UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
Quarterly Period Ended September 30, 2000
--------------------------
Commission File No. 0-5664
ROYAL GOLD, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation or Organization)
84-0835164
--------------------------------
(Employer Identification Number)
1660 WYNKOOP STREET, SUITE 1000, DENVER, COLORADO
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(Address of Principal Executive Offices)
80202-1132
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(Zip Code)
(303) 573-1660
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(Registrant's Telephone Number, including Area Code)
NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding At
Class of Common Stock November 9, 2000
--------------------- -----------------
$.01 PAR VALUE 17,751,596 SHARES
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets ................... 3-4
Consolidated Statements of Operations ......... 5
Consolidated Statements of Cash Flows ......... 6
Notes to Consolidated Financial
Statements ..................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................ 13
SIGNATURES .................................................. 14
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 future revenues, reserves, planned levels of
exploration and other expenditures, and plans to rely more on acquisitions than
exploration. Factors that could cause actual results to differ materially
include, among others, unanticipated grade, geological, metallurgical,
processing or other problems, changes in project parameters as plans continue to
be refined, the timing of receipt of governmental permits, results of current or
planned exploration activities, the availability of acquisitions, and 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. Readers should also refer to the risks sections of the Company's
Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
-----------------------------------------
September 30, June 30,
2000 2000
-----------------------------------------
Current Assets
Cash and equivalents $ 4,522,070 $ 4,647,160
Royalty receivables 1,425,445 1,761,266
Prepaid expenses and other 285,798 235,990
Available for sale securities 890,586 920,273
----------- -----------
Total current assets 7,123,899 7,564,689
----------- -----------
Property and equipment, at cost, net 9,146,656 9,337,746
Other Assets 499,577 595,147
----------- -----------
Total Assets $ 16,770,132 $ 17,497,582
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------
September 30, June 30,
2000 2000
-----------------------------------------
Current Liabilities
Accounts payable $ 250,998 $ 713,580
Dividend payable 0 885,004
Accrued compensation 226,842 212,370
Other 58,275 61,292
------------ -----------
Total current liabilities 536,115 1,872,246
Other liabilities 125,230 124,697
Commitments and contingencies (note 5)
Stockholders' equity
Common stock, $.01 par value,
authorized 40,000,000 shares;
and issued 17,980,822 and 17,910,822
shares, respectively 179,808 179,108
Additional paid-in capital 55,854,330 55,846,280
Accumulated other comprehensive income (429,901) (400,215)
Accumulated deficit (38,451,820) (39,080,904)
------------ -----------
17,152,417 16,544,269
Less treasury stock, at cost
(210,726 shares) (1,043,630) (1,043,630)
----------- -----------
Total stockholders' equity 16,108,787 15,500,639
----------- -----------
Total liabilities and stockholders' equity $ 16,770,132 $ 17,497,582
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
4
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
------------------------------------
2000 1999
------------------------------------
Royalty revenues $ 1,537,944 $ 2,022,882
Interest and other income 61,789 86,087
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Total revenues 1,599,733 2,108,969
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Costs and expenses
Costs of operations 209,827 153,453
General and administrative 385,835 376,977
Exploration and lease maintenance
and holding costs 133,658 481,157
Depreciation and depletion 228,491 212,234
----------- -----------
Total costs and expenses 957,811 1,223,821
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Operating income 641,922 885,148
Interest and other expense 0 15,103
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Income before income taxes 641,922 872,751
Income tax expense 12,838 17,455
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Net earnings $ 629,084 $ 855,296
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Adjustments to comprehensive income
Unrealized loss on available for sale
securities (29,687) 0
----------- -----------
Comprehensive income $ 599,397 $ 855,296
=========== ===========
Basic earnings per share $ 0.04 $ 0.05
Basic weighted average shares outstanding 17,740,422 17,222,922
Diluted earnings $ 0.04 $ 0.05
Diluted weighted average shares outstanding 17,872,443 17,532,246
The accompanying notes are an integral part of
these consolidated financial statements.
5
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
September 30,
------------------------------------
2000 1999
------------------------------------
Cash flows from operating activities
Net earnings $ 629,084 $ 855,296
----------- -----------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and depletion 228,491 212,234
Other 90,550 (1,353)
(Increase) decrease in:
Royalty receivables 335,821 (1,338,386)
Prepaid expense and other (49,808) (2,297)
Increase (decrease) in:
Accounts payable and accrued liabilities (451,126) 65,160
Other liabilities 533 (6,601)
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Total adjustments 154,461 (1,071,243)
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Net cash provided by (used in) operating
activities 783,545 (215,947)
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Cash flows from investing activities
Capital expenditures for property and
equipment (37,401) (8,107,020)
Maturity of held-to-maturity securities, net 0 1,000,000
Purchase of available for sale securities
Increase in other assets 5,020 10,000
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Net cash provided by (used in) investing
activities (32,381) (7,097,020)
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Cash flows from financing activities
Proceeds from issuance of common stock 8,750 1,813,751
Dividend payment (885,004) 0
Proceeds from issuance of debt 0 2,000,000
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Net cash provided by (used in) financing
activities (876,254) 3,813,751
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Net increase (decrease) in cash and
equivalents (125,090) (3,499,216)
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Cash and equivalents at beginning of period 4,647,160 4,670,476
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Cash and equivalents at end of period $ 4,522,070 $ 1,171,260
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
6
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
---------------------------
For a more complete understanding of the business and operations of Royal Gold,
Inc., please refer to the Report on Form 10-K of Royal Gold, Inc. for the annual
period ended June 30, 2000.
1. PROPERTY AND EQUIPMENT
The carrying value of the Company's property and equipment consists of
the following components at September 30, 2000:
Accumulated
Depreciation
Gross & Depletion Net
----------- ------------ -----------
Royalties
GSR1 $ - $ - $ -
GSR2 - - -
GSR3 8,105,020 1,012,627 7,092,393
Bald Mountain 2,468,762 882,982 1,585,780
Mule Canyon 180,714 - 180,714
Yamana Resources, Inc. 172,809 - 172,809
----------- ----------- -----------
Total royalties 10,927,305 1,895,609 9,031,696
Office furniture, equipment
and improvements 811,308 696,348 114,960
----------- ----------- -----------
$ 11,738,613 $ 2,591,957 $ 9,146,656
=========== =========== ===========
Presented below is a discussion of the status of the Company's current
precious metals royalties.
A. Pipeline Mining Complex
-----------------------
The Company holds two sliding scale gross smelter returns royalties
(GSR1 and GSR2) and a fixed gross royalty (GSR3) over the Pipeline
Mining Complex, which includes the Pipeline and South Pipeline gold
deposits in Lander County, Nevada.
The Pipeline Mining Complex is owned by The Cortez Joint Venture, a
joint venture between Placer Cortez, Inc. (60%), a subsidiary of
Placer Dome Inc., and Kennecott Explorations (Australia) Ltd. (40%),
a subsidiary of Rio Tinto.
B. Bald Mountain
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Effective January 1, 1998, the Company purchased a 50% undivided
interest in a sliding-scale net smelter returns royalty that burdens
a portion of the Bald Mountain mine, in White Pine County, Nevada.
7
Bald Mountain is an open pit, heap leach mine operated by Placer Dome
U.S. Inc.
C. Mule Canyon
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In fiscal 1999, the Company purchased a 5% NSR royalty on a portion
of the Mule Canyon mine, operated by Newmont Gold Company and located
in Lander County, Nevada.
D. Yamana Resources
----------------
In fiscal 2000, the Company purchased a 2% NSR royalty on Yamana
Resources' properties in Argentina.
2. AVAILABLE FOR SALE SECURITIES
During fiscal 2000, the Company acquired three million units of the
securities of Yamana Resources, Inc. for $1,293,480. Each unit consists
of one share and one-half warrant to purchase an additional share for
Cdn $0.50 per share, until February 2003. The Company had an unrealized
loss of $429,901 on these securities at September 30, 2000. The
unrealized loss for the three months ended September 30, 2000 was
$29,687.
3. EARNINGS PER SHARE COMPUTATION
For the three months ended September 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Earnings to
common stockholders $ 629,084 17,740,422 $ 0.04
Effect of dilutive
securities
Options - 132,021 -
----------- ----------- --------
DILUTED EPS $ 629,084 17,872,443 $ 0.04
=========== =========== ========
At September 30, 2000, options to purchase 1,000,532 shares of common
stock were outstanding, at an average price of $5.66 per share, but were
not included in the computation of diluted EPS because the exercise
price of these options was greater than the average market price of the
common shares.
8
For the three months ended September 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ----------- --------
BASIC EPS
Earnings to
common stockholders $ 855,296 17,222,922 $ 0.05
----------- ----------- --------
Effect of dilutive
securities
Options - 309,324 -
----------- ----------- --------
DILUTED EPS $ 855,296 17,532,246 $ 0.05
=========== =========== ========
At September 30, 1999, options to purchase 693,498 shares of common
stock were outstanding, at an average price of $6.35 per share, but were
not included in the computation of diluted EPS because the exercise
price of these options was greater than the average market price of the
common shares.
4. FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issues
Statement of Financial Accounting Standards No. 133, Accounting for
Derivatives and Hedging Activities ("SFAS 133"). SFAS 133, as amended
by SFAS 137 and SFAS 138, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (July 1, 2000 for the
Company), and establishes accounting and reporting standards for
derivative instruments and hedging activities. The Company has been
engaged in limited trading activities utilizing puts. In the near term,
the Company will continue to mark its open positions to market and
record the difference in the carrying value to current earnings. During
the first three months of fiscal 2001, the Company recorded mark to
market losses of approximately $90,000 in operations related to these
puts.
5. COMMITMENTS AND CONTINGENCIES
Casmalia
--------
The Company received notice, on March 24, 2000, that the U.S.
Environmental Protection Agency ("EPA") has identified Royal
Resources, Inc. (Royal Gold's corporate predecessor) as one of
22,000 potentially responsible parties ("PRPs"), along with many oil
companies, for clean-up of a fully-permitted hazardous waste
landfill at Casmalia, Santa Barbara County, California, under the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("Superfund"). The Company's alleged PRP status
9
stems from oil and gas exploration activities undertaken by Royal
Resources in California during 1983-84.
By letter dated June 14, 2000, the Company has provided the EPA
certain exculpatory information. The EPA has not yet responded.
6. GENERAL
The unaudited financial statements as of September 30, 2000 and for the
three months ended September 30, 2000 and 1999, reflect all adjustments,
consisting solely of normal recurring items, which are necessary for the
fair presentation of financial position, results of operations, and cash
flows on a basis consistent with that of the prior audited consolidated
financial statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, it is
suggested that these financial statements be read in connection with the
audited financial statements and the notes included in the Company's
Annual Report on Form 10-K as of June 30, 2000.
Royal Gold is engaged in the acquisition of precious metals royalties
and in the exploration and development of precious metals properties.
The Company seeks to acquire existing royalties or to finance projects
that are in production or near production in exchange for royalty
interests. The Company also explores and develops properties thought to
contain precious metals and seeks to obtain royalty and other carried
ownership interests in other mining companies. Substantially all of the
Company's revenues are and can be expected to be derived from royalty
interests, rather than from mining operations conducted by the Company.
10
ROYAL GOLD, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a working capital surplus of
$6,587,784. Current assets were $7,123,899, compared to current
liabilities of $536,115, for a current ratio of 13 to 1. This compares to
current assets of $7,564,689, and current liabilities of $1,872,246, at
June 30, 2000, resulting in a current ratio of 4 to 1.
The Company's liquidity needs are generally being met from its available
cash resources, royalty revenues and interest income. During the first
three months of fiscal 2001, the Company received $1,452,556 from its
royalty interests at the Pipeline Mining Complex, and $85,388 from its
royalty interest at Bald Mountain. The Company also earned $61,789 in
interest income on its cash and marketable securities portfolio during the
three month period.
Management believes its cash resources will be adequate to fund planned
operations for the foreseeable future. For fiscal 2001, the Company
anticipates royalty revenues of $8.4 million, at a $275 gold price, based
on production estimates by Cortez of 1,000,000 ounces of gold at the
Pipeline Mining Complex during calendar year 2000. Depletion and
depreciation from this production is estimated to be $1.7 million. The
Company has also budgeted general and administrative expenses of
approximately $1.7 million, cost of operations of approximately $0.6
million and exploration and property holding costs of approximately $0.8
million. The Company estimates interest income of $0.4 million and income
taxes of $0.1 million. These amounts could increase or decrease
significantly, at any time during the fiscal year, based on actual
production levels achieved by Cortez, the gold price, and decisions about
releasing or acquiring additional properties, among other factors. The
Company will evaluate acquisition opportunities and may use cash or stock
for these acquisitions. Acquisitions have become a more important part of
the Company's growth strategy and could be substantial, while exploration
is becoming less important.
RESULTS OF OPERATIONS
For the quarter ended September 30, 2000, compared to the quarter ended
-----------------------------------------------------------------------
September 30, 1999
------------------
For the quarter ended September 30, 2000, the Company reported net
earnings of $629,084 or $0.04 per basic share, as compared to net earnings
11
of $855,296, or $0.05 per basic share, for the quarter ended September 30,
1999.
Royalty revenues for the current quarter decreased to $1,537,944, compared
to $2,022,882 for the quarter ended September 30, 1999. The decrease in
royalty revenues is attributable to lower grades of processed ore which
resulted in lower production from the Pipeline mine and no royalties from
the Company's 10% GSR royalty which has been exhausted. (The 10% GSR
provided approximately $600,000 in royalty revenues in the quarter ended
September 30, 1999.) These effects were offset by a higher realized gold
price during the current quarter and a higher rate on our GSR1 sliding-
scale royalty.
Costs of operations increased to $209,827 for the quarter ended September
30, 2000, compared to $153,453 for the quarter ended September 30, 1999,
primarily because of the mark to market of the gold hedging position.
General and administrative costs of $385,835 for the current quarter were
comparable with $376,977 for the quarter ended September 30, 1999.
Exploration and lease maintenance and holding costs of $133,658 for the
quarter ended September 30, 2000, decreased from $481,157 for the quarter
ended September 30, 1999, primarily because the Company has significantly
curtailed its exploration activity.
Depreciation, depletion, and amortization costs increased from $212,234
to $228,491 for the quarter ended September 30, 2000, primarily relating
to a full quarter of depletion relating to the Company's GSR3 interest at
the Pipeline Mining Complex, partially offset by lower depletion rates on
GSR3 and the Bald Mountain royalty.
Interest income decreased from $86,087 for the quarter ended September 30,
1999, to $61,789 for the quarter September 30, 2000, primarily due to
decreased funds available for investing.
For a more complete understanding of the business and operations of Royal
Gold, Inc., please refer to the Report on Form 10-K of Royal Gold, Inc.
for the annual period ended June 30, 2000.
12
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROYAL GOLD, INC.
(Registrant)
Date: November 13, 2000 By: /s/ Stanley Dempsey
---------------------------
Stanley Dempsey
Chairman of the Board and
Chief Executive Officer
Date: November 13, 2000 By: /s/ John Skadow
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John Skadow
Controller and Treasurer
14
