, and
confidentiality provisions set forth in the definitive agreement provided for
in Section 10 below; provided, however, that (i) if Amax terminates this
Agreement after July 1 of any year, Amax agrees to pay governmental fees and
make all governmental filings necessary to maintain the unpatented mining
claims for the assessment year commencing on September 1 next following such
notice of termination and (ii) if Amax terminates this Agreement or
the Lease on or before January 31, 1998, Amax shall remain obligated to
comply with Section 4A.
7. Exercise of Purchase Option. If Amax decides to exercise the
Purchase Option, upon both the completion of a "positive" feasibility study
for the Property and the making of an affirmative production decision for the
Property by AGI's and Amax's Boards of Directors, Amax shall give RLV notice
thereof. Within 10 days after such notice, RLV shall deliver to Amax a
special warranty deed in form satisfactory to Amax transferring title to a
100% interest in the Property, and reserving to RLV the annual advance
minimum royalty as described above and a 22% net profits interest ("NPI") in
production from the Property, convertible at RLV's election to a net smelter
returns royalty as set forth in Section 8 below, and Amax shall deliver to
RLV the sum of $10.00.
8. RLV 22% NPI.
A. Definition of Net Profits. The definition of "net profits" for
purposes of RLV's 22% NPI shall be as agreed to by the parties in the
definitive agreement or otherwise. It is agreed that the calculation of net
profits shall not include any benefit or loss from price hedging and price
protection arrangements conducted by or on behalf of Amax or its affiliates.
It is further agreed that, in determining net profits, Amax shall be entitled
to deduct from revenues the following percentages of total operating costs in
lieu of headquarters overhead and headquarters general and administrative
expenses: 3% during the development/construction stage of operations and 1%
during the mining and processing stage of operations.
B. Payable in Kind; Payable Quarterly. RLV may elect to receive in
kind its NPI or its NSR Royalty (as described below). Both royalties shall be
payable quarterly.
C. Conversion to Net Smelter Returns Royalty. RLV shall have the
right at any time after Payback (as defined below), which right shall be
exercisable on an annual basis by notice given to Amax on or before
December 1 of any year, to convert its NPI to a net smelter returns royalty
("NSR Royalty"), which shall be a sliding scale royalty based on the gold
price, as set forth below:
Price of Gold Per Ounce NSR Royalty Interest
Above $500 5.5%
Above $450 but less than or
equal to $500 4.5%
Above $400 but less than or
equal to $450 3.5%
Above $350 but less than or
equal to $400 2.5%
$350 or below -0-
The gold price shall be determined quarterly based on the average of the
London PM fixing price in U.S. Dollars for the quarter preceding payment.
D. Recoupment of Capital. No payments shall be made to RLV
under its 22% NPI until both Amax and RLV have recouped from net operating
cash flow from the Property all of their respective actual investments in the
Property, including cumulative exploration, evaluation, and development
expenditures ("Capital Investment") in the Property ("Payback"). The parties
shall agree on the procedures by which Capital Investment is to be calculated.
In recouping Capital Investment, the parties agree that each item of Capital
Investment shall be recouped only once and neither party shall impose a "cost
of capital" expense on the operation (but interest expense actually paid to
third-party institutions will be considered part of Capital Investment).
Prior to Payback for both Amax and RLV, the net operating cash flow shall
be distributed 90% to Amax and 10% to RLV. If Amax reaches Payback before
RLV, RLV shall receive 100% of the net operating cash flow until RLV Payback
occurs. If RLV reaches Payback before Amax, Amax shall receive 100% of the
net operating cash flow until Amax Payback occurs. Subsequent to Payback for
Amax and RLV, all net operating cash flow shall be distributed to Amax,
subject to RLV's 22% NPI. The distribution of net operating cash flow set
forth in this Section 8D is subject to revision if so required by lending
institutions providing financing for the project. If such institutions
require a larger portion of cash flow to be dedicated to loan repayment, a
revised distribution shall be agreed by the parties.
E. Separate Mining Units. If separate mining units are created on
the Property, each mining unit shall be treated as a stand-alone unit for the
purpose of calculating production royalty and Payback.
9. Area of Interest. If either party or if any affiliate of a party
now has or hereafter acquires any property interest within the boundaries of
the Property or within one mile of the perimeter of such boundaries, such
party shall give prompt notice to the other party and such property interests
shall, at the option of the other party, exercised within 45 days after
notice of such acquisition by the acquiring party, become part of the
Property and become subject to this Agreement and to the definitive agreement
described in Section 10 below (the "Additional Property"). The acquiring
party shall be entitled to include all acquisition expense for such
Additional Property in the calculation of its Capital Investment, for the
purpose of Payback pursuant to Section 8D. If Amax does not exercise the
Purchase Option and the Lease is terminated, RLV shall have the right to
retain any Additional Property acquired by Amax, provided that RLV must
reimburse Amax for its acquisition cost of the Additional Property within 30
days following such termination.
10. Definitive Agreement. The parties agree to commence negotiations
in good faith promptly after execution of this Agreement for a definitive
agreement incorporating the terms of this Agreement and containing the
following terms and such other terms and provisions as may be mutually
agreeable to the parties.
- Customary representations by RLV, including title, environmental.
- Customary corporate representations by both parties.
- Limitation of Amax's liability and indemnification by RLV of
Amax against any pre-Agreement liabilities pertaining to the
Property; indemnification by both parties against any liabilities
arising out of the indemnifying party's activities pertaining to
the Property during the term of the Agreement.
- Customary title examination and curative provisions.
- Customary compliance with law provisions.
- Covenants by Amax and RLV against liens on the Property.
- Customary insurance provisions.
- Customary confidentiality provisions.
- Force majeure provision.
- Right of Amax to remove property after termination of the Lease.
- Customary general provisions including, without limitation, audit,
information and inspection rights of RLV, property maintenance,
disclaimer of the "merger by deed" doctrine, and disclaimer of the
adverse, unintended impact of the rule against perpetuities.
This Agreement shall govern the rights and obligations of the parties
until such time as the definitive agreement has been negotiated and executed
by both parties. If the parties fail to reach agreement on the terms of a
definitive agreement, this Agreement shall remain binding upon the parties.
11. Assignment. Neither party may assign its rights and obligations
under this Agreement without the prior written consent of the other party,
which consent shall not be unreasonably withheld, provided, however, that RLV
may assign its interest at any time after December 31, 1997, to a third party
without the consent of Amax, provided that such third party agrees to assume
all of RLV's obligations under this Agreement, and provided further that Amax
may assign its interest to an affiliated company or a successor without the
consent of RLV, provided that the assignee agrees to assume all of Amax's
obligations under this Agreement.
12. RG acknowledges the benefits it will receive from payments made by
Amax to RLV, its wholly owned subsidiary, and agrees that it shall cause RLV
to comply with its obligations under this Agreement.
13. Governing Law. This Agreement shall be governed by the laws of the
State of California, excluding any conflicts of laws principles.
14. Affiliated Companies. Each party shall take such actions as may be
necessary to cause its affiliates to comply with the obligations contemplated
herein. "Affiliate" of a party means any person, partnership, joint venture,
corporation, or other form of enterprise that directly or indirectly controls,
is controlled by, or is under common control with, the party.
15. Notice. All notices required or permitted to be given hereunder
shall be in writing and shall be delivered to the parties by personal
delivery, registered or certified mail, facsimile transmission, or express
delivery service at the addresses set forth below, or to such other address
as the parties may later designate by like notice to each other:
Amax:
Amax Long Valley Gold Corporation
9100 E. Mineral Circle
Englewood, CO 80112
Attn: President
Fax: 303-643-5510
with a copy to:
Amax Long Valley Gold Corporation
9100 E. Mineral Circle
Englewood, CO 80112
Attn: General Counsel
Fax: 303-643-5507
RG:
Royal Gold, Inc.
1660 Wynkoop
Suite 1000
Denver, CO 80202-1132
Attn: Mr. Peter B. Babin, President
Fax: 303-595-9385
RLV:
Royal Long Valley, Inc.
1660 Wynkoop
Suite 1000
Denver, CO 80202-1132
Attn: Mr. Peter B. Babin, Vice President
Fax: 303-595-9385
All notices required or permitted to be given hereunder shall be deemed to
have been given on the date of actual receipt.
If the foregoing correctly sets forth our understanding, please sign one
copy of this Agreement where shown below and return it to me.
Very truly yours,
/S/
_______________________________
Robert B. Blakestad
Vice President
Amax Long Valley Gold Corporation
Accepted and agreed to this 4th day of September, 1997:
ROYAL GOLD, INC. ROYAL LONG VALLEY, INC.
/S/ /S/
By:_________________________ By:_____________________________
Peter B. Babin Peter B. Babin
President President
RESTATED OPTION AGREEMENT AND GRANT OF EXPLORATION RIGHTS
THIS RESTATED OPTION AGREEMENT AND GRANT OF EXPLORATION
RIGHTS (this "Restated Agreement"), made and entered into effective as of
January 1, 1997, by and between UNION PACIFIC RESOURCES GROUP INC., a Utah
corporation (hereinafter called "UPR") and ROYAL GOLD, INC., a Delaware
corporation (hereinafter called "Royal"),
WITNESSETH
WHEREAS, UPR holds mineral rights in the States of Wyoming and Colorado,
and desires to have such mineral rights evaluated and explored for their
precious metals and diamond potential, and
WHEREAS, Royal possesses the financial capability and technical expertise
necessary to conduct an evaluation and exploration program for precious metals
and diamonds, and is willing to undertake the program and to make certain
minimum expenditures for exploration work in consideration of the grant of
option rights in the lands explored, and
WHEREAS, effective as of May 1, 1994, UPR and Royal first entered into
this Option Agreement and Grant of Exploration Rights, which has now been
amended on three occasions; and
WHEREAS, UPR remains willing to grant such option rights as an inducement
to Royal to conduct the program and make the expenditures, and
WHEREAS, UPR and Royal now desire to restate their agreement, setting
forth the changed terms and conditions under which UPR has granted such
exploration and option rights, and Royal has agreed to undertake such program.
NOW, THEREFORE, in consideration of the premises, UPR and Royal,
intending to be legally bound, hereby agree as follows:
1. Subject Minerals. The minerals subject to this Restated Agreement
("Subject Minerals") shall include diamonds and diamondiferous minerals,
all precious metals (viz. gold, silver and platinum and platinum group
metals) and all other minerals that are locatable under the General Mining
Law of 1872, as amended, except any locatable minerals that are
hereinafter specifically excluded. This Restated Agreement specifically
excludes, and no rights are granted hereunder with respect to, oil, gas and
other hydrocarbon substances, coal, trona and other sodium minerals,
potassium, phosphate, limestone, stone, gypsum, oil shale, bentonite, sand
and gravel and zeolitized minerals. UPR expressly reserves the right to
enter into leases and other agreements with third parties, during the term
hereof, respecting the minerals specifically excluded from the coverage of
this Restated Agreement.
2. Grant of Non-Exclusive Selection Rights; Subject Property.
(a) UPR hereby grants to Royal the non-exclusive right, to be exercised
at any time, while this Restated Agreement remains in effect, to select up to a
maximum of fifty thousand (50,000) acres of the lands, rights and interests
described in Section 2(b) hereof, to be covered by and included in the
grants of exclusive exploration and option rights hereinafter in this
Restated Agreement contained.
(b) The lands and interests from which Royal shall make the selection
provided for in Section 2(a) shall include the mineral estates and mineral
rights owned or held by UPR and its affiliates in the States of Wyoming
and Colorado within the exterior boundaries of the State Line Diamond
Area, in the lands more specifically described in Exhibits B-1 and B-2
attached hereto. The mineral estates and mineral rights in Section 19 of
Township 12 North, Range 72 West are expressly excluded from the coverage
of this Restated Agreement.
(c) The property selected by Royal (the "Subject Property") shall
consist of and comprise no more than ten, reasonably compact groupings or
"units" of the lands and interests described in Section 2(b), and Royal
shall, from time to time, provide UPR with one or more written notices of its
selection of lands and interests. Such notices shall describe the lands and
interests selected in detail by government subdivision. The land descriptions
contained in such notices shall be organized on a unit-by-unit basis.
(d) UPR hereby grants to Royal the further, non-exclusive right, to be
exercised at any time, and from time to time, while this Restated
Agreement remains in effect, to substitute other lands and interests that are
described in Section 2(b) for the lands and interests theretofore selected
under Section 2 and made part of the Subject Property. Substitution of
lands and interests under this Section 2(d) shall be on an acre-for-acre
basis.
(e) UPR hereby confirms that, while this Restated Agreement remains in
effect, if UPR initiates or receives any solicitation or proposal from any
third party regarding any arrangement or agreement for exploration or
development of Subject Minerals on any of the lands or interests described
in Section 2(b) or on any of the lands or interests, any part of which is
included within the Area of Interest that encompasses all lands or interests
lying within one (1) mile, measured in any direction, from the exterior
boundaries of any of the UPR lands and interests described in Section
2(b), then, before accepting any such solicitation or proposal, UPR shall
provide notice of same to Royal, and shall extend to Royal, for not more
than 30 days, a right of first refusal to enter into an arrangement on the
same terms with respect to the arrangement or agreement that was the
subject of such solicitation or proposal.
3. Grant of Exploration Rights. UPR hereby grants to Royal, for the term
of this Restated Agreement, the sole and exclusive right to prospect, explore,
sample and test for Subject Minerals on the Subject Property, upon the terms
and conditions hereinafter in this Restated Agreement contained. UPR and
Royal agree that the primary aim and focus of the exploratory activities
conducted by Royal pursuant to this Restated Agreement shall be the discovery
of diamonds or precious metals in the Subject Property.
4. Initial Term. The initial term of this Restated Agreement shall be
twelve (12) months from the effective date hereof ("Initial Term").
5. Work Expenditure Commitment During Initial Term; Certain Definitions;
Statements of Expenditures. Royal agrees, as a firm commitment, to expend,
during the Initial Term of this Restated Agreement, a minimum total of Three
Hundred Seventy Five Thousand Dollars ($375,000.00) in qualified work
expenditures on or for the direct benefit of the Subject Property.
Any excess work expenditure made by Royal prior to the effective date of
this Restated Agreement (that is, any expenditure in excess of the aggregate
amount of $125,000 expended during 1996) shall be credited against Royal's
minimum expenditure obligation for the Initial Term.
The term "for the direct benefit of" shall mean those qualified work
expenditures made within an "Area of Interest" that encompasses all lands
lying within one (1) mile, measured in any direction, from the exterior
boundaries of any part of the lands within the State Line Diamond Area
described in Exhibits B-1 and B-2 attached hereto.
The term "qualified work expenditures" shall mean (A) those costs and
expenses on or for the benefit of the Subject Property which would qualify and
be recognized and accepted by the United States government under the General
Mining Law of 1872, as amended, as satisfying the "assessment work"
requirement of the Law, and (B) the direct acquisition costs of any leases or
mining claims covering lands acquired by or on behalf of Royal within an Area
of Interest; provided that no more than twenty-five percent (25%) of the total
qualified work expenditure obligation may be satisfied by such property
acquisition costs without the express written approval of UPR being first had
and obtained. In addition, "qualified work expenditures" shall include
C) the actual costs of industry-accepted geological, geophysical and
geochemical work (without limitation as to whether such work is performed in
consecutive years) and airborne geophysical and mapping work; (D) direct
expenses incurred in securing surface owner consents and performing title
curative work required to be performed prior to the conduct of exploration
activities; (E) direct expenses incurred in petitioning or appearing before
federal, state or local governmental bodies in order to clarify Royal's
exploratory or possessory rights to the Subject Property and the Area of
Interest; and (F) an amount to cover Royal's general and administrative
overhead expenses. The amount of overhead expense includable in
qualified work expenditures shall be ten percent (10%) of all direct
expenditures on the Subject Property. "Direct expenditures" shall mean all
qualified work expenditures other than general and administrative overhead
expenses. The parties agree that the costs and expenses of Royal's executive
staff (including information services) and the costs of all accounting work
whether or not performed by Royal's own personnel are to be covered by the
overhead expense credit and shall not be direct charges to the project for
purposes of satisfying Royal's work expenditure commitments.
The failure by Royal to fulfill any of the minimum expenditure obligation
set forth in Section 5 and Section 6 shall be an event of default under this
Agreement and shall entitle UPR to immediately terminate this Agreement as
provided in Section 14 hereof.
If Royal fails to expend a minimum total of $375,000.00 in qualified work
expenditures during the Initial Term, Royal shall, promptly following the end
of the Initial Term, pay to UPR in cash, as liquidated and agreed damages, an
amount equal to $375,000.00 less the amount of qualified work expenditures
made during the Initial Term.
Within thirty (30) days following (A) the end of the Initial Term and
(B) the end of any Extension Period, Royal shall furnish UPR with a detailed
written statement of qualified work expenditures made by Royal or any approved
assignee of Royal during the preceding interval. Such statement shall be
accompanied by summary information relating to all project invoices (but not
the invoices themselves) identified by types of work and including information
as to the dates such invoices were paid and to whom paid. UPR shall have the
right during all normal business hours, for a period of two (2) years
following the receipt of any such statement, to audit Royal's books and records
supporting such statement.
6. Extensions of this Agreement. Royal shall have the right to extend the
term of this Agreement for up to two (2) additional twelve month periods
following the end of the Initial Term, provided that Royal's minimum
expenditure obligation set forth in Section 5 has then been fulfilled. (Each
of said additional twelve month periods is herein called an "Extension
Period".)
Royal shall provide UPR written notice of its election to extend the
term hereof for an Extension Period at least sixty (60) days prior to the date
upon which such Extension Period is to commence.
If Royal is eligible to and elects to extend the term hereof for an
Extension Period, Royal agrees that, having made either of such elections to
extend, it shall thereupon become obligated, as a firm commitment, to make the
following minimum expenditures (subject to credits as hereinafter provided)
during the applicable Extension Periods:
(a) Royal shall expend a minimum of Three Hundred Seventy-Five Thousand
Dollars ($375,000.00) in qualified work expenditures during the first
Extension Period.
(b) Royal shall expend a minimum of One Million Dollars ($1,000,000.00)
in qualified work expenditures during the second Extension Period.
Any excess work expenditure during the first Extension Period shall be
credited against Royal's minimum expenditure obligation for the second
Extension Period.
Any excess work expenditures during the Initial Term shall be credited
against Royal's minimum expenditure obligations for the first and, if
sufficient, for the second Extension Period.
Royal shall have no right to extend for a second Extension Period unless
it fulfills its minimum expenditure obligation for the first Extension Period.
In the event that Royal fulfills its minimum expenditure obligation for
the Initial Term, elects to extend the term hereof for the first Extension
Period, and thereafter fails to expend a minimum of $375,000.00 in qualified
work expenditures during such first Extension Period (subject to credits as
above provided), Royal shall, promptly following the end of the first
Extension Period, pay to UPR in cash, as liquidated and agreed damages, an
amount equal to $375,000.00 less (I) credits available due to excess
expenditures during the Initial Term, as above provided in this Section 6, and
(ii) the amount of qualified work expenditures made during the first
Extension Period. Similarly, in the event that Royal fulfills its minimum
expenditure obligation for the first Extension Period, elects to extend the
term hereof for a second Extension Period, and thereafter fails to expend a
minimum of $1,000,000.00 in qualified work expenditures during such second
Extension Period (subject to credits as above provided) Royal shall, promptly
following the end of the second Extension Period, pay to UPR in cash,
as liquidated and agreed damages, an amount equal to $1,000,000.00 less
(I) credits available due to excess expenditures in prior periods, as above
provided in this Section 6, and (ii) the amount of qualified work expenditures
made during the second Extension Period.
7. Assignment.
(a) Royal shall have the right to assign its rights and obligations
under this Restated Agreement as to all or any portion of the Subject Property
provided that the prior approval and consent of UPR to the terms of any
such proposed assignment and to Royal's prospective assignee shall have
been first obtained. UPR shall have the right to withhold its consent to
any proposed assignment if it determines, in its sole judgment and
discretion, that the proposed assignee does not possess the technical or
financial capability to fully perform the exploration and reclamation
obligations provided for herein or to adequately fund and perform the
indemnities and other undertakings of Royal herein contained. Any
assignment of rights and obligations, whether voluntary, by operation of
law or otherwise, made without the consent required by this Section shall
be absolutely void and this Restated Agreement may be terminated in its
entirety at the option of UPR in the event its required consent to any such
assignment has not been obtained. Notwithstanding any such assignment
made with the approval and consent of UPR, all obligations of Royal to
UPR hereunder shall be and remain enforceable by UPR, its successors
and assigns, against Royal. Qualified work expenditures made by any
approved assignee shall be credited against the minimum expenditure
obligation of Royal set forth in Section 5 and Section 6.
(b) Any bonus, rental, advance royalty or other payments or
considerations provided to be paid to Royal pursuant to the terms of any
approved arrangement whereby the rights and obligations of Royal under this
Restated Agreement are assigned shall be the sole property of Royal.
8. Option to Lease. UPR hereby grants to Royal the sole and exclusive
right and option, exercisable at any time and from time to time during the
Initial Term or any Extension Period of this Restated Agreement, to enter
into a mining lease covering portions of the Subject Property or to cause
mining leases covering portions of the Subject Property to be executed and
delivered to third parties nominated by Royal, upon the following terms and
conditions:
(a) Royal shall describe and designate one or more Prospect Areas to
UPR. Prospect Areas are defined as blocks of lands and interests comprising
designated portions of the Subject Property and lands and interests lying
within one (1) mile, measured in all directions, from such designated
portions of the Subject Property. No Prospect Area shall comprise more
than one designated six hundred forty (640) contiguous acre block of the
Subject Property and the lands and interests lying within one (1) mile,
measured in all directions, from such designated block.
(b) Royal shall demonstrate to UPR's reasonable satisfaction that it
has made qualified work expenditures of at least Fifty Thousand Dollars
($50,000.00) within or for the direct benefit of each such designated
Prospect Area. Royal shall provide UPR with a summary statement
detailing all qualified work expenditures.
(c) All mining leases issued hereunder covering precious metals shall
be substantially in the form of Exhibit A attached hereto; and all mining
leases issued hereunder covering diamondiferous minerals shall be
substantially in the form of Exhibit A attached hereto, with the
presumption that the production royalty for a diamond lease shall be the
greater of four percent (4%) of "Net Returns" or twelve percent (12%) of
"Net Profits" derived from such property. Each such mining lease shall
cover a maximum of six hundred forty (640) and a minimum of one
hundred sixty (160) contiguous acres of Subject Property (full section or
full quarter section or the aliquot equivalent thereof) within the designated
Prospect Area. Royal's right to enter into mining leases or to cause
mining leases covering diamonds or precious metals to be issued
hereunder shall not be conditioned on Royal's prior discovery of
commercial quantities of diamonds or precious metals in the portion of the
Subject Property to be covered by such leases.
(d) Royal shall either be the lessee or shall nominate a technically
capable and financially responsible third party to be the lessee under each
such proposed lease or leases. UPR shall have the right to refuse to execute
and deliver a mining lease to any such proposed lessee if it determines, in
its sole judgment and discretion, that the party nominated does not possess
the technical expertise or financial capability to fully and satisfactorily
perform the obligations, undertakings and indemnification of the lessee
under the mining lease.
(e) It is expressly understood that none of the provisions of this
Section 8 grant any lease option rights with respect to mineral substances
excluded from the definition of Subject Minerals by the provisions of Section
1 of this Agreement.
9. Rights to Receive Overriding Royalty Interests. In the event that,
during the term of this Restated Agreement or any mining lease issued pursuant
to Section 8, or within one (1) year after the expiration thereof, Royal, UPR
or their respective assignees or lessees acquire any leases, mining claims or
other interests in lands within one (1) mile, measured in any direction, from
the exterior boundaries of any portion of the Subject Property (or within the
relevant Prospect Area if a mining lease has been issued pursuant to Section
8), the non-acquiring party (UPR or Royal, as the case may be) shall be
entitled to receive an overriding royalty interest in the lands and interests
covered thereby equal to twelve percent (12%) of the Net Profits (as defined
in the form mining lease attached hereto as Exhibit A) of production from
such property, it being understood that all such production royalty as may
already burden such property, including any hereafter-enacted royalty in
favor of the federal government, shall be a cost or expense of such property.
With respect to unpatented mining claims that are not burdened by any
other royalty interest, the overriding royalty hereunder shall be two percent
(2%) of Net Returns, as defined in the form mining lease attached as Exhibit
A. The parties hereto, for themselves and their respective assigns, lessees
and successors, hereby agree to execute and deliver, from time to time, such
assignments and other and further assurances as may be reasonably necessary to
effectuate the provisions of this Section and to legally vest such overriding
royalty interests in the party entitled to receive and hold the same. This
provision shall not have any application to the acquisition by either UPR or
Royal of the equity or debt securities of any entity that may hold mineral
interests within one (1) mile from the exterior boundaries of any portion of
the Subject Property.
10. [Omitted.]
11. General Provisions Regarding Royal's Operations. The following terms and
conditions shall govern the conduct of all prospecting and exploration
operations on the Subject Property:
(a) No entry shall be made on the portions of the Subject Property, or
within the Area of Interest, where UPR owns mineral rights only, and no
prospecting and exploration activities shall be conducted thereon, until all
necessary consents of the owners of the surface estate in such lands have
been obtained under agreements satisfactory in form to UPR. UPR shall
assist Royal in obtaining such consents from surface estate owners. In
addition to fully complying with any and all obligations contained in
agreements between Royal and surface estate owners, Royal shall observe
the following regulations in connection with its operation on the Subject
Property:
(i) all necessary precautions shall be taken to avoid any damage,
other than normal wear and tear, to gates, bridges, roads, culverts, cattle
guards, fences, dams, dikes, vegetative cover, improvements, stock
water and other facilities on the Subject Property.
(ii) appropriate measures shall be taken to protect any holes,
trenches or other openings made by Royal on the Subject Property, when
not in use, to protect the lives, safety and property of persons
and/or livestock and wildlife.
(iii) all vehicles and equipment shall be operated at reasonable
rates of speed and in a reasonable and prudent manner and due care shall
be taken to safeguard all livestock and wildlife in the vicinity of
operations. Existing roads and trails shall be used whenever possible.
(iv) upon the expiration of this Restated Agreement with respect
to any portion of the Subject Property upon which operations have been
conducted hereunder, such property shall be promptly restored and
reclaimed by Royal to its original condition and all holes and other
openings made thereon by Royal shall be safely plugged or filled
as required by law and in a manner reasonably satisfactory to UPR.
(b) Subject to Royal's obligation to obtain necessary consents of
surface estate owners and to fully comply with the regulations contained in
Section 11(a) of this Restated Agreement, Royal shall have, during the
term of this Agreement, free and unrestricted access to the Subject
Property, and shall have the right to explore, sample and test the Subject
Property, to extract and remove from the Subject Property, without royalty
or other compensation to UPR, such ore as may be mined in the course of
prospecting operations and such ore as Royal may require for bulk
sampling and testing; and to construct, use and maintain on the Subject
Property such roads, machinery, equipment, personal property, fixtures
and improvements as may be reasonably necessary for the conduct of
Royal's exploration operations. Royal shall have no right to conduct
commercial mining operations on the Subject Property or sell or remove
ores, minerals, or other products from the Subject Property prior to
exercising the Option to Lease granted in Section 8.
(c) Royal shall conduct all operations on the Subject Property in a
good and workmanlike manner and in accordance with the highest contemporary
mining industry standards and practices. All such operations shall be
conducted at the expense of Royal. All decisions with respect to
exploration of the Subject Property, including all decisions regarding the
commencement, suspension, resumption or termination of any operations,
shall be made by Royal in its sole discretion.
(d) Royal shall comply fully with all applicable local, state and
federal laws, regulations and ordinances governing its operations hereunder,
including all laws, regulations and ordinances regarding reclamation of the
Subject Property. If this Restated Agreement is inconsistent with or
contrary to any law, regulation or ordinance, the law, regulation or ordinance
shall control and this Restated Agreement shall be deemed to be modified
accordingly. If, as a result of Royal's operations or use of the Subject
Property hereunder, any law, ordinance, rule, regulation or requirement is
violated, Royal shall protect, save harmless, defend and indemnify UPR
and all of its affiliates and their respective officers, agents and employees
from and against any penalties, fines, costs, expenses or other impositions
of any kind or character whatsoever, including attorney's fees and court
costs, imposed upon or incurred by UPR or its affiliates or their respective
officers, agents and employees, caused by, resulting from, or connected
with such violation or violations.
(e) Royal shall indemnify, exonerate, save and hold harmless UPR and its
affiliates from and against any and all claims, demands, suits, judgments,
or recoveries of or by third parties including, but without limitation, the
agents, servants, employees, contractors and invitees of the parties hereto
for or on account of injury to or death of such third parties, or damage to
the property of such third parties caused by Royal in the conduct of any
activity in connection with Royal's exercise of any of the rights herein
granted.
(f) Royal assumes all risk of loss, damage, or destruction of or to
buildings or contents on the Subject Property and of or to other property
brought thereon by Royal or by any other person with the consent of Royal and
of or to property of Royal in proximity to the Subject Property and used in
connection with or incidental to the occupation thereof, and any incidental
loss or injury to the business of Royal unless such loss, damage,
destruction or injury is caused by the negligence of UPR or its affiliates,
in which event UPR shall be liable for the portion of such damage caused by
its negligence.
(g) Except as otherwise provided herein Royal shall not cause or permit
any Hazardous Material to be brought upon, generated, treated, leaked,
emitted, discharged, disposed, stored, or otherwise kept or used in, on or
about the Subject Property by Royal, its agents, employees, contractors or
invitees. The prohibition in the foregoing sentence shall not apply to any
of the foregoing actions allowed under permits or licenses issued to Royal
and/or allowed by law (whether statute, regulation, rule or ordinance) and
deemed by Royal to be necessary or useful in Royal's operation, but only
during the term of this Agreement. As used herein, the term "Hazardous
Material" means (a) any "hazardous waste" as defined by the Solid Waste
Disposal Act (as amended by the Resource Conservation and Recovery
Act of 1976), as amended from time to time ("RCRA"), and regulations
promulgated thereunder; (b) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended from time to time ("CERCLA"), and regulations
promulgated thereunder; (c) any oil, petroleum products, and their by-
products; and (d) any hazardous substance, toxic substance, toxic
pollutant, or any substance whose release, disposal, generation, storage or
emission is during the term hereof regulated by the United States
government, or any State or any subdivision thereof where the Subject
Property is located.
Royal hereby agrees that it shall be fully liable for all costs and
expenses related to the use or storage of Hazardous Material kept on the
Subject Property by Royal and the disposal thereof by Royal subject to notice
from UPR to Royal of a Claim given as soon as reasonably practical following
UPR's notice and/or receipt thereof, and subject to Royal's right at its sole
discretion to handle, resolve and/or otherwise consider settlement of any
such Claim, as to actions taken by Royal on the Subject Property during
the term hereof.
Royal shall protect, defend, indemnify and hold harmless UPR and its
affiliates from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses (including, without
limitation, attorneys' and consultants' fees; remedial, removal or response
costs; court costs; costs incurred in connection with injunctive relief
sought on behalf of any governmental authority or private party; and
litigation expenses of whatever kind or nature), known or unknown,
contingent or otherwise arising out of or related to (a) the presence,
disposal, release or threatened release (it being understood that this
Restated Agreement prohibits disposal or unauthorized release) of any
Hazardous Material kept on the Subject Property by Royal (individually
and collectively "Claims") that is on, from or in the Subject Property or
the soil, water, vegetation, buildings, personal property, person or animals;
(b) any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to Hazardous Material of Royal
that is on, from or in the Subject Property; (c) any lawsuit brought or
threatened, settlement reached by Royal, or government order relating to
Hazardous Material of Royal that is on, from or in the Subject Property; or
(d) any violation of any laws regulating Hazardous Material as defined
above. The provisions of this Section shall be in addition to any other
obligations and liabilities Royal may have to UPR at law or in equity and
shall survive the transactions contemplated herein and shall survive the
termination of this Restated Agreement.
(h) Royal shall not permit any liens of any kind or nature to be
enforced against the Subject Property for any work done or machinery,
equipment, materials, or supplies furnished thereon, or in connection with
exploration operations thereon, at the instance or request or on behalf of
Royal; and Royal agrees to indemnify and hold harmless UPR and its affiliates
and the owners of the surface estate of the Subject Property from and against
any and all liens, claims, demands, costs, and expenses of whatsoever
nature in any way connected with or growing out of such work done, labor
performed, or machinery, equipment, materials or supplies furnished at the
instance or request or on behalf of Royal.
(i) Royal shall comply with all applicable Federal enactments and those
of the various States in which the Subject Property is located regarding
Employer's Liability, Worker's Compensation and Worker's Insurance,
and Royal shall indemnify and hold harmless UPR and its affiliates from
and against the payment of any and all damages, claims, costs, and
expenses due to the existence of such enactments and of any and all
claims, costs and expenses in connection therewith under any claim of
subrogation provided for by said enactments or otherwise where any such
damages, claims, costs, and expenses arise or in any way grow out of the
operations of Royal hereunder.
(j) The exploration rights herein granted are expressly made subject to
all outstanding mineral and other leases, and any and all other outstanding
superior rights, including, but not limited to, rights-of-way for highways
and power and communication lines, and the right to renew or extend such
leases and other outstanding rights and the term or terms thereof.
(k) Royal shall, within thirty (30) days following the end of each
calendar quarter during the term of this Restated Agreement, furnish UPR
copies of all data and information generated during such quarter as a result
of Royal's exploration operations on the Subject Property and other lands
within any Area of Interest. The data and information to be furnished
UPR shall include interpretative and non-interpretative data and
information. Data and information to be furnished shall include all
geological, geophysical, geochemical hydrological and metallurgical data,
all engineering data, all maps, drill hole locations and logs, all drill hole
cuttings, cores, samples and any assay or other similar data. UPR shall
keep all such information confidential during the term of this Agreement
and during the term of any Lease issued pursuant to the terms hereof
covering the lands and interest to which such data relates, subject to the
provisions of Section 16 hereof. Royal shall also furnish UPR, within
thirty (30) days following the end of each calendar quarter during the term
of this Agreement, a written report that includes a statement of the work
performed hereunder during such quarter and a summary of the results of
such work.
(l) Royal shall maintain liability coverage for its operations hereunder,
with respect to all such risks, and in such amounts of coverage, as are deemed
prudent under accepted industry standards and acceptable to UPR.
12. Liability. All reclamation and other liabilities incurred by Royal or
its assignees under this Restated Agreement or as a consequence of
exploration operations conducted hereunder and all covenants,
indemnifications and other liabilities of Royal and its assignees hereunder
shall survive and be unaffected by the termination of this Restated
Agreement, and shall be enforceable until the expiration of all applicable
statutes of limitation including extensions and tolling thereof.
13. Dispute Resolution; Arbitration.
(a) Agreement to Arbitrate. Should any controversy arise between UPR
and Royal to which UPR and Royal are unable to effect a satisfactory
resolution, it shall be submitted to arbitration in accordance with the terms
and provisions of this Section 13 and in accordance with the rules of the
"Colorado Uniform Arbitration Act" (the "Arbitration Act"). The
provisions of the Arbitration Act, as from time to time amended and in
effect, will be followed, except as herein otherwise provided. During any
such arbitration procedure, this Restated Agreement shall remain in full
force and effect.
(b) Submission to Arbitration and Selection Arbitrators. A party to
this Restated Agreement desiring to submit to arbitration any such
controversy shall furnish its demand for arbitration in writing to the other
party, which demand shall contain a brief statement of the matter in
controversy, the amount involved, if any, the remedies sought and shall name
one (1) arbitrator. Within a period of five (5) days after service of such
demand the other party shall name one (1) arbitrator by written notice to the
other party. Within ten (10) days after such notice, the two (2) arbitrators
shall choose one (1) additional impartial arbitrator. If a party fails to
name an arbitrator within the specified five (5) day period or if the two (2)
arbitrators chosen by the parties fail to select with the ten (10) day period
one (1) additional arbitrator, then either party, on behalf of and on notice
to the other party, may request appointment of such arbitrator in
accordance with the Arbitration Act so that there will be a panel of three
(3) arbitrators. Each of the arbitrators chosen or appointed pursuant to this
Section 13 shall be a person having at least ten (10) years experience in the
United States in a calling related to the subject matter involved in the
dispute and shall not be a past or present officer, director or employee of
any of the parties or their affiliates.
(c) Arbitration Procedure. Each party shall furnish the arbitrator or
arbitrators with a brief written statement of matters it deems to be in
controversy for purpose of the arbitration procedures and a proposed decision
to be entered by the arbitrators. The arbitrators shall have the right to
retain and consult experts and competent authorities skilled in the matters
under arbitration. The arbitrators shall render their decision and award,
upon the concurrence of at least two (2) of their number, as soon as possible
but no later than thirty (30) days after the conclusion of hearings before
such arbitrators. Such decision and award shall be in writing and counterpart
copies thereof shall be delivered to each of the parties. In rendering such
decision and award, the arbitrators shall choose one of the decisions
proposed by the parties and shall not add to, subtract from, or otherwise
modify the decision so proposed. Each party agrees that judgment may be
had on the decision and award of the arbitrators so rendered and may be
enforced in accordance with the laws of the State of Colorado.
(d) Successor Arbitrators. Notwithstanding the above, in the event any
arbitrator appointed by a party dies, refuses to act, or becomes incapable of
acting, then such party shall appoint a successor arbitrator within five (5)
days of said notice of disability. In the event such party fails to appoint
the required successor within such time, any other party may apply, on
notice to the other parties, to the court as provided in the Arbitration Act
for the appointment of such necessary arbitrator.
(e) Cost of Arbitration. Each party shall bear the expense of the
arbitrator appointed by or for such party, its own counsel, experts and
presentation of proof. The parties shall share equally the expense of the
additional arbitrators and all other expenses of the arbitrations.
(f) (i) The right of UPR to exercise its sole judgment and discretion
in consenting to proposed assignments and accepting proposed lessees,
pursuant to Section 7 and Section 8, respectively, is absolute and no
exception taken by Royal to any such exercise by UPR of its sole discretion
shall be assumed to create a dispute to be resolved by arbitration pursuant to
this Section 13.
(ii) The right of Royal to exercise its discretion regarding
exploratory operations and decisions is not a matter that is subject to
arbitration.
14. Termination. If Royal fails to comply with any provision of this
Restated Agreement UPR shall have the right to terminate this Restated
Agreement upon thirty (30) days notice to Royal of its intention to do so.
Upon the expiration of the thirty (30) day period all rights of Royal under
this Restated Agreement shall terminate; provided that the obligations and
liabilities of Royal shall survive such termination as provided in Section
11(g) and Section 12 hereof.
15. Notices.
(a) Any notice or delivery of information hereunder by UPR to Royal
shall be given in writing, by personal delivery or by certified mail, return
receipt requested, and such writing shall be addressed to:
Royal Gold, Inc.
Suite 1000
1660 Wynkoop Street
Denver, Colorado 80202-1132
Attention: Stanley Dempsey, Chairman
Telephone: 303/573-1660
Facsimile: 303/595-9385
Royal may, from time to time, designate in writing, pursuant to this
Section 15, such other address or addresses to which notices should be
directed to Royal hereunder.
(b) Any notice or delivery of information hereunder by Royal to UPR
shall be given in writing, by personal delivery or by certified mail, return
receipt requested, and such writing shall be addressed to:
Union Pacific Resources Group Inc.
Post Office Box 7, M.S. 2905
801 Cherry Street
Fort Worth, Texas 76101-0007
Attention: Manager, Land and Industrial Minerals
Telephone: 817/877-6738
Facsimile: 817/877-7260
UPR may, from time to time, designate in writing, pursuant to this
Section 15, such other address or addresses to which notices should be
directed to UPR hereunder.
(c) Payments of monies to UPR shall be by personal delivery, or by first
class mail, postage prepaid, and shall be addressed to UPR in accordance with
its then-current instruction for notices pursuant to this Section 15.
(d) Except as otherwise provided herein, service of notice or delivery
of information hereunder shall be effective and complete upon personal
delivery, or upon the deposit thereof in the United States mail as certified
mail, return receipt requested, and with postage prepaid and addressed as
aforesaid.
16. Public Announcements; Confidentiality.
(a) Neither party hereto shall issue any press release or make any other
public announcement concerning the execution and existence of this Restated
Agreement, the activities and operations of either party conducted
pursuant to this Restated Agreement, the results of such activities and
operations or any other matter relating to this Restated Agreement without
the prior review and approval of the other party being first had and
obtained. A party shall respond to any request from the other party to
review and approve a proposed public announcement in a timely manner
consistent with the disclosure requirements of any stock exchange or
regulatory agency having jurisdiction.
(b) Both parties agree that they shall not, without the prior written
consent and approval of the other party, disclose to any third party any
information or data regarding the Subject Property which is not generally
available to the public; provided, however, that upon such prior written notice
to the nondisclosing party as is reasonable under the then-applicable
circumstances, setting forth the nature and content of a proposed
disclosure, either party may disclose information or data pertaining to the
Subject Property: (a) to any regulatory agency or stock exchange, if such
disclosure is required for compliance with applicable laws, rules,
regulations or orders of such agency or stock exchange; (b) to any third
party to whom the disclosing party, in good faith, anticipates selling or
assigning all or part of its interest hereunder; or (c) to a prospective
lender to whom an interest in payments to be made to the disclosing party
hereunder has been or may be granted as security; provided, however, in
either of the latter two instances, that the nondisclosing party shall have
been provided with a confidentiality agreement executed by such third
party or lender, which agreement shall include the confidentiality
provisions of this Section 16.
17. Captions. The captions used in this Restated Agreement are inserted for
convenience only, and shall not be considered to be a part of this Restated
Agreement, and shall not be used in its interpretation.
[Signatures appear on next page following.]
IN WITNESS WHEREOF, the parties have executed this Restated Agreement
effective as of the date first set forth above.
Attest: UPR:
UNION PACIFIC RESOURCES GROUP INC.
/S/ /S/
_____________________________ By: ____________________________
Assistant Secretary Richard Eales
Executive Vice President
Attest: ROYAL:
ROYAL GOLD, INC.
/S/ /S/
_____________________________ By: ____________________________
Karen P. Gross, Secretary Stanley Dempsey,
Chairman and Chief Executive Officer
STATE OF TEXAS )
) ss.
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me by
Richard Eales as Executive Vice President of UNION PACIFIC RESOURCES GROUP
INC., a Utah corporation, this 28th day of August, 1997.
WITNESS my hand and official seal.
/S/
______________________________
Notary Public
My commission expires: April 20, 2000
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me by Stanley Dempsey, as
Chairman of ROYAL GOLD, INC., a Delaware corporation, this 22nd day of
August, 1997.
WITNESS my hand and official seal.
/S/
______________________________
Karen P. Gross
Notary Public
My commission expires: July 2, 1999
