e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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54-0835164 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation)
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Identification No.) |
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1660 Wynkoop Street, Suite 1000 |
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Denver, Colorado
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80202 |
(Address of Principal Executive Office)
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(Zip Code) |
Registrants telephone number, including area code (303) 573-1660
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practical date: 40,778,195 shares of the Companys common stock, par value $0.01 per
share, were outstanding as of October 30, 2009.
INDEX
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PAGE |
PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements (Unaudited) |
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3 |
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4 |
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5 |
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6 |
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16 |
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26 |
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26 |
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27 |
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28 |
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28 |
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28 |
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28 |
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28 |
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29 |
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30 |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
2
ROYAL GOLD, INC.
Consolidated Balance Sheets
(Unaudited in thousands except share data)
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September 30, |
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2009 |
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June 30, |
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(Unaudited) |
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2009 |
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Current assets |
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Cash and equivalents |
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$ |
307,497 |
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$ |
294,566 |
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Royalty receivables |
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25,314 |
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20,597 |
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Income tax receivable |
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2,372 |
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Deferred tax assets |
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185 |
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166 |
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Prepaid expenses and other |
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680 |
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1,007 |
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Total current assets |
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333,676 |
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318,708 |
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Royalty interests in mineral properties, net |
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445,298 |
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455,966 |
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Restricted cash compensating balance |
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19,250 |
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Inventory restricted |
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9,629 |
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10,622 |
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Other assets |
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4,900 |
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5,378 |
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Total assets |
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$ |
793,503 |
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$ |
809,924 |
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Current liabilities |
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Accounts payable |
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$ |
1,194 |
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$ |
2,403 |
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Income tax payable |
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151 |
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Dividends payable |
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3,262 |
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3,259 |
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Other |
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758 |
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527 |
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Total current liabilities |
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5,365 |
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6,189 |
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Net deferred tax liabilities |
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22,444 |
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23,371 |
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Term loan facility |
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19,250 |
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Other long-term liabilities |
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840 |
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703 |
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Total liabilities |
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28,649 |
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49,513 |
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Commitments and contingencies (Note 11) |
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Stockholders equity |
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Common stock, $.01 par value, authorized
100,000,000 shares; and issued 40,517,611 and
40,480,311 shares, respectively |
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405 |
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405 |
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Additional paid-in capital |
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703,837 |
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702,407 |
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Accumulated other comprehensive (loss) income |
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(27 |
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(80 |
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Accumulated earnings |
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50,572 |
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46,709 |
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Total Royal Gold stockholders equity |
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754,787 |
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749,441 |
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Non-controlling interests |
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10,067 |
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10,970 |
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Total stockholders equity |
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764,854 |
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760,411 |
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Total liabilities and stockholders equity |
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$ |
793,503 |
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$ |
809,924 |
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The accompanying notes are an integral part of these consolidated financial statements
3
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited, in thousands except share data)
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For The Three Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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Royalty revenues |
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$ |
26,113 |
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$ |
16,079 |
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Costs and expenses |
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Costs of operations (exclusive of depreciation,
depletion and
amortization shown separately below) |
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1,201 |
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847 |
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General and administrative |
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2,195 |
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1,671 |
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Exploration and business development |
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885 |
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674 |
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Depreciation, depletion and amortization |
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11,078 |
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4,423 |
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Total costs and expenses |
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15,359 |
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7,615 |
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Operating income |
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10,754 |
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8,464 |
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Interest and other income |
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1,753 |
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939 |
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Interest and other expense |
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(355 |
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(288 |
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Income before income taxes |
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12,152 |
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9,115 |
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Income tax expense |
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(3,030 |
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(3,129 |
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Net income |
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9,122 |
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5,986 |
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Less: Net income attributable to non-controlling interests |
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(1,996 |
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(237 |
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Net income attributable to Royal Gold stockholders |
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$ |
7,126 |
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$ |
5,749 |
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Net income |
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$ |
9,122 |
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$ |
5,986 |
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Adjustments to comprehensive income, net of tax |
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Unrealized change in market value of available
for sale securities |
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53 |
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(312 |
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Comprehensive income |
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$ |
9,175 |
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$ |
5,674 |
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Comprehensive income attributable to non-controlling
interest |
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(1,996 |
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(237 |
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Comprehensive income attributable to Royal Gold
stockholders |
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$ |
7,179 |
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$ |
5,437 |
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Net income per share attributable to Royal Gold
stockholders: |
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Basic earnings per share |
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$ |
0.18 |
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$ |
0.17 |
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Basic weighted average shares outstanding |
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40,502,139 |
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33,926,495 |
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Diluted earnings per share |
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$ |
0.17 |
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$ |
0.17 |
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Diluted weighted average shares outstanding |
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40,861,713 |
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34,278,980 |
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The accompanying notes are an integral part of these consolidated financial statements
4
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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For The Three Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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Cash flows from operating activities |
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Net income |
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$ |
9,122 |
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$ |
5,986 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation, depletion and amortization |
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11,078 |
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4,423 |
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Gain on distribution to non-controlling interest |
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(1,616 |
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Deferred tax benefit |
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(950 |
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(423 |
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Non-cash employee stock compensation expense |
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1,150 |
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636 |
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Tax benefit of stock-based compensation exercises |
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(51 |
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Changes in assets and liabilities: |
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Royalty receivables |
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(4,717 |
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4,925 |
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Prepaid expenses and other assets |
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534 |
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(127 |
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Accounts payable |
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(752 |
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2,745 |
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Income taxes payable |
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2,545 |
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3,407 |
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Other |
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(153 |
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14 |
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Net cash provided by operating activities |
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$ |
16,190 |
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$ |
21,586 |
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Cash flows from investing activities |
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Change in restricted cash compensating balance |
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19,250 |
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(3,500 |
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Proceeds on sale of Inventory restricted |
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2,899 |
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Deferred acquisition costs |
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(249 |
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(1,419 |
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Other |
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(30 |
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(5 |
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Net cash provided by (used in) investing activities |
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$ |
21,870 |
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$ |
(4,924 |
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Cash flows from financing activities: |
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Tax benefit of stock-based compensation exercises |
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$ |
51 |
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$ |
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(Prepayment of) borrowings under term loan facility |
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(19,250 |
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3,500 |
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Common stock dividends |
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(3,259 |
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(2,384 |
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Distribution to non-controlling interests |
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(2,899 |
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Proceeds from issuance of common stock |
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225 |
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Other |
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3 |
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Net cash (used in) provided by financing activities |
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$ |
(25,129 |
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$ |
1,116 |
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Net increase in cash and equivalents |
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12,931 |
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17,778 |
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Cash and equivalents at beginning of period |
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294,566 |
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192,035 |
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Cash and equivalents at end of period |
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$ |
307,497 |
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$ |
209,813 |
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The accompanying notes are an integral part of these consolidated financial statements
5
ROYAL
GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. |
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OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS |
Operations
Royal Gold, Inc. (Royal Gold, the Company, we, us, or our), together with its
subsidiaries, is engaged in the business of acquiring and managing precious metals royalties.
Royalties are passive (non-operating) interests in mining projects that provide the right to
revenue or production from the project after deducting specified costs, if any.
We seek to acquire existing royalties or to finance projects that are in production or near
production in exchange for royalty interests. We also fund exploration on properties thought to
contain precious metals and seek to obtain royalties and other carried ownership interests in such
properties through the subsequent transfer of operating interests to other mining companies.
Substantially all of our revenues are and will be expected to be derived from royalty interests.
We do not conduct mining operations at this time.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. GAAP for annual financial statements.
In the opinion of management, all adjustments which are of a normal recurring nature considered
necessary for a fair statement have been included in this
Form 10-Q. Operating results for the
three months ended September 30, 2009, are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 2010. These interim unaudited financial statements
should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 2009 (Fiscal 2009
10-K).
Recently Adopted Accounting Standards
Accounting Standards Codification
Effective September 15, 2009, the Financial Accounting Standards Board Accounting Standards
Codification (FASB ASC) has become the source of authoritative U.S. GAAP. The FASB ASC only
changes the referencing of financial accounting standards and does not change or alter existing
U.S. GAAP. The adoption of the FASB ASC has had no impact on the Companys consolidated financial
statements.
Non-controlling Interests in Consolidated Financial Statements
On July 1, 2009, the Company adopted a new accounting standard included in FASB ASC 810,
Consolidation. The adoption of the new accounting standard changed the presentation of its
non-controlling (minority) interests. Except for presentation changes, the adoption of the new
accounting standard had no impact on the Companys consolidated financial position, results of
operation or cash flows.
6
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Fair Value Measurements
On July 1, 2009, the Company adopted a new accounting standard in FASB ASC 820, Fair Value
Measurements and Disclosures, which delayed the effective date for disclosing all non-financial
assets and non-financial liabilities, except for items that are recognized or disclosed at fair
value on a recurring basis (at least annually). This standard did not have a material impact on
the Companys consolidated financial position, results of operations or cash flows. Refer to Note
10 for a discussion regarding the Companys fair value measurements as of September 30, 2009.
Recently Issued Accounting Standards
In June 2009, new accounting guidance was issued that is expected to be included in FASB ASC 810,
Consolidation. This statement amends the consolidation guidance applicable to variable interest
entities and is effective for our fiscal year beginning July 1, 2010. We are evaluating the
impact, if any, this new accounting guidance will have on our consolidated financial statements.
2. ROYALTY ACQUISITION
Proposed Acquisition of Andacollo Production Interest
As discussed in more detail in the Companys Fiscal 2009 10-K, on April 3, 2009, the Company
entered into a definitive agreement (Master Agreement) with a Chilean subsidiary of Teck
Resources Limited (Teck), Compañía Minera Teck Carmen de Andacollo (CDA), to acquire an
interest in the gold produced from the sulfide portion of the Andacollo project in Chile (the
Andacollo Production Interest). We refer to this transaction throughout this report as the Teck
Transaction. The purchase price for the Andacollo Production Interest consists of $217.9 million
in cash and 1,204,136 of the Companys common shares.
Royal Golds obligation to close the Teck Transaction is subject to CDAs completion of concentrate
marketing for a specified percentage of its concentrate production from the Andacollo mine, the
condition that CDAs material government approvals are not withdrawn or challenged, and completion
of certain limited due diligence satisfactory to Royal Gold, as well as other customary closing
conditions. Either party may terminate the definitive agreement if the closing conditions are not
met or waived by January 29, 2010.
Acquisition of Barrick Royalty Portfolio
As discussed in further detail in the Companys Fiscal 2009 10-K, effective October 1, 2008, the
Company completed an acquisition of royalties from Barrick Gold Corporation (Barrick) for cash of
approximately $181.3 million, including a restructuring of its GSR2, GSR3 and NVR1 royalties at
Cortez, valued at $31.5 million, for net cash of approximately $150.0 million. As part of the
royalty restructuring, the Company recognized a gain of $31.5 million during the fiscal quarter
ended December 31, 2008. The transactions were completed pursuant to the Royalty Purchase and Sale
Agreement dated July 30, 2008. The cash portion of the purchase price was paid from the Companys
cash on hand.
The acquisition of Barricks royalty portfolio has been accounted for as an asset acquisition using
the purchase method of accounting. The total purchase price of $181.3 million, plus direct
transaction costs of approximately $3.1 million, has been allocated to the acquired royalty
interests according to their relative fair values and is recorded as separate components of Royalty
Interests in Mineral Properties on
7
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
our consolidated balance sheets. The amounts allocated to the
acquired royalty interests in mineral
properties acquired from Barrick were preliminary as of June 30, 2009, and were subject to change
upon completion of final valuations based upon receipt of updated reserve and other information
expected to be received from certain operators.
During the quarter ended September 30, 2009, we finalized our purchase accounting for the Barrick
royalty portfolio acquisition. As such, we have allocated the total purchase price of $181.3
million, plus direct transaction costs of approximately $3.1 million, to the acquired royalty
interests according to their relative fair market values. The operating impacts of the royalty
interests acquired from Barrick have been reflected in the financial results of Royal Gold from
October 1, 2008.
3. ROYALTY INTERESTS IN MINERAL PROPERTIES
The following summarizes the Companys royalty interests in mineral properties as of
September 30, 2009 and June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009 |
|
|
|
|
|
Accumulated |
|
|
|
|
(Amounts in thousands): |
|
Cost |
|
|
Depletion |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez |
|
$ |
10,630 |
|
|
$ |
(9,280 |
) |
|
$ |
1,350 |
|
Robinson |
|
|
17,825 |
|
|
|
(6,535 |
) |
|
|
11,290 |
|
Taparko |
|
|
33,570 |
|
|
|
(14,213 |
) |
|
|
19,357 |
|
Leeville |
|
|
18,322 |
|
|
|
(8,876 |
) |
|
|
9,446 |
|
Goldstrike |
|
|
20,788 |
|
|
|
(10,490 |
) |
|
|
10,298 |
|
Mulatos |
|
|
43,442 |
|
|
|
(6,940 |
) |
|
|
36,502 |
|
Peñasquito (oxide circuit) |
|
|
4,026 |
|
|
|
(770 |
) |
|
|
3,256 |
|
Dolores |
|
|
44,878 |
|
|
|
(1,322 |
) |
|
|
43,556 |
|
Siguiri |
|
|
11,000 |
|
|
|
(4,983 |
) |
|
|
6,017 |
|
Allan |
|
|
17,000 |
|
|
|
(117 |
) |
|
|
16,883 |
|
Other |
|
|
45,798 |
|
|
|
(20,562 |
) |
|
|
25,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,279 |
|
|
|
(84,088 |
) |
|
|
183,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito (sulfide circuit) |
|
|
95,146 |
|
|
|
|
|
|
|
95,146 |
|
Canadian Malartic |
|
|
35,500 |
|
|
|
|
|
|
|
35,500 |
|
Pascua-Lama |
|
|
20,446 |
|
|
|
|
|
|
|
20,446 |
|
Other |
|
|
42,744 |
|
|
|
|
|
|
|
42,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,836 |
|
|
|
|
|
|
|
193,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests |
|
|
68,271 |
|
|
|
|
|
|
|
68,271 |
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
529,386 |
|
|
$ |
(84,088 |
) |
|
$ |
445,298 |
|
|
|
|
|
|
|
|
|
|
|
8
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
As of June 30, 2009 (Amounts in thousands): |
|
Cost |
|
|
Depletion |
|
|
Net |
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez |
|
$ |
10,630 |
|
|
$ |
(9,192 |
) |
|
$ |
1,438 |
|
Robinson |
|
|
17,825 |
|
|
|
(6,238 |
) |
|
|
11,587 |
|
Taparko |
|
|
33,570 |
|
|
|
(10,709 |
) |
|
|
22,861 |
|
Leeville |
|
|
18,322 |
|
|
|
(8,246 |
) |
|
|
10,076 |
|
Goldstrike |
|
|
20,788 |
|
|
|
(10,247 |
) |
|
|
10,541 |
|
Mulatos |
|
|
34,214 |
|
|
|
(5,618 |
) |
|
|
28,596 |
|
Peñasquito (oxide circuit) |
|
|
4,026 |
|
|
|
(591 |
) |
|
|
3,435 |
|
Dolores |
|
|
44,878 |
|
|
|
(607 |
) |
|
|
44,271 |
|
Siguiri |
|
|
10,946 |
|
|
|
(3,659 |
) |
|
|
7,287 |
|
Allan |
|
|
22,020 |
|
|
|
(100 |
) |
|
|
21,920 |
|
Other |
|
|
44,658 |
|
|
|
(18,337 |
) |
|
|
26,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,877 |
|
|
|
(73,544 |
) |
|
|
188,333 |
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito (sulfide circuit) |
|
|
95,146 |
|
|
|
|
|
|
|
95,146 |
|
Canadian Malartic |
|
|
34,031 |
|
|
|
|
|
|
|
34,031 |
|
Pascua-Lama |
|
|
20,446 |
|
|
|
|
|
|
|
20,446 |
|
Other |
|
|
27,743 |
|
|
|
|
|
|
|
27,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,366 |
|
|
|
|
|
|
|
177,366 |
|
Exploration stage royalty interests |
|
|
90,267 |
|
|
|
|
|
|
|
90,267 |
|
|
|
|
|
|
|
|
|
|
|
Total royalty interests in mineral properties |
|
$ |
529,510 |
|
|
$ |
(73,544 |
) |
|
$ |
455,966 |
|
|
|
|
|
|
|
|
|
|
|
4. CREDIT FACILITY
The Company maintains a $125 million revolving credit facility with HSBC Bank USA, National
Association (HSBC Bank) and Scotiabanc Inc. as lenders. The credit facility has a maturity date
of October 30, 2013. Borrowings under the credit facility will bear interest at a floating rate of
LIBOR plus a spread ranging from 1.75% to 2.25%, based on the Companys leverage ratio, as defined
in the credit facility agreement. As of September 30, 2009, the Company did not have any amounts
outstanding under the credit facility.
5. TERM LOAN FACILITY
Royal Gold Chile Limitada (RGCL), a wholly-owned subsidiary of Royal Gold, had a $19.25 million
term loan outstanding bearing interest at LIBOR plus 0.25% pursuant to an Amended and Restated Term
Loan Agreement (Amended and Restated Agreement) between RGCL and HSBC Bank. On
September 23, 2009, RGCL prepaid the full $19.25 million outstanding, plus interest, under the
Amended and Restated Agreement. In addition to prepaying all outstanding amounts, RGCL notified
HSBC Bank of its intention to terminate the Amended and Restated Agreement. Termination of the
Amended and Restated Agreement was effective September 24, 2009.
To secure RGCLs obligations under the Amended and Restated Agreement, the Company maintained
$19.25 million in a Collateral Account at HSBC Bank. The Collateral Account balance was recorded
as Restricted cash compensating balance on the Companys consolidated balance sheets. Upon the
full prepayment and termination of the Amended and Restated Agreement, the Collateral Account was
closed
9
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
and the $19.25 million was reclassified to Cash and equivalents on the Companys
consolidated balance sheets as of September 30, 2009.
6. STOCK-BASED COMPENSATION
The Company recognized stock option and other stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
|
(In thousands) |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Stock options |
|
$ |
135 |
|
|
$ |
310 |
|
Stock appreciation rights |
|
|
77 |
|
|
|
|
|
Restricted stock |
|
|
468 |
|
|
|
261 |
|
Performance stock |
|
|
470 |
|
|
|
65 |
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
1,150 |
|
|
$ |
636 |
|
|
|
|
|
|
|
|
Stock-based compensation expense is allocated among cost of operations, general and
administrative, and exploration and business development in our consolidated statements of
operations and comprehensive income as summarized below:
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
|
(In thousands) |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Stock-based compensation expense allocation: |
|
|
|
|
|
|
|
|
Cost of operations |
|
$ |
270 |
|
|
$ |
75 |
|
General and administrative |
|
|
566 |
|
|
|
347 |
|
Exploration and business development |
|
|
314 |
|
|
|
214 |
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
1,150 |
|
|
$ |
636 |
|
|
|
|
|
|
|
|
There were no stock options granted during the three months ended September 30, 2009 and 2008.
As of September 30, 2009, there was $0.5 million of unrecognized compensation expense related to
non-vested stock options, which is expected to be recognized over a weighted-average period of 1.17
years.
There were no stock appreciation rights granted during the three months ended September 30, 2009
and 2008. As of September 30, 2009, there was $0.3 million of unrecognized compensation expense
related to non-vested stock appreciation rights, which is expected to be recognized over a
weighted-average period of 1.47 years.
There was no restricted stock granted during the three months ended September 30, 2009 and 2008.
As of September 30, 2009, there was $4.3 million of unrecognized compensation expense related to
non-vested restricted stock, which is expected to be recognized over a weighted-average vesting
period of 4.06 years.
There was no performance stock granted during the three months ended September 30, 2009 and 2008.
As of September 30, 2009, there was $1.7 million of unrecognized compensation expense related to
non-vested performance stock, which is expected to be recognized over a weighted-average vesting
period of 1.28 years.
10
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
7. EARNINGS PER SHARE (EPS) COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended September 30, 2009 |
|
|
|
(In thousands, except share and per-share data) |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
7,126 |
|
|
|
40,502,139 |
|
|
$ |
0.18 |
|
Effect of other dilutive securities |
|
|
|
|
|
|
359,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
7,126 |
|
|
|
40,861,713 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended September 30, 2008 |
|
|
|
(In thousands, except share and per-share data) |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
5,749 |
|
|
|
33,926,495 |
|
|
$ |
0.17 |
|
Effect of other dilutive securities |
|
|
|
|
|
|
352,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
5,749 |
|
|
|
34,278,980 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2009 and 2008, all outstanding stock-based
compensation awards were included in the computation of diluted EPS because the exercise price of
the awards was less than the average market price of our common stock for the period.
8. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
(In thousands) |
|
|
2009 |
|
2008 |
Income tax expense |
|
$ |
3,030 |
|
|
$ |
3,129 |
|
Effective tax rate |
|
|
24.9 |
% |
|
|
34.3 |
% |
The material income tax returns the Company files are the U.S. federal income tax return,
which has a three year statute of limitations, and the Colorado state income tax return, which has
a four year statute of limitations. The U.S. federal return for tax years ended on or after
June 30, 2007, and the Colorado state return for tax years ended on or after June 30, 2006, are
subject to examination by the relevant taxing authority.
As of September 30, 2009, the Companys total unrecognized tax benefits were $0.7 million for
uncertain tax positions. The liability for unrecognized tax benefits is reflected within Other
long-term liabilities on the Companys consolidated balance sheets.
Interest and penalties associated with the liability for unrecognized tax benefits is approximately
$0.1 million at September 30, 2009, and is included in Other long-term liabilities on the Companys
consolidated balance sheets.
11
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
9. SEGMENT INFORMATION
We manage our business under one operating segment, consisting of royalty acquisition and
management activities. All of our assets and revenues are attributable to the royalty operating
segment.
Royal Golds royalty revenue and long-lived assets (royalty interests in mineral properties, net)
are geographically distributed as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
|
|
|
|
Revenue |
|
Royalty Interests in |
|
|
Three months ended |
|
Mineral Properties, net |
|
|
September 30, |
|
As of |
|
As of |
|
|
2009 |
|
2008 |
|
September 30, 2009 |
|
June 30, 2009 |
United States |
|
|
44 |
% |
|
|
84 |
% |
|
|
12 |
% |
|
|
13 |
% |
Mexico |
|
|
17 |
% |
|
|
10 |
% |
|
|
45 |
% |
|
|
45 |
% |
Canada |
|
|
2 |
% |
|
|
|
|
|
|
23 |
% |
|
|
19 |
% |
Chile |
|
|
1 |
% |
|
|
|
|
|
|
6 |
% |
|
|
6 |
% |
Africa(1) |
|
|
28 |
% |
|
|
|
|
|
|
7 |
% |
|
|
8 |
% |
Other |
|
|
8 |
% |
|
|
6 |
% |
|
|
7 |
% |
|
|
9 |
% |
|
|
|
(1) |
|
Consists of royalties on properties in Burkina Faso, Guinea and the Republic of Ghana. |
10. FAIR VALUE MEASUREMENTS
FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy under FASB ASC 820 are described below:
Level 1: Quoted prices for identical instruments in active markets;
Level 2: Quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant
inputs and significant value drivers are observable in active
markets; and
Level 3: Prices or valuation techniques requiring inputs that are both
significant to the fair value measurement and unobservable
(supported by little or no market activity).
12
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table sets forth the Companys financial assets measured at fair value on a recurring
basis (at least annually) by level within the fair value hierarchy. The Companys financial
liabilities are not within the scope of FASB ASC 820.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2009 |
|
|
|
(In thousands) |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments(1) |
|
$ |
270,573 |
|
|
$ |
270,573 |
|
|
$ |
|
|
|
$ |
|
|
Marketable equity securities(2) |
|
|
212 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
270,785 |
|
|
$ |
270,785 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Cash and equivalents in the Companys consolidated balance sheets. |
|
(2) |
|
Included in Other assets in the Companys consolidated balance sheets. |
The Company invests in money market funds, which are traded by dealers or brokers in active
over-the-counter markets. The Companys money market funds, which are invested in United States
treasury bills or United States treasury backed securities, are classified within Level 1 of the
fair value hierarchy.
The Companys marketable equity securities classified within Level 1 of the fair value hierarchy
are valued using quoted market prices in active markets. The fair value of the Level 1 marketable
equity securities is calculated as the quoted market price of the marketable equity security
multiplied by the quantity of shares held by the Company.
As of September 30, 2009, the Company also had assets that, under certain conditions, are subject
to measurement at fair value on a non-recurring basis like those associated with royalty interests
in mineral properties, intangible assets and other long-lived assets. For these assets,
measurement at fair value at acquisition or in periods subsequent to their initial recognition are
applicable if any of these assets are determined to be impaired; however, no impairment losses have
occurred relative to any of these assets during the three months ended September 30, 2009. If
recognition of these assets at their fair value becomes necessary, such measurements will be
determined utilizing Level 3 inputs.
11. COMMITMENTS AND CONTINGENCIES
Casmalia
On March 24, 2000, the United States Environmental Protection Agency (EPA) notified Royal Gold
and 92 other entities that they were considered potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
(Superfund), at the Casmalia Resources Hazardous Waste Disposal Site (the Site) in Santa
Barbara County, California. EPAs allegation that Royal Gold was a PRP was based on the disposal
of allegedly hazardous petroleum exploration wastes at the Site by Royal Golds predecessor, Royal
Resources, Inc., during 1983 and 1984.
After extensive negotiations, on September 23, 2002, Royal Gold, along with 35 members of the PRP
group targeted by the EPA, entered into a Partial Consent Decree with the EPA and the United States
Department of Justice intending to settle their liability for past and future clean-up costs
incurred or expected to be incurred at the Site by the federal government. The United States
District Court for the Central District of California entered the Partial Consent Decree on
August 14, 2003. Based on the minimal volume of allegedly hazardous substances that Royal
Resources, Inc. disposed of at the Site,
13
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
which was characterized in volume as de minimis, our share
of the $25.3 million settlement amount was
approximately $0.1 million, which we deposited into the escrow account that the PRP group set up
for that purpose in January 2002. The funds were paid to the United States Treasury on May 9, 2003
and the Partial Consent Decree was executed. As a result of the settlement, the United States of
America may only pursue Royal Gold and the other PRPs for additional clean-up costs if the United
States total clean-up costs at the Site significantly exceed the expected cost of approximately
$272 million.
Royal Gold also executed a de minimis party Administrative Order on Consent (AOC) with the State
of California on January 15, 2009. The AOC became effective upon notice, dated September 25, 2009,
from the California Attorney General that the required 30-day public comment period closed and that
no comments were received requiring modification of or withdrawal from the AOC by the State of
California.
Under the terms of the federal Partial Consent Decree and the state AOC, we believe our potential
liability to the United States of America, the State of California, and third parties to be
effectively settled and any further exposure related to the Casmalia site to be a remote
possibility.
Holt
On October 1, 2008, as part of the Companys acquisition of a portfolio of royalties from Barrick,
we acquired a royalty on a portion of the development stage Holloway-Holt mining project in
Ontario, Canada, owned by St Andrew Goldfields Ltd. (St Andrew). St Andrew succeeded Newmont
Canada Corporation (Newmont Canada) as owner of the Holloway-Holt mining project in November
2006. By virtue of the Companys acquisition of Barricks royalty portfolio, RGLD Gold Canada,
Inc. (RGLD Gold) succeeded Barrick as the royalty payee under the royalty agreement.
On or about November 3, 2008, St Andrew filed an action in the Ontario Superior Court of Justice
(the Court) seeking, among other things, declarations by the Court that St Andrews obligation in
respect of the royalty is limited to only a portion of the total royalty payable, and that any
additional royalty obligations under the royalty agreement remain the responsibility of Newmont
Canada. Newmont Canada responded that St Andrew is responsible for all royalty obligations under
the royalty agreement.
Royal Gold and RGLD Gold (collectively Royal Gold) and Barrick were joined as necessary parties
to the litigation in January 2009. Trial concerning calculation of the royalty and the party or
parties responsible for paying it was held from January 30, 2009 to February 12, 2009. On
July 23, 2009, the Court held that Royal Gold is entitled to payment from Newmont Canada of the
full amount of the sliding-scale NSR royalty on gold produced from the Holt mine. The Court also
held that St Andrews sole obligation is to reimburse Newmont Canada for payment of the royalty up
to a flat rate of 0.013% of the net smelter returns for gold, silver and other metals. On
August 21, 2009, Newmont Canada appealed the Courts decision to the Court of Appeal of Ontario but
did not name Royal Gold as a party to the appeal. Royal Gold filed a motion for an order of the
Court of Appeal directing Newmont Canada to name Royal Gold as a party to the appellate
proceedings.
The Holt royalty is currently classified as a development stage royalty interest and the Company
does not currently receive revenue from the royalty.
14
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
12. RELATED PARTY
Crescent Valley Partners, L.P. (CVP) was formed as a limited partnership in April 1992. It owns
a 1.25% net value royalty (NVR1) on production of minerals from a portion of Cortez. Denver
Mining Finance Company (DMFC), our wholly-owned subsidiary, is the general partner and holds a
2.0% interest in CVP. In addition, Royal Gold holds a 29.6% limited partner interest in the
partnership, while our Chairman of the Board of Directors, the Chairman of our Audit Committee and
one other member of
our board of directors hold an aggregate 35.56% limited partner interest. The general partner
performs administrative services for CVP in receiving and processing the royalty payments from the
operator, including the disbursement of royalty payments and record keeping for in-kind
distributions to the limited partners, which includes certain directors and our Chairman.
CVP receives its royalty from Cortez in-kind. The Company, as well as certain other limited
partners, sells its pro-rata share of such gold immediately and receives distributions in cash,
while CVP holds gold for certain other limited partners. Such gold inventories, which totaled
22,274 and 24,977 ounces of gold as of September 30, 2009, and June 30, 2009, respectively, are
held by a third party refinery in Utah for the account of the limited partners of CVP. The
inventories are carried at historical cost and are classified as Inventory restricted on the
consolidated balance sheets. The carrying value of the gold in inventory was approximately $9.6
million and $10.6 million as of September 30, 2009, and June 30, 2009, respectively, while the fair
value of such ounces was approximately $22.2 million and $23.3 million as of September 30, 2009,
and June 30, 2009, respectively. None of the gold currently held in inventory as of
September 30, 2009, and June 30, 2009, is attributed to Royal Golds CVP partnership interest, as
the gold allocated to Royal Golds CVP partnership interest is typically sold within five days of
receipt.
13. SUBSEQUENT EVENT
The Company evaluated all events or transactions that occurred after September 30, 2009, through
November 6, 2009, the date the Company issued these financial statements. The event that occurred
after September 30, 2009, through November 6, 2009, was as follows:
Troy
On October 13, 2009, the Company and Genesis Inc. (Genesis), a wholly owned subsidiary of Revett
Silver Company and the operator of the Troy mine, finalized a restructuring of the Companys 6.1%
and 2.0% GSR royalties at the Troy mine into one perpetual 3.0% royalty. The restructured 3.0%
perpetual royalty will commence on July 1, 2010, and applies to all production from the Troy mine
in addition to an expanded area of interest in the vicinity of the mine. The Company paid Genesis
approximately $1.5 million in consideration for the restructured royalty.
Also on October 13, 2009, Genesis satisfied its outstanding $1.5 million obligation due to the
Company pursuant to our 7.0% GSR production payment royalty at the Troy mine. The 7.0% GSR
production payment royalty was subject to a $10.5 million cap, which was met as of June 30, 2009.
Upon receipt of payment of the $1.5 million obligation, the 7.0% GSR production payment royalty
terminated.
15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
intended to provide information to assist you in better understanding and evaluating our financial
condition and results of operations. We recommend that you read this MD&A in conjunction with our
consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well
as our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 (Fiscal 2009 10-K).
This MD&A contains forward-looking information. You should review our important note about
forward-looking statements following this MD&A.
We refer to GSR, NSR and other types of royalty interests throughout this MD&A. These terms
are defined in our Fiscal 2009 10-K.
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing
precious metals royalties. Royalties are passive (non-operating) interests in mining projects that
provide the right to revenue or production from the project after deducting specified costs, if
any. We seek to acquire existing royalties or to finance projects that are in production or in
development stage in exchange for royalty interests. We are engaged in a continual review of
opportunities to acquire existing royalties, to create new royalties through the financing of mine
development or exploration, or to acquire companies that hold royalties. We currently, and
generally at any time, have acquisition opportunities in various stages of active review,
including, for example, our engagement of consultants and advisors to analyze particular
opportunities, analysis of technical, financial and other confidential information, submission of
indications of interest, participation in preliminary discussions and involvement as a bidder in
competitive auctions.
The Company owns royalties on 21 producing properties, 12 development stage properties and over 80
exploration stage properties, of which the Company considers 25 to be evaluation stage projects.
The Company uses evaluation stage to describe exploration stage properties that contain
mineralized material and on which operators are engaged in the search for reserves. We do not
conduct mining operations nor are we required to contribute to capital costs, exploration costs,
environment costs or other mining costs on the properties in which we hold royalty interests.
During the quarter ended September 30, 2009, we focused on the management of our existing royalty
interests, the acquisition of royalty interests, and the creation of royalty interests through
financing and strategic exploration alliances.
Our financial results are primarily tied to the prices of gold, silver, copper and other metals, as
well as production from our producing stage royalty interests. Royalty revenue for the quarter
ended September 30, 2009 was $26.1 million (which includes $0.4 million of non-controlling
interest), compared to $16.1 million (which includes $0.2 million of non-controlling interest) for
the quarter ended September 30, 2008. For the quarters ended September 30, 2009 and 2008, the
price of gold averaged $960 and $872 per ounce, respectively, the price of silver averaged $14.69
and $15.09 per ounce, respectively, and the price of copper averaged $2.65 and $3.49 per pound,
respectively. For the three months ended September 30, 2009, Royal Gold derived 86% of its total
royalty revenue from gold royalties, 2% of its total royalty revenue from silver royalties, 7% of
its total revenue from copper royalties and 5% of its total revenue from other metal royalties,
compared to 69% of its total revenue
16
from gold royalties, 3% of its total revenue from silver
royalties and 28% of its total revenue from copper royalties for the three months ended September
30, 2008.
The increase in royalty revenue for the quarter ended September 30, 2009, compared with the quarter
ended September 30, 2008, resulted primarily from production from the recently acquired Barrick
royalty portfolio, an increase in production at Taparko and Peñasquito, and commencement of
production at Dolores. These increases were partially offset by a decrease in production at
Goldstrike and a decrease in copper prices and production at Robinson. Please refer to Recent
Developments, Property Developments below within this MD&A for further discussion on recent
developments regarding properties covered by certain of our royalty interests.
Principal Royalties
Our principal producing royalty interests are shown in the following table. The Company considers
both historical and future potential revenues in determining which royalties in our portfolio are
principal to our business. Estimated future potential royalty revenues from both producing and
development properties are based on a number of factors, including reserves subject to our royalty
interests, production estimates, feasibility studies, metal price assumptions, mine life, legal
status and other factors and assumptions, any of which could change and could cause Royal Gold to
conclude that one or more of such royalties are no longer principal to our business.
Please refer to our Fiscal 2009 10-K for further discussion on our principal producing royalty
interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Operator |
|
(Gold unless otherwise stated) |
Cortez
|
|
Nevada, USA
|
|
Barrick Gold Corporation
(Barrick)
|
|
GSR1: 0.40%-5.0% sliding-scale GSR |
|
|
|
|
|
|
GSR2: 0.40%-5.0% sliding-scale GSR |
|
|
|
|
|
|
GSR3: 0.71% GSR |
|
|
|
|
|
|
NVR1: 0.39% NVR |
|
|
|
|
|
|
|
Robinson
|
|
Nevada, USA
|
|
Quadra Mining Ltd.
(Quadra)
|
|
3.0% NSR (copper, gold,
silver, molybdenum) |
|
|
|
|
|
|
|
Leeville
|
|
Nevada, USA
|
|
Newmont Mining
Corporation (Newmont)
|
|
1.8% NSR |
|
|
|
|
|
|
|
Goldstrike
|
|
Nevada, USA
|
|
Barrick
|
|
0.9% NSR |
|
|
|
|
|
|
|
Peñasquito (oxide)(1)
|
|
Zacatecas, Mexico
|
|
Goldcorp Inc. (Goldcorp)
|
|
2.0% NSR (gold and silver) |
|
|
|
|
|
|
|
Mulatos(2)
|
|
Sonora, Mexico
|
|
Alamos Gold, Inc.
(Alamos)
|
|
1.0%-5.0% sliding-scale NSR |
|
|
|
|
|
|
|
Taparko(3)
|
|
Burkina Faso, West
Africa
|
|
High River Gold Mines
Ltd. (High River)
|
|
15% GSR (TB-GSR1) and a
0%-10% sliding-scale GSR
(TB-GSR2) |
|
|
|
|
|
|
|
Siguiri(4)
|
|
Guinea, West Africa
|
|
AngloGold Ashanti
(Anglogold)
|
|
0.0%-1.875% sliding-scale NSR |
|
|
|
|
|
|
|
Dolores
|
|
Chihuahua, Mexico
|
|
Minefinders Corporation,
Ltd. (Minefinders)
|
|
1.25% NSR; 2.0% NSR (gold and
silver) |
|
|
|
(1) |
|
The Peñasquito project consists of oxide and sulfide portions. The oxide portion of
the deposit is currently in production. The sulfide portion is classified as development
stage as shown below. |
|
(2) |
|
The Mulatos royalty is capped at 2.0 million gold ounces of production.
Approximately 462,000 cumulative ounces of gold have been produced as of September 30, 2009. |
|
(3) |
|
TB-GSR1 will remain in effect until cumulative production of 804,420 ounces of gold
is achieved or until cumulative payments of $35 million have been made to Royal Gold,
whichever occurs first. TB-GSR2 will remain in effect until the termination of TB-GSR1. As
of September 30, 2009, we have recognized approximately $14.8 million in royalty revenue
associated with TB-GSR1, which is attributable to cumulative production of approximately
110,000 ounces of gold. |
|
(4) |
|
The Siguiri royalty is subject to a dollar cap of approximately $12.0 million. As
of September 30, 2009, approximately $6.5 million remains under the cap. |
17
Our principal development royalties are shown in the following table and are not yet in
production. Please refer to our Fiscal 2009 10-K for further discussion on our principal
development stage royalty
interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty |
Mine |
|
Location |
|
Operator |
|
(Gold unless otherwise stated) |
Peñasquito (sulfide) (1)
|
|
Zacatecas, Mexico
|
|
Goldcorp
|
|
2.0% NSR (gold, silver, lead and
zinc) |
|
|
|
|
|
|
|
Pascua-Lama
|
|
Region III, Chile
|
|
Barrick
|
|
0.16%-1.08% sliding-scale NSR
0.22% fixed rate royalty (copper) |
|
|
|
|
|
|
|
Canadian Malartic(2)
|
|
Quebec, Canada
|
|
Osisko Mining
Corporation
(Osisko)
|
|
2.0%-3.0% sliding-scale NSR |
|
|
|
|
|
|
|
Holt(3)
|
|
Ontario, Canada
|
|
St Andrew
Goldfields Ltd.
(St Andrew)
|
|
0.00013 x quarterly average gold
price (NSR) |
|
|
|
(1) |
|
On October 13, 2009, Goldcorp announced that its first lead and zinc concentrates
were produced from the Peñasquito mine. The Peñasquito mine will produce both lead and zinc
concentrates, with most of the gold and silver production coming from lead concentrates.
Ongoing concentrate production is planned during the remaining commissioning phase through
year-end calendar 2009, with the first shipments to smelters planned for later in calendar
2009. |
|
(2) |
|
The Canadian Malartic royalty is subject to a buy down right, which if exercised by
Osisko would lower the sliding-scale NSR royalty to 1.0%-1.5%. |
|
(3) |
|
Refer to Recent Developments Property Developments as discussed below within
this MD&A for a further discussion on recent developments at Holt. |
Operators Production Estimates by Royalty for Calendar 2009
We received annual production estimates from the operators of our producing mines during the first
calendar quarter of 2009. The following table shows such production estimates for our principal
producing properties for calendar 2009 as well as the actual production reported to us by the
various operators for the quarter ended September 30, 2009. The estimates and production reports
are prepared by the operators of the mining properties. We do not participate in the preparation
or calculation of the operators estimates or production reports and have not independently
assessed or verified the accuracy of such information.
Operators Production Estimate by Royalty for Calendar 2009 and Reported Production
Principal Producing Properties
For the period January 1, 2009 through September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar 2009 Operators Production |
|
Reported Production through |
|
|
Estimate(1) |
|
September 30, 2009(2) |
|
|
Gold |
|
Silver |
|
Copper |
|
Gold |
|
Silver |
|
Copper |
Royalty |
|
(oz.) |
|
(oz.) |
|
(lbs.) |
|
(oz.) |
|
(oz.) |
|
(lbs.) |
Cortez GSR1 |
|
|
345,296 |
|
|
|
|
|
|
|
|
|
|
|
227,612 |
|
|
|
|
|
|
|
|
|
Cortez GSR2 |
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
9,478 |
|
|
|
|
|
|
|
|
|
Cortez GSR3 |
|
|
345,910 |
|
|
|
|
|
|
|
|
|
|
|
237,090 |
|
|
|
|
|
|
|
|
|
Cortez NVR1 |
|
|
72,863 |
|
|
|
|
|
|
|
|
|
|
|
123,252 |
|
|
|
|
|
|
|
|
|
Robinson(3) |
|
|
100,000 |
|
|
|
|
|
|
130 million |
|
|
71,678 |
|
|
|
|
|
|
79.8 million |
Leeville |
|
|
426,212 |
|
|
|
|
|
|
|
|
|
|
|
317,446 |
|
|
|
|
|
|
|
|
|
Goldstrike |
|
|
440,879 |
|
|
|
|
|
|
|
|
|
|
|
373,531 |
|
|
|
|
|
|
|
|
|
Peñasquito(4) |
|
|
70,000 |
|
|
2.3 million |
|
|
|
|
|
|
60,892 |
|
|
2.1 million |
|
|
|
|
Mulatos(5) |
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
|
134,485 |
|
|
|
|
|
|
|
|
|
Dolores |
|
|
100,000 |
|
|
2.0 million |
|
|
|
|
|
|
55,684 |
|
|
0.7 million |
|
|
|
|
Taparko |
|
|
76,000 |
|
|
|
|
|
|
|
|
|
|
|
65,833 |
|
|
|
|
|
|
|
|
|
Siguiri |
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
239,188 |
|
|
|
|
|
|
|
|
|
18
|
|
|
(1) |
|
There can be no assurance that production estimates received from our operators will
be achieved. Please refer to our cautionary language regarding forward-looking statements
following this MD&A, as well as the Risk Factors identified in Part I, Item 1A, of our Fiscal
2009
10-K for information regarding factors that could affect actual results. |
|
(2) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the period January 1, 2009 through September 30, 2009, as reported to us by the
operators of the mines. |
|
(3) |
|
In August 2009, Quadra announced that annual production guidance for copper has been
reduced to 130 million pounds of copper from 140 million pounds of copper due to its limited
access to hypogene ore in the Veteran pit, which adversely affected blending capabilities.
Gold production guidance was unchanged from Quadras earlier estimate. |
|
(4) |
|
Reported production estimate relates to the oxide circuit. The sulfide portion is
classified as development stage. |
|
(5) |
|
In August 2009, Alamos announced that estimated annual gold production has been
increased to between 160,000 and 170,000 ounces from between 145,000 and 160,000 ounces. The
increase in reported production was the result of higher than planned recoveries, which was
due to operational improvements. |
Recent Developments
Business Developments
Proposed Acquisition of Andacollo Production Interest
On April 3, 2009, the Company entered into a definitive agreement (Master Agreement) with a
Chilean subsidiary of Teck Resources Limited (Teck), CDA, to acquire an interest in the gold
produced from the sulfide portion of the Andacollo project in Chile (the Andacollo Production
Interest). The purchase price for the Andacollo Production Interest consists of $217.9 million in
cash and 1,204,136 of the Companys common shares.
The Andacollo Production Interest will equal 75% of the gold produced from the sulfide portion of
the deposit at the Andacollo mine until 910,000 payable ounces of gold have been sold, and 50% of
the gold produced in excess of 910,000 payable ounces of gold. The mine, located about 34 miles
southeast of the city of La Serena, Chile, produces copper from the oxide portion of the deposit
and Teck is currently constructing facilities to produce both copper and gold from the sulfide
portion of the deposit. The Andacollo Production Interest will not cover copper production.
Proven and probable reserves, as estimated by the operator as of December 31, 2008, for the sulfide
portion are 393.5 million tonnes (433.7 million tons) with a grade of 0.39% copper and 0.13 g/t
(0.004 ozs/ton) gold. This equates to 1.6 million contained ounces of gold. Reserves were
estimated using a copper price of $1.50 per pound and a gold price of $480 per ounce. Gold will be
produced as a by-product of copper production, with a gold recovery rate estimated by the operator
to be approximately 61%. Once the mine is in full production, the operator expects the mill to
have a capacity of 55,000 tonnes (60,630 tons) per day. The operator estimates that the mine will
produce on average approximately 53,000 ounces of gold and 76,000 tonnes (83,775 tons) of copper in
concentrate annually for the first ten years of commercial production, with an estimated mine life
of 20 years. The mine is estimated to begin initial production of gold in the fourth quarter of
calendar 2009, with commercial production at the mine to be achieved in the first half of calendar
year 2010, unless this schedule is delayed by challenges to previously granted permits relating to
CDAs water supply, as announced by Teck on August 12, 2009.
Royal Golds obligation to close the Teck Transaction is subject to CDAs completion of concentrate
marketing for a specified percentage of its concentrate production from the Andacollo mine, the
condition that CDAs material government approvals are not withdrawn or challenged, and completion
of certain limited due diligence satisfactory to Royal Gold, as well as other customary closing
conditions. To accommodate the potential delay in the start-up of the sulfide milling operations,
we have agreed to extend the outside closing date of the Teck Transaction. As such, either party
may terminate the definitive agreement if the closing conditions are not met or waived by
January 29, 2010.
19
Please also see Part I, Item 1A, Risk Factors Additional risks that Royal Gold may face as a
result of the Teck Transaction are set forth below, in our Fiscal 2009 10-K for further discussion
on potential risks associated with the Teck Transaction.
Property Developments
Taparko
The Taparko mine commenced gold production in August 2007 and has contributed approximately $23.9
million in royalty revenue (from TB-GSR1 and TB-GSR2) since production commenced. Reserve
characteristics, mining activity, and gold recovery performance has been near feasibility study
estimates. However, mill performance has suffered since start-up due to problems associated with
the grinding mill drive-train. A new gear box to correct mill problems was installed in October
2008 and, coupled with subsequent modifications, appear to have largely remedied mill drive issues,
but close monitoring of the mill drive train continues. Gold sales at Taparko for the three months
ended September 30, 2009, and September 30, 2008 were approximately 25,000 ounces and 120 ounces,
respectively. The increase in gold sales during the period was attributable to the improved mill
availability.
Somita SA (Somita), a 90% owned subsidiary of High River and the operator of Taparko, is in
breach of certain obligations under the Amended and Restated Funding Agreement dated
February 22, 2006 (the Funding Agreement) between Royal Gold, Inc. and Somita. Royal Gold has
invested $35 million for the development of the Taparko mine under the Funding Agreement. As
security for the Companys investment in Somita, two of High Rivers subsidiaries have pledged
their equity interests in Somita and High River (West Africa) Ltd., the corporate parent of Somita.
This pledge will remain in effect until certain production and performance standards have been
attained at the Taparko mine. In addition, Royal Gold obtained as collateral a pledge of shares of
certain equity investments in public companies held by High River. The market value of the pledged
shares is approximately $43.2 million as of September 30, 2009. The Companys carrying value of
its royalty interests at Taparko was approximately $20.8 million as of September 30, 2009. The
pledge of High Rivers equity investment will remain in effect until project completion as provided
in the construction contract between Somita and its construction contractor. Royal Gold has not
agreed to forbear pursuing any of its remedies under the Funding Agreement or other agreements with
High River and its affiliates.
Peñasquito
On October 13, 2009, Goldcorp announced production of its first lead and zinc concentrates from the
Peñasquito mine. The Peñasquito mine will produce both lead and zinc concentrates, with most of
the gold and silver production coming from lead concentrates. Ongoing concentrate production is
planned during the remaining commissioning phase through year-end calendar 2009, with the first
shipments to smelters planned for later in calendar 2009. Goldcorp expects to attain commercial
production in the first quarter of calendar 2010. In addition, Goldcorp reported that construction
of the second sulfide process line is well underway and progressing toward planned completion in
the third quarter of calendar 2010.
Holt
On October 1, 2008, as part of the Companys acquisition of a portfolio of royalties from Barrick,
we acquired a royalty on a portion of the development stage Holloway-Holt mining project in
Ontario, Canada, owned by St Andrew. St Andrew succeeded Newmont Canada Corporation (Newmont
Canada) as owner of the Holloway-Holt mining project in November 2006. By virtue of the Companys
acquisition of Barricks royalty portfolio, RGLD Gold Canada, Inc. (RGLD Gold) succeeded Barrick
as the royalty payee under the royalty agreement.
20
On or about November 3, 2008, St Andrew filed an action in the Ontario Superior Court of Justice
(the Court) seeking, among other things, declarations by the Court that St Andrews obligation in
respect of the royalty is limited to only a portion of the total royalty payable, and that any
additional royalty
obligations under the royalty agreement remain the responsibility of Newmont Canada. Newmont
Canada responded that St Andrew is responsible for all royalty obligations under the royalty
agreement.
Royal Gold and RGLD Gold (collectively Royal Gold) and Barrick were joined as necessary parties
to the litigation in January 2009. Trial concerning calculation of the royalty and the party or
parties responsible for paying it was held from January 30, 2009 to February 12, 2009. On
July 23, 2009, the Court held that Royal Gold is entitled to payment from Newmont Canada of the
full amount of the sliding-scale NSR royalty on gold produced from the Holt mine. The Court also
held that St Andrews sole obligation is to reimburse Newmont Canada for payment of the royalty up
to a flat rate of 0.013% of the net smelter returns for gold, silver and other metals. On
August 21, 2009, Newmont Canada appealed the Courts decision to the Court of Appeal of Ontario but
did not name Royal Gold as a party to the appeal. Royal Gold filed a motion for an order of the
Court of Appeal directing Newmont Canada to name Royal Gold as a party to the appellate
proceedings.
The Holt royalty is classified as a development stage royalty interest and the Company does not
currently receive revenue from the royalty.
Troy
On October 13, 2009, the Company and Genesis Inc. (Genesis), a wholly-owned subsidiary of Revett
Silver Company and the operator of the Troy mine, finalized a restructuring of the Companys 6.1%
and 2.0% GSR royalties at the Troy mine into one perpetual 3.0% royalty. The restructured 3.0%
perpetual royalty will commence on July 1, 2010, and applies to all production from the Troy mine
in addition to an expanded area of interest in the vicinity of the mine. The Company paid Genesis
approximately $1.5 million in consideration for the restructured royalty.
Also on October 13, 2009, Genesis satisfied its outstanding $1.5 million obligation due to the
Company pursuant to our 7.0% GSR production payment royalty at the Troy mine. The 7.0% GSR
production payment royalty was subject to a $10.5 million cap, which was met as of June 30, 2009.
Upon receipt of payment of the $1.5 million obligation, the 7.0% GSR production payment royalty
terminated.
Results of Operations
Quarter Ended September 30, 2009, Compared to Quarter Ended September 30, 2008
For the quarter ended September 30, 2009, we recorded net income attributable to Royal Gold
stockholders of $7.1 million, or $0.18 per basic share and $0.17 per diluted share, as compared to
net income attributable to Royal Gold stockholders of $5.7 million, or $0.17 per basic and diluted
share, for the quarter ended September 30, 2008. The increase in our net income attributable to
Royal Gold stockholders was primarily due to an increase in royalty revenue. The increase in our
royalty revenue was partially offset by an increase in depreciation, depletion and amortization
expense as further discussed below.
For the quarter ended September 30, 2009, we recognized total royalty revenue of $26.1 million
(which includes $0.4 million of non-controlling interest), at an average gold price of $960 per
ounce and an average copper price of $2.65 per pound, compared to royalty revenue of $16.1 million
(which includes $0.2 million of non-controlling interest), at an average gold price of $872 per
ounce and an average copper price of $3.49 per pound for the quarter ended September 30, 2008. The
increase in royalty revenue for the quarter ended September 30, 2009, compared with the quarter
ended September 30, 2008, resulted primarily from an increase in the average gold price, production
from the recently acquired
21
Barrick royalty portfolio, an increase in production at Taparko and
Peñasquito, and commencement of production at Dolores. These increases were partially offset by a
decrease in production at Goldstrike and decreases in copper prices and production at Robinson.
Royalty revenue and the corresponding
production, attributable to our royalty interests, for the quarter ended September 30, 2009
compared to the quarter ended September 30, 2008 is as follows:
Royalty Revenue and Production Subject to Our Royalty Interests
Quarter Ended September 30, 2009 and 2008
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2009 |
|
September 30, 2008 |
|
|
|
|
|
|
Royalty |
|
Reported |
|
Royalty |
|
Reported |
Royalty |
|
Metal(s) |
|
Revenue |
|
Production(1) |
|
Revenue |
|
Production(1) |
Taparko(2) |
|
Gold |
|
$ |
5,966 |
|
|
|
25,350 |
oz. |
|
$ |
23 |
|
|
|
117 |
oz. |
Cortez |
|
Gold |
|
$ |
5,827 |
|
|
|
94,864 |
oz. |
|
$ |
4,536 |
|
|
|
60,676 |
oz. |
Leeville |
|
Gold |
|
$ |
2,317 |
|
|
|
133,821 |
oz. |
|
$ |
1,674 |
|
|
|
106,828 |
oz. |
Mulatos(3) |
|
Gold |
|
$ |
2,224 |
|
|
|
46,440 |
oz. |
|
$ |
537 |
|
|
|
41,120 |
oz. |
Robinson |
|
|
|
|
|
$ |
1,855 |
|
|
|
|
|
|
$ |
4,832 |
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
18,269 |
oz. |
|
|
|
|
|
|
37,487 |
oz. |
|
|
Copper |
|
|
|
|
|
21.1 million |
lbs. |
|
|
|
|
|
40.4 million |
lbs. |
Siguiri(4) |
|
Gold |
|
$ |
1,418 |
|
|
|
78,801 |
oz. |
|
|
N/A |
|
|
|
N/A |
|
Dolores(5) |
|
|
|
|
|
$ |
1,111 |
|
|
|
|
|
|
$ |
N/A |
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
19,305 |
oz. |
|
|
|
|
|
|
N/A |
|
|
|
Silver |
|
|
|
|
|
|
349,248 |
oz. |
|
|
|
|
|
|
N/A |
|
Goldstrike |
|
Gold |
|
$ |
957 |
|
|
|
109,729 |
oz. |
|
$ |
1,642 |
|
|
|
215,506 |
oz. |
Peñasquito (oxide) |
|
|
|
|
|
$ |
626 |
|
|
|
|
|
|
$ |
119 |
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
22,900 |
oz. |
|
|
|
|
|
|
4,883 |
oz. |
|
|
Silver |
|
|
|
|
|
|
651,812 |
oz. |
|
|
|
|
|
|
124,260 |
oz. |
Other(6) |
|
Various |
|
$ |
3,812 |
|
|
|
N/A |
|
|
$ |
2,716 |
|
|
|
N/A |
|
Total Royalty Revenue |
|
$ |
26,113 |
|
|
|
|
|
|
$ |
16,079 |
|
|
|
|
|
|
|
|
(1) |
|
Reported production relates to the amount of metal sales, subject to our royalty
interests, for the three months ended September 30, 2009 and September 30, 2008, as reported
to us by the operators of the mines. |
|
(2) |
|
Refer to Recent Developments, Property Developments as discussed earlier within
this MD&A for a further discussion on recent developments at Taparko. Our TB-GSR1 royalty at
Taparko will remain in effect until cumulative production of 804,420 ounces of gold is
achieved or until cumulative payments of $35 million have been made to Royal Gold, whichever
occurs first. Our TB-GSR2 royalty will remain in effect until the termination of TB-GSR1. As
of September 30, 2009, we have recognized approximately $14.8 million in royalty revenue
associated with TB-GSR1, which is attributable to cumulative production of approximately
110,000 ounces of gold. |
|
(3) |
|
As part of the Barrick transaction, as discussed earlier within this MD&A, the
Mulatos sliding-scale royalty rate increased to 5.0% from 1.5%, at current prices, resulting
in additional royalty revenue of approximately $1.6 million during the three months ended
September 30, 2009. |
|
(4) |
|
Royalty acquired in October 2008 as part of the Barrick transaction, as discussed
earlier within this MD&A. The Siguiri royalty is subject to a dollar cap of approximately
$12.0 million. As of September 30, 2009, approximately $6.5 million remains under the cap. |
|
(5) |
|
Production began during the fourth quarter of calendar 2008. |
|
(6) |
|
Other includes all of the Companys non-principal producing royalties as of
September 30, 2009 and 2008. Individually, no royalty included within the Other category
contributed greater than 5% of our total royalty revenue for the period. |
22
Please refer to Recent Developments, Property Developments earlier within this MD&A for a further
discussion on recent developments regarding properties covered by certain of our royalty interests.
Cost of operations increased to $1.2 million for the quarter ended September 30, 2009, compared to
$0.8 million for the quarter ended September 30, 2008. The increase was primarily due to an
increase in non-cash stock compensation allocated to cost of operations of approximately $0.2
million and an increase in legal fees associated with our royalty interests of approximately $0.1
million. These increases were partially offset by a decrease in the Nevada Net Proceeds Tax
expense, which resulted primarily from a decrease in royalty revenue from Robinson.
General and administrative expenses increased to $2.2 million for the quarter ended
September 30, 2009, from $1.7 million for the quarter ended September 30, 2008. The increase was
primarily due to an increase in non-cash stock compensation allocated to general and administrative
expense of approximately $0.2 million and an increase in consulting costs of approximately $0.1
million.
Exploration and business development expenses increased to $0.9 million for the quarter ended
September 30, 2009, from $0.7 million for the quarter ended September 30, 2008. The increase is
primarily due to an increase in non-cash stock compensation allocated to exploration and business
development expense of approximately $0.1 million and an increase in legal fees associated with
business development activities of approximately $0.1 million.
The Company recorded total non-cash stock compensation expense related to our equity compensation
plans of $1.1 million and $0.6 million for the quarters ended September 30, 2009 and 2008,
respectively. The increase in our non-cash stock compensation was due to an increase in the
accrual for the expected vesting of certain performance share awards based on the Companys
estimates as of September 30, 2009. Our non-cash stock compensation is allocated among cost of
operations, general and administrative, and exploration and business development in our
consolidated statements of operations and comprehensive income. Please refer to Note 6 of the
Notes to Consolidated Financial Statements for further discussion of the allocation of non-cash
stock compensation for the quarters ended September 30, 2009 and 2008.
Depreciation, depletion and amortization increased to $11.0 million for the quarter ended
September 30, 2009, from $4.4 million for the quarter ended September 30, 2008. Depletion from the
Barrick royalties acquired in October 2008 contributed approximately $3.6 million in additional
depletion during the period. Also, increased production at Taparko resulted in additional
depletion of approximately $3.5 million during the period. These increases were partially offset
by a decrease in production at Robinson, which resulted in a decrease in depletion of approximately
$0.4 million.
Interest and other income increased to $1.8 million for the quarter ended September 30, 2009, from
$0.9 million for the quarter ended September 30, 2008. The increase was primarily due to a $1.6
million gain on distributions of Inventory restricted attributable to non-controlling interest
holders. The increase was partially offset by a decrease in interest rates associated with our
invested cash.
During the quarter ended September 30, 2009, we recognized income tax expense totaling $3.0 million
compared with $3.1 million during the quarter ended September 30, 2008. This resulted in an
effective tax rate of 24.9% in the current period, compared with 34.3% in the prior period. The
decrease in our effective tax rate is the result of the release of a valuation allowance associated
with foreign net operating loss carryforwards attributed to our Chilean subsidiary of approximately
$1.3 million. The Company believes that these net operating losses will be fully utilized by our
Chilean subsidiary.
23
Liquidity and Capital Resources
Overview
At September 30, 2009, we had current assets of $333.7 million compared to current liabilities of
$5.4 million for a current ratio of 62 to 1. This compares to current assets of $318.7 million and
current liabilities of $6.2 million at June 30, 2009, resulting in a current ratio of approximately
51 to 1. The increase in our current ratio is primarily due to an increase in cash and
equivalents.
At September 30, 2009, our cash and equivalents as shown on the consolidated balance sheets were
primarily held in money market accounts which are invested in United States treasury bills or
United States treasury backed securities. We are not invested in auction rate securities. The
Company has not experienced any losses related to these balances and management believes its credit
risk to be minimal.
As further discussed earlier within this MD&A under Recent Developments Business Developments,
the Company entered into a Master Agreement with a Chilean subsidiary of Teck, CDA, to acquire the
Andacollo Production Interest. The purchase price for the Andacollo Production Interest consists
of $217.9 million in cash and 1,204,136 shares of the Companys Common Stock.
During the three months ended September 30, 2009, liquidity needs were met from $26.1 million in
royalty revenues (including $0.4 million of non-controlling interest) and our available cash
resources.
We believe that our current financial resources and funds generated from operations will be
adequate to cover anticipated expenditures for cost of operation expenses, general and
administrative expense costs, exploration and business development costs, and capital expenditures
for the foreseeable future. Our current financial resources are also available for royalty
acquisitions (including the Andacollo Production Interest as discussed earlier) and to fund
dividends. Our long-term capital requirements are primarily affected by our ongoing acquisition
activities. The Company currently, and generally at anytime, seeks acquisition opportunities in
various stages of active review. In the event of a substantial royalty or other acquisition, we
may seek additional debt or equity financing opportunities.
Please refer to our risk factors included in Part I, Item 1A of our Fiscal Year 2009 10-K for a
discussion on certain risks that may impact the Companys liquidity and capital resources in light
of the recent economic downturn.
Recent Liquidity and Capital Resource Developments
Prepayment and Termination of Term Loan Facility
Royal Gold Chile Limitada (RGCL), a wholly-owned subsidiary of Royal Gold, had a $19.25 million
term loan outstanding bearing interest at LIBOR plus 0.25% pursuant to an Amended and Restated Term
Loan Agreement (Amended and Restated Agreement) between RGCL and HSBC Bank. On
September 23, 2009, RGCL prepaid the full $19.25 million outstanding, plus interest, under the
Amended and Restated Agreement. In addition to prepaying all outstanding amounts, RGCL notified
HSBC Bank of its intention to terminate the Amended and Restated Agreement. Termination of the
Amended and Restated Agreement was effective September 24, 2009.
To secure RGCLs obligations under the Amended and Restated Agreement, the Company maintained
$19.25 million in a Collateral Account at HSBC Bank. The Collateral Account balance was recorded
as Restricted cash compensating balance on the Companys consolidated balance sheets. Upon the
full prepayment and termination of the Amended and Restated Agreement, the Collateral Account was
closed and the $19.25 million was reclassified to Cash and equivalents on the Companys
consolidated balance sheets as of September 30, 2009.
24
Recently Adopted and Issued Accounting Standards
Please refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion on
recently adopted and issued accounting standards.
Forward-Looking Statements
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 projected production estimates and estimates pertaining to timing and
commencement of production from the operators of our royalty properties; the adequacy of financial
resources and funds to cover anticipated expenditures for general and administrative expenses as
well as costs associated with exploration and business development and capital expenditures, and
our expectation that substantially all our revenues will be derived from royalty interests.
Factors that could cause actual results to differ materially from these forward-looking statements
include, among others:
|
|
|
changes in gold and other metals prices on which our royalties are paid or prices
associated with the primary metal mined at our royalty properties; |
|
|
|
|
the production at or performance of our producing royalty properties; |
|
|
|
|
decisions and activities of the operators of our royalty properties; |
|
|
|
|
the ability of operators to bring projects into production and operate in accordance
with feasibility studies; |
|
|
|
|
liquidity or other problems our operators may encounter; |
|
|
|
|
unanticipated grade and geological, metallurgical, processing or other problems at the
royalty properties; |
|
|
|
|
mine operating and ore processing facility problems, pit wall or tailings dam failures,
natural catastrophes such as floods or earthquakes and access to raw materials, water and
power; |
|
|
|
|
changes in project parameters as plans of the operators are refined; |
|
|
|
|
changes in estimates of reserves and mineralization by the operators of our royalty
properties; |
|
|
|
|
economic and market conditions; |
|
|
|
|
future financial needs; |
|
|
|
|
federal, state and foreign legislation governing us or the operators of our royalty
properties; |
|
|
|
|
the availability of royalties for acquisition or other acquisition opportunities and the
availability of debt or equity financing necessary to complete such acquisitions; |
|
|
|
|
our ability to make accurate assumptions regarding the valuation, timing and amount of
royalty payments when making acquisitions; |
|
|
|
|
risks associated with conducting business in foreign countries, including application of
foreign laws to contract and other disputes, environmental and permitting laws, community
unrest and labor disputes, and enforcement and uncertain political and economic
environments; |
|
|
|
|
risks associated with issuances of substantial additional common stock or incurrence of
substantial indebtedness in connection with acquisitions or otherwise; |
|
|
|
|
satisfaction or waiver of the closing conditions to the proposed acquisition of an
interest in the gold production from the Andacollo mine described herein and the closing
thereof; |
25
|
|
|
acquisition and maintenance of permits and authorizations, completion of construction
and commencement and continuation of production at the Andacollo mine; and |
|
|
|
|
changes to management and key employees; |
as well as other factors described elsewhere in this report and our other reports filed with the
Securities and Exchange Commission. Most of these factors are beyond our ability to predict or
control. Future events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements. We disclaim any obligation to update
any forward-looking statements made herein. Readers are cautioned not to put undue reliance on
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flow are significantly impacted by changes in the market price of gold,
silver, copper and other metals. Gold, silver, copper and other metal prices can fluctuate
significantly and are affected by numerous factors, such as demand, production levels, economic
policies of central banks, producer hedging, world political and economic events, and the strength
of the U.S. dollar relative to other currencies. Please see Volatility in gold, copper and other
metal prices may have an adverse impact on the value of our royalty interests and reduce our
royalty revenues, under Part I, Item 1A of our Fiscal 2009 10-K, for more information that can
affect gold and other prices as well as historical gold, silver and copper prices.
During the three month period ended September 30, 2009, we reported royalty revenues of $26.1
million, with an average gold price for the period of $960 per ounce and an average copper price of
$2.65 per pound. Approximately 86% of our total recognized revenues for the three months ended
September 30, 2009, were attributable to gold sales from our gold producing royalty interests, as
shown within the MD&A. For the three months ended September 30, 2009, if the price of gold had
averaged higher or lower by $50 per ounce, we would have recorded an increase or decrease in
revenues of approximately $1.2 million, respectively. Approximately 7% of our total recognized
revenues for the three months ended September 30, 2009, were attributable to copper sales from our
copper producing royalty interests. For the three months ended September 30, 2009, if the price of
copper had averaged higher or lower by $0.50 per pound, we would have recorded an increase or
decrease in revenues of approximately $0.4 million, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2009, the Companys management, with the participation of the President and
Chief Executive Officer and its Chief Financial Officer and Treasurer, carried out an evaluation of
the effectiveness of the design and operation of the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
(the Exchange Act)). Based on such evaluation, the Companys President and Chief Executive
Officer and its Chief Financial Officer and Treasurer have concluded that, as of
September 30, 2009, the Companys disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported within the
required time periods and that such information is accumulated and communicated by the Companys
management, including the President and Chief
Executive Officer and its Chief Financial Officer and Treasurer, as appropriate to allow timely
decisions regarding required disclosure.
26
Disclosure controls and procedures involve human diligence and compliance and are subject to lapses
in judgment and breakdowns resulting from human failures. As a result, a control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
Changes in Internal Controls
There has been no change in the Companys internal control over financial reporting during the
three months ended September 30, 2009, that has materially affected, or that is reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Casmalia
On March 24, 2000, the United States Environmental Protection Agency (EPA) notified Royal Gold
and 92 other entities that they were considered potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
(Superfund), at the Casmalia Resources Hazardous Waste Disposal Site (the Site) in Santa
Barbara County, California. EPAs allegation that Royal Gold was a PRP was based on the disposal
of allegedly hazardous petroleum exploration wastes at the Site by Royal Golds predecessor, Royal
Resources, Inc., during 1983 and 1984.
After extensive negotiations, on September 23, 2002, Royal Gold, along with 35 members of the PRP
group targeted by the EPA, entered into a Partial Consent Decree with the EPA and the United States
Department of Justice intending to settle their liability for past and future clean-up costs
incurred or expected to be incurred at the Site by the federal government. The United States
District Court for the Central District of California entered the Partial Consent Decree on
August 14, 2003. Based on the minimal volume of allegedly hazardous substances that Royal
Resources, Inc. disposed of at the Site, which was characterized in volume as de minimis, our share
of the $25.3 million settlement amount was approximately $0.1 million, which we deposited into the
escrow account that the PRP group set up for that purpose in January 2002. The funds were paid to
the United States Treasury on May 9, 2003 and the Partial Consent Decree was executed. As a result
of the settlement, the United States of America may only pursue Royal Gold and the other PRPs for
additional clean-up costs if the United States total clean-up costs at the Site significantly
exceed the expected cost of approximately $272 million.
Royal Gold also executed a de minimis party Administrative Order on Consent (AOC) with the State
of California on January 15, 2009. The AOC became effective upon notice dated September 25, 2009,
from the California Attorney General that the required 30-day public comment period closed and that
no comments were received requiring modification of or withdrawal from the AOC by the State of
California.
Under the terms of the federal Partial Consent Decree and the state AOC, we believe our potential
liability to the United States of America, the State of California, and third parties to be
effectively settled and any further exposure related to the Casmalia site to be a remote
possibility.
27
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Item 2 MD&A Forward-Looking Statements, and
various risks faced by us are also discussed elsewhere in Item 2 MD&A of this Quarterly Report on
Form 10-Q. In addition, risk factors are included in Part I, Item 1A of our Fiscal 2009 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
28
ITEM 6. EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Restated Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q
on February 8, 2008 and incorporated herein by reference). |
|
|
|
3.2
|
|
Amended and Restated Bylaws, as amended (filed as Exhibit
3.1 to the Companys Quarterly Report on Form 10-Q on
May 1, 2008 and incorporated herein by reference). |
|
|
|
3.3
|
|
Amended and Restated Certificate of Designations of Series
A Junior Participating Preferred Stock of Royal Gold, Inc.
(filed as Exhibit 3.1 to the Companys Current Report on
Form 8-K on September 10, 2007 and incorporated herein by
reference). |
|
|
|
31.1
|
|
Certification of President and Chief Executive Officer
required by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer required by
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Written Statement of the President and Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.2
|
|
Written Statement of the Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
29
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.
|
|
Date: November 6, 2009 |
By: |
/s/ Tony Jensen
|
|
|
|
Tony Jensen |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: November 6, 2009 |
By: |
/s/ Stefan Wenger
|
|
|
|
Stefan Wenger |
|
|
|
Chief Financial Officer and Treasurer |
|
|
30