Item 3. LEGAL PROCEEDINGS
Goldstripe Project - ------------------ 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 $250,000 of the $341,000 has been spent to date. The Company also believes, based on such communications, 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 otherwise. See "BUSINESS AND PROPERTIES - GOLDSTRIPE."
In August 1993, in May 1994, and again in May 1995, the Forest Service advised the Company that its reclamation activities were substantially completed (except for revegetation) and that the Forest Service believed that such activities should satisfy all outstanding permit requirements for reclamation, except for 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.
Item 4.
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, 1995. Annual meeting results will be described in Item 4 to the Company's report filed on Form 10-Q, for the quarter ended December 31, 1995.
PART II ------- Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over the counter market by 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, 1993. Sales Prices ------------------ High Low Fiscal Year Closing Closing ------- ------- 1994: First Quarter (July, Aug., Sept. - 1993) $ 4 1/2 $ 3 5/8 Second Quarter (Oct., Nov., Dec. - 1993) $ 8 5/8 $ 3 5/8 Third Quarter (Jan., Feb., March - 1994) $ 9 1/8 $ 7 5/8 Fourth Quarter (April, May, June - 1994) $ 9 1/8 $ 7 5/8
Sales Prices ------------------ High Low ------- ------- 1995: First Quarter (July, Aug., Sept. - 1994) $ 9 1/8 $ 7 1/4 Second Quarter (Oct., Nov., Dec. - 1994) $ 8 1/4 $ 7 1/2 Third Quarter (Jan., Feb., March - 1995) $ 8 1/4 $ 5 5/8 Fourth Quarter (April, May, June - 1995) $ 8 1/4 $ 6 1/2
As of August 31, 1995 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.
Item 6. SELECTED FINANCIAL DATA
For the Year Ended June 30, ---------------------------------------------- Selected Statement of 1995 1994 1993 1992 1991 ------ ------ ------ ------ ----- Operations Data (Amounts in thousands, except per share data) - --------------- --------------------------------------------- Bullion sales $ - $ - $ - $ - $ 213 Royalty income 470 153 150 - - Exploration expense 1,485 686 151 111 36 General and administrative expense 1,015 753 582 682 941 Net loss (2,025) (1,452) (618) (638) (8,940) Net income (loss) per share $ (.14) $ (.11) $ (.06) $ (.07) $ (1.00)
As of June 30, ---------------------------------------------- 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Selected Balance Sheet Data (Amounts in thousands) - --------------------------- ---------------------------------------------- Total assets $ 10,273 $ 8,183 $ 2,727 $ 1,877 $2,609 Working capital (deficit) 8,723 6,884 1,229 (272) (236) Long-term obligations 117 131 193 453 406
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - ------------------------------- On June 30, 1995, the Company had current assets of $8,941,000 compared to current liabilities of $218,000 for a current ratio of 41 to 1. This compares to current assets of $7,122,000 and current liabilities of $238,000, at June 30, 1994, resulting in a current ratio of 30 to 1. The Company's current assets include approximately $5,012,000 of marketable securities that consist of U.S. treasury securities with maturities of 15 months or less. The Company's initial cost of these marketable securities was $4,983,125.
During fiscal 1995, liquidity needs were met from: (i) a private placement of the Company's common stock which raised net proceeds of $3.8 million, (ii) revenue from the commencement of production at the Crescent Pit, (iii) the Company's available cash resources and interest income of $369,961, (iv) cash payments of $175,000 received from advance royalties and property payments, and (v)
earnings of $55,000 from financial and environmental consulting services. The Company's operating activities utilized approximately $2,300,000 of cash during the fiscal year ended June 30, 1995.
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 $200,000 to be spent on exploration during the period July 1, 1995 through December 31, 1995; (ii) employment agreements with four officers, calling for minimum payments of approximately $268,000 for through January 1996; and (iii) office lease payments of $549,535 through the lease period ending October 1999. The Union Pacific Agreement provides that the Company can extend the agreement for two additional terms of 24 and 12 months upon making additional exploration commitments of $600,000 and $1,000,000, respectively. (If the Company exercises its rights to extend, total exploration expenditures under the agreement are estimated to be $2,100,000 over the full 55-month term.)
The Company anticipates total expenditures for fiscal 1996 for general and administrative expenses to be approximately $1,000,000 and expenditures for exploration and property holding costs to be approximately $1,650,000 (including amounts spent under the Union Pacific Agreement). Exploration and holding cost expenditures include $700,000 for Long Valley, $280,000 for Buckhorn South, $200,000 for the Union Pacific project, and $400,000 for generative exploration. On a prospective basis, these amounts could increase or decrease significantly, based on exploration results and decisions about releasing or acquiring additional properties, among other factors.
Gold production commenced at the Crescent Pit in September 1994. Payback of Cortez's pre-production costs occurred in June 1995. During the first quarter of fiscal 1996, the Company will receive its full 20% net profits interest for the remainder of production at the Crescent Pit.
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.
It is anticipated that the Company will receive proceeds of $2,867,000 from the exercise of outstanding warrants that otherwise would expire in fiscal 1996. The exercise prices on these warrants range from $2.00 to $5.75. In September 1995, the Company received $1,150,000 of this amount relating to 200,000 shares at an exercise price of $5.75.
The Company's current financial resources and sources of income should be adequate to cover the Company's general and
administrative costs for at least the next fiscal year. The Company is greatly encouraged by the development work currently being carried out at South Pipeline, and by the commencement of gold production at the Crescent Pit. These events could lead to sustained gold production over the next several years, with the consequence that the Company's long-term liquidity needs would be supported by cash flow from the South Pipeline Project. Meanwhile, if increased general and administrative costs arise from new business in the financial and environmental consulting sectors, additional revenues would also be expected.
RESULTS OF OPERATIONS - --------------------- Fiscal Year Ended June 30, 1995 Compared with Fiscal Year Ended - --------------------------------------------------------------- June 30, 1994 - ------------- For the year ended June 30, 1995, the Company recorded a net loss of $2,025,000, or $.14 per share, as compared to a net loss of $1,452,000, or $.11 per share, for the year ended June 30, 1994. The net loss for the current period resulted mainly from exploration and ongoing administrative expense after receipt of $470,000 in royalty and other property payments.
Royalty income received from the Crescent Pit for the year included $183,000 in gold from the Company's net profits interest royalty, and $111,000 from the capped NSR royalty. During the current fiscal year, Cortez has also recouped $363,000 of the advance minimum royalties ("AMR") previously paid to the Company. At June 30, 1995, the current outstanding balance of minimum royalties to be recouped is $87,000.
Production at the Crescent Pit:
Crescent Pit (100%) Tons Grade Recovery (000) oz/tn Percent Ounces ----- ----- ------- ------- For the quarters ended:
12/31/94 94.4 .124 78.4 9,105
3/31/95 88.0 .156 84.4 11,591
6/30/95 95.1 .240 86.3 19,727
For the year ended:
6/30/95 277.5 .174 83.5 40,423
Royal Gold's Net Profits Interest Royalty at the Crescent Pit:
Net Royal's AMR Net received Profit Net Profits Payback by Royal ------ ----------- ------- ------------ For the quarters ended:
12/31/94 $582,270 $33,073 - $3,073
3/31/95 $2,281,823 $121,165 - $121,165
6/30/95 $5,693,916 $391,361 $362,527 $28,834(1)
For the year ended:
6/30/95 $8,558,009 $545,599 $362,527(2) $183,072(1)
(1) During the quarter ended June 30, 1995, Cortez received payback of its preproduction expenditures. The Company will receive its 20% full net profits interest for the remainder of the Crescent Pit production.
(2) $87,473 of advance minimum royalties remain to be recouped by Cortez.
Costs of operations increased over the prior year primarily due to the addition of an operations manager who is located at the Company's field office at the Cortez Gold Mines in Nevada, and increased engineering analysis of the resource identified at the South Pipeline Project.
Consulting revenues and costs of consulting revenues increased over the prior year primarily from one consulting arrangement.
General and administrative expenses of $1,015,000, for the year ended June 30, 1995, increased from those of $753,000, for the year ended June 30, 1994, as a result of increased employee compensation. General and administrative expenses consist primarily of employee compensation and benefits, office lease expense, office equipment expenses, travel and communication costs.
Exploration costs increased from $686,000 in fiscal 1994 to $1,485,000 in fiscal 1995 due to increased drilling related expenditures at the Long Valley and Buckhorn South properties, expenditures related to the exploration on Union Pacific grounds, and increased compensation for employees allocated to exploration.
Abandonments and impairments decreased to zero in fiscal 1995 versus $749,350 in fiscal 1994 because no capitalized properties were abandoned during the year.
Interest and other income was $386,000 in fiscal 1995, up from $143,000 in fiscal 1994, due primarily to increased funds available for investing from private placements of common stock. At June 30, 1995, the Company had a gain of $76,000 in its U.S. Treasury securities portfolio due to the decrease in short term interest rates.
Depreciation and amortization increased from $26,000 for fiscal 1994 to $102,000 for fiscal 1995, primarily due to the depletion associated with the Company's capped royalty at South Pipeline.
Fiscal Year Ended June 30, 1994 Compared with Fiscal Year Ended - --------------------------------------------------------------- June 30, 1993 - ------------- For the year ended June 30, 1994, the Company recorded a net loss of $1,452,000, or $.11 per share, as compared to a net loss of $618,000, or $.06 per share, for the year ended June 30, 1993. The net loss for the year ended June 30, 1994 resulted mainly from ongoing administrative expense after receipt of $155,000 in advance minimum royalty and other property payments. General and administrative costs of $753,000 for the fiscal year ended June 30, 1994.
Other costs and expenses included $164,000 in lease maintenance and holding costs in 1994 relating to 12,520 acres, up from $17,000 in 1993. Exploration costs increased from $151,000 for the year ended June 30, 1993, to $686,000 for the year ended June 30, 1994, due to the Company's renewed emphasis on exploration projects.
General and administrative expenses of $753,000 for the year ended June 30, 1994, increased from those of $582,000 for the year ended June 30, 1993, as a result of increased staffing and increased compensation. General and administrative expenses consist primarily of employee compensation and benefits, office lease expense, office equipment expenses, travel and communication costs.
Interest and other income was $143,000 in fiscal 1994, up from $34,000 in fiscal 1993, due primarily to increased funds available for investing from stock placements. In fiscal 1993, $48,000 was recognized for the gain on sale of investments in restricted common stock. At June 30, 1994, the Company had an unrealized loss of $47,000 in its U.S. Treasury securities portfolio.
Depreciation and amortization declined from $37,000 for fiscal 1993 to $26,000 for fiscal 1994, due to assets which became fully depreciated during fiscal 1993, and because of assets that were sold during fiscal 1993, which did not have a full year of depreciation expense associated with them.
During fiscal 1994 mining assets were written down by $749,350, primarily related to the abandonment of Goldstripe and other properties, versus none in fiscal 1993.
During fiscal 1994 the Company recognized a deferred tax asset of $750,000 associated with the proven reserve at Crescent Pit versus none in fiscal 1992.
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.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL GOLD, INC. AND SUBSIDIARIES
PAGE
REPORT OF INDEPENDENT AUDITORS 21
FINANCIAL STATEMENTS
Consolidated Balance Sheets 22 Consolidated Statements of Operations 24 Consolidated Statements of Stockholders' Equity 25 Consolidated Statements of Cash Flows 27 Notes to Consolidated Financial Statements 29
REPORT OF INDEPENDENT AUDITORS ------------------------------
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, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended June 30, 1995, 1994 and 1993. 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 audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years ended June 30, 1995, 1994 and 1993, in conformity with generally accepted accounting principles.
/s/ Williams, Richey & Co.
Denver, Colorado August 28, 1995
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of June 30, 1995 and 1994
ASSETS
1995 1994 -------- ------- Current Assets Cash and equivalents (including $2,234,000 and $905,000, respectively, subject to repurchase agreements) $ 3,424,094 $ 1,942,912 Marketable securities 5,011,570 4,897,626 Receivables Trade and other 171,994 113,666 Related party 35,690 77,038 Gold inventory 183,073 0 Prepaid expenses and other 89,907 65,849 Deferred income tax benefit 25,000 25,000 --------- --------- Total current assets 8,941,328 7,122,091
Property and equipment, at cost Mineral properties 554,588 279,588 Furniture, equipment and improvements 732,666 761,633 --------- --------- 1,287,254 1,041,221
Less accumulated depreciation and depletion (703,061) (717,914) --------- --------- Net property and equipment 584,193 323,307
Other Assets Restricted investments and other 22,767 12,767 Deferred income tax benefit 725,000 725,000 Total other assets 747,767 737,767 ---------- --------- Total Assets $10,273,288 $ 8,183,165 ========== =========
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued as of June 30, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994 ---------- ---------- Current Liabilities Accounts payable $ 145,050 $ 122,147 Current portion of note payable 27,866 55,733 Accrued liabilities Post retirement benefits 26,400 26,400 Other 19,161 33,866 ---------- --------- Total current liabilities 218,477 238,146
Note payable, net of current portion 0 27,867 Post-retirement benefit liabilities 116,949 103,349 Commitments and contingencies (Notes 2, 6 & 7)
Stockholders' equity Common stock, $.01 par value, authorized 30,000,000 shares; issued 14,492,962 and 13,835,712 shares, respectively 144,930 138,357 Additional paid-in capital 44,314,602 40,176,895 Accumulated deficit (34,441,697) (32,416,476) ---------- --------- 10,017,835 7,898,776
Less treasury stock, at cost (15,986 and 16,986 shares, respectively) (79,973) (84,973) --------- --------- Total stockholders' equity 9,937,862 7,813,803 ---------- --------- Total liabilities and stockholders' equity $10,273,288 $ 8,183,165 ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended June 30, 1995, 1994 and 1993
1995 1994 1993 -------- -------- -------- Royalty income $ 470,421 152,501 150,000 Consulting revenue 163,681 30,401 27,871
Costs and expenses Costs of operations 217,109 78,351 65,797 Direct costs of consulting 108,216 19,175 23,749 General and administrative 1,014,761 752,989 582,262 Exploration, net 1,484,599 685,556 150,667 Abandonments and impairments 0 749,350 0 Lease maintenance and holding costs 189,921 163,613 16,665 Depreciation and depletion 102,398 25,518 37,132 --------- --------- -------- Total costs and expenses 3,117,004 2,474,552 876,272
Operating loss (2,482,902) (2,291,650) (698,401)
Interest and other income 386,035 142,819 34,080 Gain (loss)on marketable securities 75,721 (47,276) 47,565 Interest and other expense (4,075) (5,431) (1,190) ---------- ---------- -------- Income (loss) before income taxes (2,025,221) (2,201,538) (617,946)
Income tax benefit 0 750,000 0 ---------- --------- -------- Net income (loss) $(2,025,221)$(1,451,538) $ (617,946) ========== ========== ========
Net loss per share $ (0.14) $ (0.11) $ (0.06)
Weighted average shares outstanding 14,265,462 12,952,062 11,157,126
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended June 30, 1995, 1994 and 1993
Additional Common Stock Paid-In Shares Amount Capital --------- ------- ---------- Balance, June 30, 1992 9,191,712 $91,917 $31,318,114
Issuance of common stock for: Exercise of options 210,220 2,102 30,113 Exercise of warrants 1,766,000 17,660 115,715 Private placement 1,008,000 10,080 1,789,120
Net loss for the year ended June 30, 1993 ---------- ------- ---------- Balance, June 30, 1993 12,175,932 121,759 33,253,062 ---------- ------- ---------- Issuance of common stock for: Exercise of options 133,780 1,338 302,728 Exercise of warrants 101,000 1,010 5,855 Private placement 1,425,000 14,250 6,610,750
Issuance of treasury shares for lease bonus payment 4,500
Net loss for the year ended June 30, 1994 ---------- ------- ---------- 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 ========== ======= ==========
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued for the years ended June 30, 1995, 1994 and 1993
Total Stock- Accumulated Treasury Stock holders' Deficit Shares Amount Equity ---------- ------ ------- ------- Balance, June 30, 1992 ($30,346,992) 24,186 ($120,973) $ 942,066
Issuance of common stock for: Exercise of options 32,215 Exercise of warrants 133,375 Private placement 1,799,200
Net loss for the year ended June 30, 1993 (617,946) (617,946) ---------- ------ ------- --------- Balance, June 30, 1993 (30,964,938) 24,186 (120,973) 2,288,910 ---------- ------ ------- --------- Issuance of common stock for: Exercise of options 304,066 Exercise of warrants 6,865 Private placement (6,000) 30,000 6,655,000
Issuance of treasury shares for lease bonus payment (1,200) 6,000 10,500
Net loss for the year ended June 30, 1994 (1,451,538) (1,451,538) ---------- ------ ------ --------- 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 ========== ====== ====== =========
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended June 30, 1995, 1994 and 1993
1995 1994 1993 --------- --------- --------- Cash flows from operating activities Net income (loss) ($2,025,221)($1,451,538) ($617,946) --------- --------- ------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and depletion 102,398 25,518 37,132 Unrealized (gain) loss on marketable securities (75,721) 47,276 (47,565) Abandonments and impairments 0 749,350 0 Increase in deferred tax assets 0 (750,000) 0 Issuance of common stock for services 0 30,000 0 Non cash exploration expense 8,875 10,500 0 (Increase) decrease in: Trade and other receivables (16,980) (170,128) 15,372 Marketable securities (38,224) (4,927,547) 0 Gold inventory (183,073) 0 0 Prepaid expenses and other (24,058) 12,083 (18,373) Restricted investments (10,000) 0 341,145 Deposits and other 0 0 (3,948) Increase (decrease) in: Accounts payable and accrued liabilities 8,198 69,004 (180,022) Deferred reclamation liability 0 0 (337,101) Post retirement and other long-term liabilities (42,134) (6,248) 20,152 -------- --------- ------- Total adjustments (270,719) (4,927,547) (173,208) Net cash provided by (used in) operating activities (2,295,940) (6,361,730) (791,154) --------- --------- -------
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS CASH FLOWS, Continued for the years ended June 30, 1995, 1994 and 1993
1995 1994 1993 -------- ------- --------- Cash flows from investing activities Proceeds from disposition of: Property and equipment 0 0 97,224 Mineral properties 0 2,499 0 Capital expenditures for property and equipment (363,283) (35,361) (5,734) (Increase) decrease in other assets 0 0 (3,539) Net cash provided by (used in) ------- ------ ------ investing activities (363,283) (32,862) 87,951 ------- ------ ------ Cash flows from financing activities Proceeds from issuance of common stock 4,140,405 6,935,931 1,964,790 Net cash provided by --------- --------- --------- financing activities 4,140,405 6,935,931 1,964,790 --------- --------- --------- Net increase (decrease) in cash and equivalents 1,481,182 523,984 1,261,587 --------- -------- --------- Cash and equivalents at beginning of year 1,942,912 1,418,928 157,341 --------- --------- --------- Cash and equivalents at end of year $3,424,094 $1,942,912 $1,418,928 ========= ========= =========
Supplemental disclosure of cash flow information: Interest paid in fiscal 1995, 1994 and 1993 was $10,685, $0, and $1,190, respectively.
Supplemental disclosure of non-cash activities:
In 1994, 6,000 shares of treasury stock valued at $30,000 were used as partial payment for commission on a stock placement.
In 1993, the Company tendered its note, in the principal amount of $83,650, to a former officer and director. This note reduced the current portion of post retirement benefits by a like amount. (See Note 4.)
The accompanying notes are an integral part of these consolidated financial statements.
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies --------------------------------------------------------- Operations:
Royal Gold, Inc. (the "Company" or "Royal"), was incorporated under the laws of the state of Delaware on January 5, 1981, and is engaged in the gold and other precious metals business, primarily through passive and joint ownership arrangements, and is also engaged in the acquisition, exploration, development, and sale of gold properties, 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:
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, 1995 the Company held $2,348,000 of U.S. government securities under an agreement to resell in July 1995. 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, 1995, cash equivalents included approximately $1,060,000 of temporary cash investments in an uninsured government securities money market fund.
Marketable securities:
Marketable securities are classified as trading and recorded at market value. At June 30, 1995 the Company held U.S. treasury securities in a principal amount of $5,000,000. The Company acquired these securities, with
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
maturities ranging from September 1995 to August 1996, at a cost of $4,983,125. At June 30, 1995, the market value of these securities was $5,011,570. Included in the statement of operations is the net change in unrealized gains and (losses) for the trading securities of $75,721 and $(47,246) for the years ended June 30, 1995 and 1994, respectively.
Gold Inventory:
The Company has elected to receive a portion of its royalty interests in the South Pipeline project on an "in-kind" basis. Gold inventory on the balance sheet consists of this refined gold bullion stored in safekeeping 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.
Mineral Properties:
Acquisition costs relating to mineral properties with a known resource are deferred until the properties are put into commercial production, sold or abandoned. Acquisition costs relating to properties without a known resource are charged to operations when incurred. 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 in production, the related deferred costs are depleted using the units-of-production method. Deferred costs applicable to sold or abandoned properties are charged against operations at the time of sale or abandonment of the property. On a quarterly basis, the Company evaluates the carrying value of deferred costs associated with all mineral properties to determine if the costs are in excess of their net realizable value and if an impairment provision needs to be recorded. 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.
Office Furniture, Equipment and Improvements:
The Company depreciates its office furniture, equipment and improvements over estimated useful lives of 3 to 15 years
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Reclamation Costs:
The Company records a liability for the estimated cost to reclaim mined land based upon burdening estimated production over the life of the mine with a proportional share of such cost. The accrued reclamation liability is reduced as reclamation expenditures are incurred. The majority of reclamation expenditures will be incurred upon permanent cessation of mining operations at the property involved.
Income Taxes:
Effective July 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for 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 benefits of net operating loss carryforwards, tax credits and other carryforwards. General business credits are accounted for by the flow- through method.
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 Loss Per Share:
Net loss per share is computed by dividing the net 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 antidilutive.
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Property and Equipment ---------------------- The net carrying value of the Company's property and equipment consists of the following components at June 30, 1995 and 1994:
1995 1994 -------- -------- Mineral Properties: South Pipeline- Net Profits Interest $ - $ - South Pipeline- Capped NSR Royalty 193,350 - Long Valley 159,478 159,478 Camp Bird 120,110 120,110 ------- ------- 472,938 279,588 Office furniture, equipment and improvements 111,255 43,719 ------- ------- Net property and equipment $ 584,193 $ 323,307 ======= =======
As discussed in the following paragraphs, most of the Company's properties are subject to various activities which to date have not resulted in conclusions that the carrying value of these properties will or will not be recoverable by charges against income from future mining operations or a subsequent sale of the properties. Realization of these costs is dependent upon the success of exploration programs resulting in the discovery of economically minable deposits and the subsequent development or sale of those deposits or properties or the production of gold from existing resources. The outcome of these matters is contingent upon future events which cannot be determined at this time.
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 South Pipeline Project relates to a sediment-hosted gold deposit located in Lander County, Nevada, and covers over 4,000 acres of unpatented mining claims. The Company initially
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
formed the Crescent Valley Joint Venture ("CVJV") with Golden Bounty Resources N.L. ("GBR"), of Australia, in May 1987, and CVJV leased some 200 claims from ECM, Inc. ("ECM"). In turn, CVJV entered into an agreement (the "Crescent/Cortez JV") with Cortez Gold Mines ("Cortez") pursuant to which CVJV could secure a 20% carried interest in the project, provided that CVJV made a $1 million expenditure for exploration by September 1991.
Effective February 1990, the Company purchased the interest of GBR in CVJV. As purchase consideration, the Company issued 176,165 shares of its common stock held in treasury to GBR, which was valued at $1.50 per share. As a result, the Company owned all of the 20% carried interest of CVJV subject to completion of the required exploration program.
Effective April 15, 1991, the Crescent/Cortez JV agreement was terminated; the CVJV lease was terminated; and the Company, Cortez, and ECM entered into a new set of agreements pursuant to which the Company sold its interest in the Crescent Valley property to Placer Dome U.S. Inc. ("PDUS"), manager and 60% owner of Cortez, for a cash payment of $100,000, the assignment to Royal of a 1.5% net smelter return ("NSR") royalty (with a capped payout of $750,000), a 1.25% net proceeds royalty in the project, and a release of any further exploration obligations. The 1.5% NSR royalty interest covers the GAS Mining Claims and a block of additional mining claims leased by Cortez from ECM.
On December 2, 1991, the Company assigned one-half of its 1.5% NSR royalty to satisfy a debt of $209,000. On December 30, 1991, the Company, through an affiliated limited partnership, commenced a private offering to raise $400,000. In exchange for the $400,000, the limited partnership ("Crescent Valley Partners, L.P.") acquired the remaining one-half of the 1.5% NSR royalty, and the 1.25% net proceeds royalty, resulting in a gain on sale of $193,000. A subsidiary of the Company is the general partner of the limited partnership and has a 2% interest in the limited partnership. The limited partners also received warrants to purchase an aggregate of 2,000,000 shares of the Company's common stock, exercisable at a price of $0.0625 per share until February 28, 1997. The exercise price of the warrants exceeded the market value of the Company's common stock at the date of grant. At June 30, 1995, 1,850,000 of the warrants had been exercised. Certain partners in the limited partnership are also officers and directors of the Company.
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1992, believing that PDUS had withheld material information in connection with the transaction of April 15,1991, the Company commenced litigation against PDUS in federal court in Colorado. The litigation was settled on September 18, 1992, in an agreement pursuant to which the Company re-acquired a significant new royalty interest in the South Pipeline Project, under terms calling for:
1) The creation of the "South Pipeline Project," involving a 4,000 acre claim block in Crescent Valley, Lander County, Nevada (consisting of substantially the same lands as were the subject of the CVJV/ECM lease). The South Pipeline Project is approximately one-half mile south of the Pipeline gold discovery that was announced by PDUS in early 1992.
Under the South Pipeline agreement, Cortez will remain the manager and operator and has 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, 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."
During each of the years ended June 30, 1995, 1994 and 1993, the Company received advance royalty payments of $150,000, which are shown as royalty income in the accompanying income statements. The Company will receive additional advance royalty payments of $150,000 per year, and all such payments are to be recouped by Cortez from production royalty payments.
2) As part of the agreement, Cortez purchased 1,000 units of Royal Gold securities at $800 per unit. The 1,000 units consist of (1) 500,000 shares of the Company's common stock, (2) the right to purchase, before March 31, 1996, 300,000 additional shares of the Company's common stock at $2.00 per share, and (3) the right to purchase, before March 31, 1996, an additional 300,000 shares of the Company's common stock at $3.00 per share, if either Cortez or the Company has first elected to put the South Pipeline Project into production. At June 30, 1995, none of the Cortez warrants had been exercised.
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3) If Cortez does not elect to put the Project into production by early 1996, 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 would then be entitled to use, under a normal tolling arrangement and as available, the Cortez milling facilities in the vicinity, including any to be built for the Pipeline project.
4) For a period of five years following the September 18, 1992, date of the settlement agreement, without prior approval of the Company's Board of Directors, Cortez, for itself and its affiliates, agreed not to, directly or indirectly: (i) acquire any further shares of the Company except with respect to the warrants; (ii) join with any person or group in any effort to acquire any such additional shares; (iii) propose, initiate or enter into any tender offer, business combination or change of control transaction involving the Company or its assets; (iv) solicit proxies; or (v) vote on matters relating to South Pipeline or other matters involving Cortez or its affiliates, among other matters. Cortez will not sell any of the acquired shares publicly except in accordance with Rule 144, any underwritten public offering, in a tender offer, or privately except subject to these standstill limitations by a person unaffiliated with Cortez or its affiliates.
As of September 1, 1994, the date of the most recent announced estimate, the cumulative resource estimate of the South Pipeline Project is 4.4 million contained ounces. As of June 30, 1995, 220,000 ounces of such estimated resource is considered a proven ore reserve, within the Crescent Pit, where production began in fiscal 1995.
B. Union Pacific Exploration Project --------------------------------- The Company and Union Pacific Minerals ("Union Pacific"), Inc. have entered into an Option Agreement and Grant of Exploration Rights, dated effective May 1, 1994 (the "Agreement"), pursuant to which the Company has the right to evaluate all of the Union Pacific lands in Colorado and Wyoming (approximately six million acres) for gold, silver and platinum metal deposits.
Under the Agreement, the Company also had the right to select up to 50,000 acres of the Union Pacific lands as to which the Company may have exclusive exploration and development rights,
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the right to negotiate farm-out arrangements with respect to such properties.
At August 31, 1994, the Company had given notice of "selection" of approximately 49,850 acres, and had initiated geochemical sampling surveys on the ten prospects represented by such acreage position.
Under the Agreement, the Company was obliged to expend a minimum of $400,000 on exploration of the selected lands, such exploration to be completed on or before August 1, 1995. In addition, the Company could extend its exclusive rights for two additional twelve-month terms, upon making additional exploration commitments of $600,000 and $1,000,000, respectively. Over the possible thirty-nine-month term of the Agreement, then, projected exploration expenditures will totaled $2,000,000.
If the Company identifies attractive deposits on the Union Pacific lands, it has the opportunity, under the terms of agreements that have already been negotiated with Union Pacific, to assign further exploration and development rights to third parties; to develop such deposits in collaboration with Union Pacific; or to develop such deposits for Royal Gold's own account. In all circumstances, Union Pacific will retain a royalty interest, and will retain various rights to participate on a working interest basis in the development, and operation of any mineral deposit.
By an amendment to the Agreement dated November 30, 1994, the Company secured the rights (1) to explore Union Pacific lands in Utah and in the State Line District of Colorado and Wyoming, (2) to continue to select and substitute exploration prospects, subject to the 50,000-acre "cap", until December 31, 1995, (3) to extend, until December 31, 1995, the original exploration commitment, which was revised to $500,000 (As of June 30, 1995, $300,000 of this commitment has been spent.), and (4) to extend, until December 31, 1997 and December 31, 1998, respectively, each of the additional terms of the arrangement. The Agreement now entails total projected expenditures of $2,100,000 over a 55-month term.
C. Goldstripe ---------- 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
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reclamation work on the mine pits and at the plant facility site, and disposed of all major mining and crushing equipment.
By letter dated August 5, 1992, the U.S. Forest Service notified the Company that it had determined to initiate a response action, under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), in order to assess the possible threat of a release of cyanide solution contained within the 900,000 ton, processed ore residue pile. The Company disputed the propriety of the Forest Service's determination, and requested that the Forest Service explain the basis for its determination.
To date, the only action undertaken by the Forest Service in connection with the CERCLA notice has been to establish, in September 1992, four monitoring wells at the site of the residue pile. The Company understands that, to date, the monitoring wells have either been dry, or have yielded water that contains cyanide in concentrations that do not pose a threat to aquatic organisms.
If it is determined that the Forest Service has properly proceeded under CERCLA, the Company could be a "potentially responsible party" ("PRP") for all costs associated with the "response action" and any other remediation at the site. In addition, because the Forest Service is a co-permittee for the Goldstripe site, the Forest Service would presumably also be a PRP under CERCLA. The Company believes that no additional "response action" or other remediation will be undertaken by the Forest Service under CERCLA, or otherwise.
In response to a Forest Service request made in October 1992, approximately $341,000 in cash security that the Company had posted pursuant to the terms of the Goldstripe project reclamation bond was released to the Forest Service. The Forest Service advised the Company that it would use these funds to finance certain reclamation activities at the project site (including ground contouring, solution pond reclamation, and contouring and revegetation of the residue pile) during 1992 and 1993.
In August 1993, the Forest Service advised the Company that its reclamation activities at the project site were substantially completed (except for revegetation), and that the Forest Service believed that such activities should satisfy all outstanding permit requirements for reclamation, except for post-reclamation monitoring of water quality. As a result of the Forest Service's actions, approximately $341,000 in
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
restricted investments and $337,000 in reclamation liabilities, were eliminated from the balance sheet. In May 1994 and in May 1995, the Forest Service again advised the Company that all outstanding requirements, except for post-reclamation groundwater monitoring, had 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.
During the fourth quarter of fiscal 1994, the Company determined to abandon the mill site claims and to write-off its interest in Goldstripe. This resulted in a charge of $607,295, which was offset by $131,138 write-off of royalties payable associated with the residual pile resource.
D. Long Valley ----------- In April 1989, the Company entered into a joint venture agree ment with Standard Industrial Minerals, Inc. ("Standard") to explore and develop a property located in Mono County, Califor nia (the "Long Valley Project"). The agreement provided that the Company would earn a 60% interest in the property upon expending 100% of the funds for completion of exploration, development and construction of production facilities by Decem ber 1991 (subsequently extended to May 1995). During 1989 and 1990, the Company delineated a resource (the "South Zone") estimated to host some 2.2 million tons of ore with an average grade of 0.023 ounces of gold per ton. Metallurgical testing and engineering analysis for a heap leach project was completed, and applications for operating permits were filed, but the Company subsequently determined to farm out its inter est in Long Valley.
In December 1990, the Company and its co-venturer, Standard, entered into an agreement with Battle Mountain Exploration Company ("Battle Mountain"). The agreement provided for a mining joint venture to be formed between the Company, Standard and Battle Mountain should Battle Mountain's exploration result in discovery of significant additional gold mineralization.
In March 1992, Battle Mountain indicated that it had discovered significant amounts of low grade gold mineralization, but that it proposed to restructure the agreement to bring in a fourth partner to conduct further exploration. In November 1992, Battle Mountain notified the Company that, not having been
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
successful in its efforts to bring in a fourth party as a new operator, it elected to terminate its interest effective as of January 1, 1993.
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 $25,000 of such sum having been paid. Up to $100,000 of such payments (the total of the payments due in 1995 and 1996) are creditable against the option exercise amount.
The Company has conducted substantial exploratory drilling programs at Long Valley in fiscal 1995 and has discovered additional deposits of gold mineralization.
E. 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 as a gold and silver mine. The Company's partner was Chipeta Mining Corporation ("Chipeta"). Through 1989, the Venture was primarily engaged in exploration activities and there was no significant production from the mine.
During fiscal 1990, the Company reached an agreement with Chipeta to terminate the Camp Bird Venture, and thereafter terminated its mining lease and reduced the carrying value at Camp Bird to the estimated net realizable value of the equipment and certain patented mining claims.
At June 30, 1995, capitalized costs of $120,110 reflect the Company's ownership of patented mining claims. Management believes these claims are valuable both for their mineral and real estate potential.
F. Other ----- During fiscal 1994, the Company determined to abandon several other properties which resulted in the write-off of $273,193.
3. Related Party Transactions -------------------------- In October 1993, the Company granted a $75,000 loan to an officer of the Company. This note is secured by 23,348 shares of Company stock, had a term of one year, and carried a market
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rate of four percent. During each of fiscal 1994 and fiscal 1995, a portion of the note was charged to salary expense and the remaining balance was extended. The outstanding balance is currently due December 31, 1995.
During fiscal 1995, the Company paid $100,000 to Behre Dolbear and Company, Inc. for technical consulting services. Mr. Dempsey is a member of the board of directors of Behre Dolbear.
4. Post-Retirement Benefits ------------------------ In 1987, the Company's Board of Directors agreed to provide post-retirement benefits for the remaining lifetime of a former executive officer. The present value (discounted at 10%) of the estimated future payments of $2,200 per month was recorded in 1987 based on the life expectancy of the former officer.
During fiscal 1993, the Company recognized an additional charge to operations of approximately $20,000 due to the increased life expectancy of the former officer and accretion of the discount.
In April 1993, the Company and the former officer amended the post-retirement benefits agreement. The Company recommenced paying the former officer $2,200 per month in May 1993, and issued the former officer an unsecured promissory note in the principal amount of all previously unpaid deferrals, totalling $83,600. The note accrues interest at 6.5% per annum.
The remaining principal maturity of the note of $27,866 is due during the year ending June 30, 1996.
During fiscal 1994 and fiscal 1995, the Company recognized an additional charge to operations of approximately $20,000 and $40,000, respectively, due to the then-increased life expectancy of the former officer, decrease in the discount rate used to compute the net present value of the liability, and accretion of the discount.
5. 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, 1995 and 1994, are as follows:
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995 1994 --------- --------- Net operating loss carryforwards $ 8,025,000 $ 7,117,700 Mineral property basis 58,000 216,800 Capital loss carryforwards 63,000 62,600 Post retirement benefit obligation 60,000 74,700 Other 80,000 110,200 --------- --------- Total gross deferred tax assets 8,286,000 7,582,000
Valuation allowance (7,310,000) (6,625,000) --------- --------- Net deferred tax assets 976,000 957,000 --------- --------- Mineral properties (41,000) (67,500) Deferred taxable income (98,000) (135,900) Other (87,000) (3,600) -------- -------- Total deferred tax liabilities (226,000) (207,000) -------- -------- Total net deferred taxes $ 750,000 $ 750,000 ======== ========
At June 30, 1995, the Company has approximately $22.9 million of net operating loss carryforwards which, if unused, will expire during the years 2001 through 2010. 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 income from its South Pipeline interest. Based upon the determination, as of June 30, 1995, of proven gold reserves at the Crescent Pit of the South Pipeline Project (see Note 2.A.), 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 only to the extent of estimated future taxable income and reversals of existing deferred tax liabilities.
The components of income tax expense (benefit) for the years ended June 30, 1995, 1994 and 1993, are as follows:
1995 1994 1993 ------- ------- -------- Current tax expense $ - $ - $ - Deferred tax (benefit) (685,000) (766,800) (212,700) Increase in deferred tax asset valuation allowance 685,000 16,800 212,700 -------- -------- -------- $ - $ (750,000) $ - ======== ======= =======
The provision for income taxes for the years ended June 30, 1995, 1994 and 1993, differs from the amount of income tax determined by applying
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the applicable U.S. statutory federal income tax rate to pre-tax loss from operations as a result of the following differences:
1995 1994 1993 -------- -------- -------- Total (benefit) computed by applying statutory rate $(689,000) $(749,000) $(210,100) Adjustments of valuation allowance 685,000 16,800 212,700 Other 4,000 (17,800) (2,600) -------- ------- ------- $ - $(750,000) $ - ======== ======= =======
6. 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, --------------------- 1996 $ 122,300 1997 122,300 1998 128,823 1999 132,084 2000 44,028 ------- $ 549,535 =======
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, 1995, 1994, and 1993, amounted to $122,052, $135,936, and $122,795, respectively. The Company subleases a portion of its premises on a month-to-month basis. The Company received sublease rental income of $35,831, $67,280 and $60,667, for the years ended June 30, 1995, 1994 and 1993, respectively.
Employment Agreements --------------------- The Company has one-year employment agreements with four of its officers which require total minimum future compensation, at June 30, 1995, of $268,000 through January 1996. The terms of each of these agreements automatically extend, every February, for one additional year, unless
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terminated by the Company or the officer, according to the terms of the agreements.
7. Stockholders' Equity -------------------- Preferred Stock:
The Company has 10,000,000 authorized and unissued shares of $.01 par value Preferred Stock.
Private Placements:
During fiscal 1993, the Company completed three private placements for net proceeds of $1,799,000: (i) In July 1992, 308,000 shares of common stock were sold for $1.00 per share. In connection with the private placement, the Company also issued warrants to purchase 308,000 shares of common stock, exercisable at $1.50 per share through July 31, 1997. Certain officers and directors of the Company participated in this placement. (ii) In September 1992, 500,000 shares of common stock were sold for $1.60 per share. In connection with the private placement, two warrants were also issued, one for 300,000 shares of common stock, exercisable at $2.00 per share through March 31, 1996, and the other for 300,000 shares of common stock, exercisable at $3.00 per share through March 31, 1996. (iii) In June 1993, 200,000 shares of common stock were sold for $3.60 per share. In connection with the private placement, the Company also issued warrants to purchase 200,000 shares of common stock, exercisable at $5.75 per share through September 30, 1995.
During fiscal 1994, the Company completed two private placements for net proceeds of $6,655,000 from the sales of 1.425.00 shares at prices of $4 and $6 per share.
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.
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
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1995, options were exercised for 18,750 shares for a total of $29,063. Additionally, options for an additional 30,000 shares were issued during the year. One half of these options granted are subject to stockholder approval. As of June 30, 1995, options are outstanding for 60,000 shares at an average exercise price of $5.48 per share.
At 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 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, 1993 and 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 stock options and stock appreciation rights. The options are exercisable at prices equal to the market value of the Company's common stock as of the date of grant, and expire ten years after the date of grant. There have been no stock appreciation rights granted under the Employee Plan. During fiscal 1995, options were exercised for 46,000 shares for a total of $5,750.
At June 30, 1995, under the Directors and Employee Plans and otherwise, the following options are outstanding:
Number of Exercise Expiration Shares Price Total Date -------- ------ -------- ------------- 15,000 2.1875 $ 32,812 December 1997 35,000 4.00 140,000 December 1998 10,000 9.125 91,250 April 1999 45,000 7.875 354,375 December 1999 907,720 .125 113,465 December 2001 15,000 4.00 60,000 December 2003 184,250 7.875 1,450,969 December 2004 --------- --------- 1,211,970 $2,242,871 ========= =========
ROYAL GOLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, warrants to purchase the Company's common shares are outstanding, as follows:
Number of Exercise Expiration Shares Price Total Date ------- ---- --------- -------------- 200,000 $5.75 $1,150,000 September 1995 170,000 1.278 217,260 January 1996 300,000 2.00 600,000 March 1996 300,000 3.00 900,000 March 1996 150,000 .0625 9,375 February 1997 287,500 1.50 431,250 July 1997 --------- --------- 1,407,500 $3,307,885 ========= =========
The shares and exercise prices listed above are generally subject to adjustment in accordance with anti-dilution provisions of each of the warrant agreements.
8. Major Customers --------------- During fiscal 1995, $444,411 of the Company's royalty income was received from one source. In each of fiscal years 1994 and 1993, $150,000 of the Company's royalty income was also received from the same source. (See Note 2.A.)
9. Simplified Employee Pension ("SEP") Plan ---------------------------------------- The Company maintains a SEP plan which is available to all employees. 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 to contribute to the plan, the Company will match the contribution to a maximum of 7% of the employee's salary. During fiscal 1995 the Company contributed $50,271 to the plan.
PART III
Item 10:
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stanley Dempsey - --------------- Age 56; 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 64; Director Since May 1987; Term Expires 1996 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 68; 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 is a Director of Magma Copper Company and U.S. Gold Corporation (2) (3)
James W. Stuckert - ----------------- Age 57; Director Since September 1989; Term Expires 1995 Director. President and Vice Chairman of Hilliard Lyons, Inc. He had been Executive Vice President of Hilliard Lyons since 1963. Mr. Stuckert is also a Director of Hilliard, Lyons, Inc., DataBeam Corporation, McBar Medical Industries, and Lawson United Corporation. (2) (3)
Pierre Gousseland - ----------------- Age 73; Director Since June 1992; Term Expires 1995 Director. Financial Consultant. From 1977 until January 1986, Mr. Gousseland was Chairman and Chief Executive Officer of AMAX, Inc. Formerly, Director of the French American Banking Group of New York, the American International Group, Inc., Union Miniere (Belgium), Degussa AG (Germany) and IBM World Trade Europe/Middle
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 55; Director Since December 1992; Term Expires 1996 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.
Merritt Marcus - -------------- Age 61; Director Since December 1992; Term Expires 1995 Director. President and Chief Executive Officer of Marcus Paint Company, a manufacturer of industrial coatings. Director of National Paint and Coatings Association.
Thomas A. Loucks: Age 46 - ---------------- 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.
Peter B. Babin: Age 41 - -------------- Executive Vice President of the Company since July 1, 1995, formerly Senior Vice President from July 1993 through June 30, 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.
Karen P. Gross: Age 41 - -------------- 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
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 5, 1995, 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, 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) By-Laws - Exhibit (d) to the Company's Form 10-K, for the fiscal year ended December 31, 1980.
(d) Amendment to Certificate of Incorporation dated February 2, 1983 - Exhibit 3 (c) of Registration Statement on Form S-1, Registration No. 2-84642.
(e) 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.
(f) 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.
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) Termination Agreement, among Royal Gold, Inc., Royal Crescent Valley, Inc., Cortez Gold Mines, Placer Dome U.S. Inc. and ECM, Inc., dated effective as of April 15, 1991.
Exhibit 10(k) to the Company's Form 10-K for the year ended June 30, 1991.
(e) Royalty Deed and Agreement, dated effective as of April 15, 1991, pursuant to which ECM, Inc. conveyed to Royal Crescent Valley, Inc. a 2% Net Smelter Return royalty on mineral production from the lands that had been subject to the Royal/Cortez Joint Venture. Exhibit 10(l) to the Company's Form 10-K for the year ended June 30, 1991.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
*(k) Amendment to Option Agreement and Grant of Exploration Rights, dated effective November 30, 1994, between Union Pacific Minerals, Inc. and Royal Gold, Inc.
*(l) Assignment Agreement dated effective December 1, 1994, between Royal Gold, Inc. and Santa Fe Pacific Gold Corporation, relating to the Bob Creek Project.
22 *(a) The Company and Its Subsidiaries.
(b) Reports on Form 8-K:
1. None.
* - Filed herewith.
EXHIBIT 22
THE COMPANY AND ITS SUBSIDIARIES
--------------------- | ROYAL GOLD, INC. | --------------------- -------------------------------------------------- ------- -------- -------- ------- ----- -------- ------- | ROYAL | | DENVER | | CALGOM | | ROYAL | |ROYAL| | ROYAL | | ROYAL| |TRADING| | MINING | | MINING | | LONG | |CAMP | |CRESCENT| |KANAKA| | CO. | |FINANCE | | INC. | |VALLEY,| |BIRD,| |VALLEY, | |CREEK | | (1) | |COMPANY,| | (1) (2)| | INC. | |INC. | | INC. | |CORP. | ------- | INC. | -------- | (1) | | (1) | | (1) | | (1) | | (1) | ------- ----- -------- ------ -------- ---------------- | ENVIRONMENTAL | |STRATEGIES, INC.| | (3) | ----------------
(1) 100% owned by Royal Gold, Inc. (2) Owns a 100% interest in the Goldstripe Project. (3) 100% owned by Denver Mining Finance Company, Inc.
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 26, 1995 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 26, 1995 By: /S/Stanley Dempsey ------------------ Stanley Dempsey, Chairman, Chief Executive Officer, and Director
Date: September 26, 1995 By: /S/Thomas A. Loucks ------------------- Thomas A. Loucks Treasurer and chief accounting officer
Date: September 26, 1995 By: /S/Edwin W. Peiker, Jr. ----------------------- Edwin W. Peiker, Jr. Director
Date: September 26, 1995 By: /S/John W. Goth --------------- John W. Goth Director
Date: September 26, 1995 By: /S/James W. Stuckert -------------------- James W. Stuckert Director
Date: September 26, 1995 By: /S/Pierre Gousseland -------------------- Pierre Gousseland Director
Date: September 26, 1995 By: /S/Merritt Marcus ----------------- Merritt Marcus Director
Date: September 26, 1995 By: /S/S. Oden Howell, Jr. ---------------------- S. Oden Howell, Jr. Director
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, 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) By-Laws - Exhibit (d) to the Company's Form 10-K, for the fiscal year ended December 31, 1980.
(d) Amendment to Certificate of Incorporation dated February 2, 1983 - Exhibit 3 (c) of Registration Statement on Form S-1, Registration No. 2-84642.
(e) 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.
(f) 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.
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) Termination Agreement, among Royal Gold, Inc., Royal Crescent Valley, Inc., Cortez Gold Mines, Placer Dome U.S. Inc. and ECM, Inc., dated effective as of April 15, 1991.
Exhibit 10(k) to the Company's Form 10-K for the year ended June 30, 1991.
(e) Royalty Deed and Agreement, dated effective as of April 15, 1991, pursuant to which ECM, Inc. conveyed to Royal Crescent Valley, Inc. a 2% Net Smelter Return royalty on mineral production from the lands that had been subject to the Royal/Cortez Joint Venture. Exhibit 10(l) to the Company's Form 10-K for the year ended June 30, 1991.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
*(k) Amendment to Option Agreement and Grant of Exploration Rights, dated effective November 30, 1994, between Union Pacific Minerals, Inc. and Royal Gold, Inc.
*(l) Assignment Agreement dated effective December 1, 1994, between Royal Gold, Inc. and Santa Fe Pacific Gold Corporation, relating to the Bob Creek Project.
22 *(a) The Company and Its Subsidiaries.
(b) Reports on Form 8-K:
1. None.
* - Filed herewith.
EXHIBIT 22
THE COMPANY AND ITS SUBSIDIARIES
--------------------- | ROYAL GOLD, INC. | --------------------- -------------------------------------------------- ------- -------- -------- ------- ----- -------- ------- | ROYAL | | DENVER | | CALGOM | | ROYAL | |ROYAL| | ROYAL | | ROYAL| |TRADING| | MINING | | MINING | | LONG | |CAMP | |CRESCENT| |KANAKA| | CO. | |FINANCE | | INC. | |VALLEY,| |BIRD,| |VALLEY, | |CREEK | | (1) | |COMPANY,| | (1) (2)| | INC. | |INC. | | INC. | |CORP. | ------- | INC. | -------- | (1) | | (1) | | (1) | | (1) | | (1) | ------- ----- -------- ------ -------- ---------------- | ENVIRONMENTAL | |STRATEGIES, INC.| | (3) | ----------------
(1) 100% owned by Royal Gold, Inc. (2) Owns a 100% interest in the Goldstripe Project. (3) 100% owned by Denver Mining Finance Company, Inc.
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 26, 1995 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 26, 1995 By: /S/Stanley Dempsey ------------------ Stanley Dempsey, Chairman, Chief Executive Officer, and Director
Date: September 26, 1995 By: /S/Thomas A. Loucks ------------------- Thomas A. Loucks Treasurer and chief accounting officer
Date: September 26, 1995 By: /S/Edwin W. Peiker, Jr. ----------------------- Edwin W. Peiker, Jr. Director
Date: September 26, 1995 By: /S/John W. Goth --------------- John W. Goth Director
Date: September 26, 1995 By: /S/James W. Stuckert -------------------- James W. Stuckert Director
Date: September 26, 1995 By: /S/Pierre Gousseland -------------------- Pierre Gousseland Director
Date: September 26, 1995 By: /S/Merritt Marcus ----------------- Merritt Marcus Director
Date: September 26, 1995 By: /S/S. Oden Howell, Jr. ---------------------- S. Oden Howell, Jr. Director