## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

## 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

## Operations 

Royal Gold, Inc. (the “Company” or “Royal Gold”) was incorporated under the laws of the State of Delaware on January 5, 1981, and is engaged in the acquisition and management of precious metals royalty interests. Royalty revenue currently is generated from mining operations in the United States and Argentina.The Company also provides financial, operational, and environmental con- sulting services to companies in the mining industry. Substantially all the Company’s revenues are and can be expected to be derived from its royalty interests rather than from its own mining activity or consulting services. 

Summary of Significant Accounting Policies Use of Estimates: The preparation of the Company’s financial statements in conformity with generally accept- ed accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of con- tingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 

Basis of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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, 2001, cash equivalents included approximately $4,572,254 of temporary cash investments in five uninsured govern- ment securities money market funds. 

Available for Sale Securities: Investments in securities that have readily determinable fair values are classified as available-for-sale investments. Unrealized gains and losses on these investments are recorded in accumulat- ed other comprehensive income as a separate com- ponent of stockholders’ equity, except that declines in market value judged to be other than temporary are 

recognized in determining net income. Realized gains and losses on these investments are included in deter- mining net income. 

Mineral Properties: Acquisition costs of royalty prop- erties are capitalized and depleted using the units of production method over the life of the mineral proper- ty. Exploration costs are charged to operations when incurred.The recoverability of the carrying value of royalty interests is evaluated based upon estimated future net cash flows from each royalty interest proper- ty using estimates of proven and probable reserves. Impairments in the carrying value of each property are measured and recorded to the extent that the Company’s carrying value in each property exceeds its estimated fair value, which is generally calculated using future discounted cash flows. 

Management’s estimate of the gold prices, recoverable proven and probable reserves related to the royalty property, operating, capital and reclamation costs of the mine operators are subject to certain risks and uncertainties which may affect the recoverability of the Company’s investment in property, plant and equipment. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term, which could adversely affect management’s estimate of the net cash flows expected to be generated from properties in operation. 

Office Furniture, Equipment and Improvements: The Company depreciates its office furniture, equipment and improvements over estimated useful lives of 15 years for office furniture, 3 years for computer equipment, and 5 years for other office equipment, using the straight-line method.The cost of normal maintenance and repairs is charged to expenses as incurred. Significant expendi- tures, 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. 

Revenue: Royalty revenue is recognized when earned. For royalties received in gold, royalty revenue is recorded at the spot price of gold. 

