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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Fiscal Year Ended June 30, 1997.
Commission File No. 0-5664
ROYAL GOLD, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 84-0835164
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1660 Wynkoop Street
Suite 1000
Denver, Colorado 80202-1132
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(Address of Principal (Zip Code)
Executive Offices)
(303) 573-1660
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(Registrant's Telephone Number, including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value NASDAQ National Market System
-------------------------------- ------------------------------------
(Title of Class) Name of Exchange on which registered
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of August 29, 1997, the average bid and asked price of the Company's
stock was $7.75. The aggregate market value of voting stock held by non-
affiliates was $79,757,000. As of August 29, 1997, there were 16,080,176
shares of Common Stock, $0.01 par value, outstanding.
Documents Incorporated By Reference
Portions of the Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on December 2, 1997: Part III, Items 11, 12 and 13.
Total Number of Pages: 56 Exhibit Index - Page 54
TABLE OF CONTENTS
PAGE
----
Part I
Items 1.
and 2. Business and Properties 1
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21
Item 8. Financial Statements and Supplementary Data 25
Part III
Item 10. Directors and Executive Officers of the
Registrant 49
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial
Owners and Management 51
Item 13. Certain Relationships and Related
Transactions 51
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 54
Exhibit A. The Company and Its Subsidiaries 54
Signatures 55
Cautionary "Safe Harbor" Statement Under the Private Securities
Litigation Reform Act of 1995. With the exception of historical
matters, the matters discussed in this report are forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from projections or estimates
contained herein. Such forward-looking statements include
statements regarding planned levels of exploration and other
expenditures, anticipated mine lives, timing of production and
schedules for development. Factors that could cause actual
results to differ materially include, among others, decisions and
activities of Cortez regarding Pipeline and South Pipeline,
unanticipated grade, geological, metallurgical, processing or
other problems, conclusions of feasibility studies, changes in
project parameters as plans continue to be refined, the timing of
receipt of governmental permits, the failure of plant, equipment
or processes to operate in accordance with specifications or
expectations, results of current exploration activities,
accidents, delays in start-up dates, environmental costs and
risks, changes in gold prices, as well as other factors described
elsewhere in this report. Most of these factors are beyond the
Company's ability to predict or control. The Company disclaims
any obligation to update any forward-looking statement made
herein. Readers are cautioned not to put undue reliance on
forward-looking statements. See "Business and Properties - Risk
Factors".
PART I
Items 1 and 2. BUSINESS AND PROPERTIES
GENERAL
Royal Gold, Inc. (together with its subsidiaries, "Royal" or the
"Company"), is a gold royalty company engaged in the acquisition,
exploration and development of gold properties.
The Company conducts exploration and development activity on gold
and other precious minerals properties and seeks to obtain
royalty and other carried ownership interests in these properties
through the subsequent transfer of operating interests to other
mining companies. The Company also seeks to acquire existing
royalties. Substantially all the Company's revenues are and can
be expected to be derived from royalty interests, rather than
from mining operations conducted by the Company.
The Company's principal mineral property interest is a carried
20% net profits royalty interest in the South Pipeline property,
operated by Cortez Gold Mines. South Pipeline is located in
Crescent Valley, Nevada, and gold production commenced at that
property in September 1994 (see "South Pipeline Property" below).
In fiscal 1997, the Company generated revenues of $8,202,000 from
its royalty interest at South Pipeline. The Company also
conducted its own development program at Long Valley, in Mono
County, California; and is engaged in exploration at Buckhorn
South, in Eureka County, Nevada, and at several other prospects
in Nevada, Utah, Wyoming and Colorado. The Company is also
evaluating opportunities in Europe and Australia.
The Company is also engaged, through two wholly-owned
subsidiaries, Denver Mining Finance Company ("DMFC") and
Environmental Strategies, Inc. ("ESI"), in providing financial,
operational, and environmental consulting services to the mining
industry and to companies serving the mining industry. During
fiscal 1997, income generated from consulting services was not
material.
The Company was incorporated under the laws of the State of
Delaware on January 5, 1981. Its executive offices are located
at 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202. See
Exhibit 21, "The Company and Its Subsidiaries."
Developments During Fiscal 1997
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The highlights of fiscal 1997 were:
(1) The Company achieved record profitability for the year ended
June 30, 1997. This profitability resulted from increased royalty
-1-
payments attributable to expanded production of mill-grade ore at
the Crescent Pit on the South Pipeline property. Higher output
resulted from the availability of the Cortez Mill #2, which came
on line in March 1997. For fiscal 1997, the Company received
18,003 ounces of gold, which produced revenues of $6,855,000,
from its net profits interest in the mill-grade ore at the
Crescent Pit. This was based on gold sales from the Crescent Pit
of 149,380 ounces of gold from mill-grade production.
(2)During fiscal 1997, the Crescent Pit heap leach operation
produced net profits to Royal Gold of $1,580,000.
(3) The Company's estimate of the mineralized deposit at South
Pipeline was increased to 113 million tons of mineralized
material, with an average grade of 0.046 ounces of gold per ton
based on drilling during the period September 1994 through
calendar year 1996 carried out by Cortez.
(4) The Company's reserve estimate at the Long Valley property
was increased to 39.1 million tons, at an average grade of 0.018
ounce per ton of gold, containing 704,000 ounces of gold. (See
"Properties - Long Valley" below.)
(5) The Company formed an entity that will seek to acquire
existing gold royalties in Australia as well as invest in junior
Australian resource companies with emerging projects or advanced
exploration plays. The new company, Royal Gold Australia Pty Ltd
(RGA) is based in Perth, Western Australia.
(6) GRAMEX, a Bulgarian company owned equally by Royal Gold and
Silver & Baryte Ores Mining Co. joined with Phelps Dodge
Exploration Company to form a Bulgarian Company named Sofia
Minerals Ltd. (SOMIN). SOMIN is a joint venture company held
equally by GRAMEX and Phelps Dodge which will explore, evaluate
and develop properties in Bulgaria.
PROPERTIES
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Recent activities at each of the significant properties in which
the Company has an interest are described below. Reference is
made to footnotes in the financial statements for more
information on property histories.
In all instances, the Company has estimated gold-bearing material
by the use of drilling, mapping, sampling, geological
interpretation, assaying and other standard evaluation methods
generally applied by the mining industry. The Company has relied
on its joint venture partners and previous owners of certain of
its properties for the preparation of certain data and other
information. Any information prepared by others has been
reviewed by the Company and its consultants.
-2-
South Pipeline Property
- -----------------------
The South Pipeline property royalty interest is the Company's
most significant gold property interest. The South Pipeline
Project is operated by Cortez Gold Mines ("Cortez"), a joint
venture of Placer Dome U.S. ("PDUS") and Kennecott
Corporation. The South Pipeline Project is located in
Lander County, Nevada, approximately 60 miles southwest of Elko.
The project involves over 4,000 acres of unpatented mining claims
(the "GAS Mining Claims"), which Cortez leases from ECM, Inc.
("ECM").
The Company currently holds a fully-carried royalty interest in
the South Pipeline Project. (That is, the Company is never
obliged to advance any of the costs of exploration, development
or production at South Pipeline.) After payback of capital
expenditures, the Company, at its annual election, can either
receive a 20% net profits royalty interest or a sliding scale
2.5% to 5.5% NSR* royalty interest in all production from the GAS
Mining Claims. Under either royalty interest, the Company may
elect to take its share of production in-kind. In November 1996,
the Company made its annual election to receive its production
in-kind for the next year.
Background
- ----------
As has been described extensively in prior years, the Company has
been involved with this property since 1987. The Company, as the
original operator of a joint venture with Cortez, conducted the
initial exploration work at South Pipeline, which was then
referred to as "Crescent Valley". Reverse circulation drilling
programs conducted by the Company in calendar years 1988, 1989
and 1990 resulted in identification of one sediment-hosted,
"Carlin-type", disseminated gold deposit and the identification
of other gold anomalies.
In 1991, the Company decided to sell its interest in the property
to Cortez. In September 1992, however, the Company recovered a
20% net profits interest on the South Pipeline property following
settlement of litigation brought by the Company against Cortez.
Under the Agreement, Cortez, as operator and manager, committed
to an exploration and development work program and also agreed to
pay the Company an advance minimum royalty of $150,000 per year.
The Company's royalty will be subject to payback of capital
expenditures by Cortez for each new mining unit put into
production. After payback, the Company will receive a 20% net
profits royalty or, at its election beginning with production and
__________________________
* "Net smelter returns" or "NSR" royalty interest means that
the royalty holder receives a defined percentage of the gross
revenue, less a proportionate share of incidental
transportation, insurance and processing costs.
-3-
annually thereafter, an NSR royalty according to a schedule tied
to indexed gold prices. The NSR royalty ranges from 2.5% for an
indexed price of $350 per ounce to 5.5% for an indexed price in
excess of $500 per ounce. Under either royalty arrangement, the
Company may elect to take its royalty "in-kind."
If Cortez does not elect to put any deposit containing at least
300,000 ounces of gold into production within two years of its
identification, then the Company may elect to put that deposit
into production, thereby securing 100% of the working interest
therein, subject to granting a 20% net profits interest royalty
to Cortez identical to the one described above. Royal Gold would
then also be entitled to use, under a normal tolling arrangement
and as available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
Finally, Cortez entered into a five year standstill agreement
with respect to further acquisition of shares of the Company or
other actions regarding efforts to acquire or control the
Company. During the standstill period, Cortez may not sell any
of the acquired shares except pursuant to Rule 144 and certain
other specified transactions. This standstill agreement expired
in September 1997.
Development
- -----------
Since November 1992, Cortez has conducted an aggressive program
of exploration and development drilling at South Pipeline, and
has spent over $17 million through June 30, 1997.
On December 31, 1996, Cortez announced that the mineral deposit
at South Pipeline was estimated to contain 86.1 million tons,
with an average grade of 0.048 ounces of gold per ton. Cortez
also announced that it will spend $2.4 million on exploration
drilling at South Pipeline during calendar year 1997. In May
1997, the Company announced that its estimate of the mineral
deposit at South Pipeline had increased to 112.9 million tons at
an average grade of 0.046 ounces of gold per ton.
In June 1994, Cortez began open pit mining at the Crescent Pit, a
near-surface portion of the South Pipeline deposit. Initially,
Cortez combined the Crescent Pit ore with ore from another mine
(in which the Company has no interest), and processed all such
ore at the Cortez mill, a 2,000 ton per day facility that is
located a few miles east of the Crescent Pit. In February 1996,
however, Cortez notified the Company that it would stop
commingling ores at the Cortez mill and that it would mill
Crescent Pit ore exclusively, at least through the end of
calendar year 1996. Beginning in March 1997, Cortez committed
100% of the capacity of its new Mill #2 to Crescent Pit ore.
-4-
This new mill, constructed by Cortez for the processing of its
Pipeline deposit, was designed for throughput of 10,000 tons per
day. With this increase in processing capacity, the production
at the Crescent Pit increased substantially and was completed on
June 24, 1997.
In addition to the South Pipeline gold deposits that have been
defined to date, other important gold intercepts have been made
on the South Pipeline property, which suggests that additional
deposits may exist on the property. Additional exploration was
conducted during fiscal 1997, as Cortez focused on expanding the
South Pipeline reserve. Based on this drilling, Cortez increased
the reserve at South Pipeline to 52.0 million tons, at an average
grade of 0.054 ounces per ton, containing 2.8 million ounces.
This increase in reserves is net of all production at the
Crescent Pit.
In September 1996, Cortez filed its "1996 Amendment to the
Pipeline Plan of Operations for the South Pipeline Project" with
the Bureau of Land Management. (Pipeline is an open pit project
immediately to the north that is operated by Cortez. Royal Gold
has no interest in the Pipeline deposit.) In this amendment,
Cortez states that the pre-stripping of the open pit mine at
South Pipeline is expected to take about 18 months and will begin
at the end of the third year of mining activity at Pipeline.
Processing of the Pipeline Deposit commenced on June 28, 1997.
The mine life of Pipeline is estimated to be five plus years
after commissioning of a mill with throughput of 10,000 tons per
day. Cortez also stated that South Pipeline ore will be processed
after mining of the Pipeline deposit has been completed. The
majority of the South Pipeline Project ore will be processed in
the Pipeline processing facilities, extending the Pipeline/South
Pipeline Project life by an additional eight years. Timing of
production at the South Pipeline deposit remains subject to
permitting and decisions of the operator. The Company continues
to monitor the progress of development of the South Pipeline
deposit, and it meets periodically with PDUS to ensure that
timely development occurs in accordance with the agreement. Most
recently, PDUS advised the Company that Cortez is continuing to
evaluate alternative mining and production scenarios for South
Pipeline, all with a view to maximizing the value of the South
Pipeline deposit.
Crescent Pit Operations
- -----------------------
The Crescent Pit operation, encompasses some 320 acres within the
4,000 acre claim block of the South Pipeline Project, was planned
to recover some 217,000 ounces of mill-grade gold over a four-
year period. In July 1995, production commenced at the Crescent
Pit heap leach facility and it was anticipated that 34,000 ounces
of gold would be recovered from the heap leach material over a
five year period. Gold production from the Crescent Pit exceeded
-5-
initial expectations, for both mill-grade and heap leach
material.
Crescent Pit Production
- -----------------------
Set forth below is a chart showing the production by quarter from
the Crescent Pit mill-grade ore during fiscal 1997, in which the
Company holds a 20% Net Profits Interest:
Average
Tons Grade Recoveries Recovered
(millions) (oz Au/ton) (percentage) ounces
-------- --------- ---------- ---------
Quarter ended:
9/30/96 189.0 .202 91.4 34,902
12/31/96 178.9 .222 87.9 34,924
3/31/97 335.4 .118 87.6 34,656
6/30/97 844.2 .092 86.9 67,493
Fiscal 1997 1,547.6 .126 88.1 171,974
Additionally, 24,709 ounces of gold were produced from the
Crescent Pit heap leach material during fiscal 1997. (These
production amounts represent 100% of the production at the
Crescent Pit. The Company holds a 20% net profits interest in
this property.) All Crescent Pit mill-grade ore was processed by
June 30, 1997, except for work in process material estimated to
be 20,975 ounces of gold. The net profits for this production
will be recorded as revenues in the first quarter of fiscal 1998.
Reserves and Other Mineralization
- ---------------------------------
Set forth below is a chart showing the reserves that have been
defined at the South Pipeline property, in which the Company owns
a 20% Net Profits Interest:
-6-
Proven and Probable Reserves (1)
June 30, 1997 adjusted for Crescent Pit Production
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
-------- --------- ---------
South Pipeline Property
Crescent Pit:
Heap Leach Ore (3) 0.59 0.023 14,000
South Pipeline Deposit:
Mill Grade Ore (3) 25.4 0.091 2,299,000
Heap Leach Ore (3) 26.6 0.020 519,000
- ------------------------------
(1) "Reserve" is that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the
reserve determination.
"Proven (Measured) Reserves" are reserves for which (a)
quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes and the grade is computed from
the results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so closely and
the geologic character is so well defined that the size, shape,
depth and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which
the quantity and grade are computed from information similar to
that used for proven (measured) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance of
probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological
continuity between points of observation.
(2) Contained ounces shown are before an allowance for dilution
of ore in the mining process. The assumed recovery rates are 84%
for Crescent Pit mill-grade ore, 86% for South Pipeline mill-
grade ore, and 50% for heap leach material. During fiscal 1997,
Cortez actually recovered 87.2% of the assayed head grade of the
Crescent Pit mill-grade ore, and 66% of the assayed head grade of
the Crescent Pit heap leach material. These reserves are based
on an expected gold price of $375 per ounce.
(3) Amounts shown represent 100% of the reserves. The Company
holds a 20% net profits interest in this property.
-7-
Set forth below is a chart showing the additional gold deposit
that has been defined at the South Pipeline property, in which
the Company owns a 20% Net Profits Interest:
Gold Deposits/Mineralization (1)(2)
June 30, 1997
Average
Tons Grade
(millions) (oz Au/ton)
-------- ---------
South Pipeline Deposit 60.9 0.039
Including Deep Zone
- -----------------------------
(1) Gold mineralization has not been included in the proven and
probable ore reserve estimates because even though drilling,
trenching and/or underground work indicate a sufficient quantity
and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are completed, and until other economic and technical feasibility
factors based upon such work are resolved.
(2) Amounts shown represent 100% of the deposits. The Company
holds a 20% net profits interest in this property.
Long Valley
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The Long Valley project consists of 160 unpatented mining claims
located 45 miles north of Bishop, California, in Mono County.
The Company has been involved with this property since 1989, when
it entered into a joint venture with Standard Industrial
Minerals, Inc. ("Standard"). Standard owns 105 of the claims
that comprise the Long Valley project, and operates a kaolin mine
that is adjacent to the property. The Company located the
additional 55 claims.
Under the joint venture agreement, the Company has an option,
exercisable through December 31, 1997, to acquire the entirety of
Standard's interest in Long Valley for $1,000,000. During the
term of the option, the Company is obliged to make annual
payments to Standard, totaling $125,000 over four years, with
$100,000 of such payments being creditable against the option
exercise payment. The Company has no specific work commitment.
During 1994, the Company completed 18 reverse circulation holes,
aggregating some 16,000 feet. Based on the results of such
drilling, and data generated by predecessors in interest, Royal
Gold determined the existence of two new areas of gold
-8-
mineralization (the "Hilton Creek Zone" and the "Southeast
Zone"), separated by about 2,000 feet, and estimated that such
zones contain a total of 49,640,000 tons of gold mineralization,
with an average grade of 0.018 ounces of gold per ton.
Royal Gold has continued to drill at Long Valley since 1994, and,
through June 30, 1997, has completed more than 550 reverse-
circulation holes, aggregating more than 168,000 feet of
drilling. The program has confirmed the existence of continuous
mineralization between the Hilton Creek and Southeast Zones and
has discovered additional mineralization to the north and to the
south of the Hilton Creek Zone.
Based on the results of the drilling, the Company commissioned a
reserve study. Based on this study, the Company has determined
that Long Valley contains reserves, suitable for open pit mining,
as set forth below. Based on these reserves the Company
designated this project as a development property as of July 1,
1995. All costs incurred at Long Valley in fiscal 1996 and
fiscal 1997 have been capitalized.
Subsequent to June 30, 1997, the Company formed an agreement with
AMAX Gold Inc. This agreement provides that AMAX Gold has an
option, exercisable through December 31, 1997, to enter into a
lease and become responsible for further exploration, permitting,
and development of Long Valley, and for construction and
operation of any mine that may be developed. If AMAX Gold
exercises its option, it will then pay $300,000 to Royal Gold and
make advance minimum royalty payments of $250,000 per year to
Royal Gold until the Long Valley property is in production. AMAX
Gold can terminate the agreement at any time, but would thereby
relinquish any interest in the property. After Long Valley is in
production, and upon payback of the investments made by both
Royal Gold and AMAX Gold, Royal Gold will receive 22% of net
operating cash flow from the property or, at Royal Gold's
election, a sliding scale net smelter returns royalty that is
indexed to the price of gold and capped at 5.5%. Upon execution
of this agreement the Company received a payment of $150,000. The
Company maintains the obligation to pay the $900,000 property
purchase price due in December 1997.
Reserves and Other Mineralization
- ---------------------------------
Set forth is a chart showing the proven and probable reserves
that have been defined at Long Valley:
-9-
Proven and Probable Reserves (1)(3)
June 30, 1997
Average
Tons Grade Contained
(millions) (oz Au/ton) Oz Au (2)
-------- --------- ---------
Long Valley 39.1 0.018 704,000
- -----------------------------
(1) "Reserve" is that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the
reserve determination.
"Proven (Measured) Reserves" are reserves for which (a)
quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes and the grade is computed from
the results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so closely and
the geologic character is so well defined that the size, shape,
depth and mineral content of the reserves are well-established.
"Probable (Indicated) Reserves" are reserves for which
the quantity and grade are computed from information similar to
that used for proven (measured) reserves, but the sites for
inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance of
probable (indicated) reserves, although lower than that for
proven (measured) reserves, is high enough to assume geological
continuity between points of observation.
(2) Contained ounces shown are before an allowance for dilution
of ore in the mining process. The assumed recovery rate for heap
leach material is 70%.
(3) These reserves were computed using a gold price of $350 per
ounce and a cut-off grade of 0.010 ounces per ton of gold.
Gold mineralization at Long Valley includes an additional 7.9
million tons of material at an average grade on 0.018 ounces of
gold per ton. This gold mineralization has not been included in
the proven and probable ore reserve estimates because even though
drilling, trenching and/or underground work indicate a sufficient
quantity and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are completed, and until other economic and technical feasibility
factors based upon such work are resolved.
-10-
In addition to the above identified reserves at Long Valley, the
Company has identified additional mineralization of 7.9 million
tons at an average grade of 0.018 ounces of gold per ton. This
gold mineralization has not been included in the proven and
probable ore reserve estimates because even though drilling,
trenching and/or underground work indicates a sufficient quantity
and grade to warrant further exploration or development
expenditures, these deposits do not qualify as commercially
mineable ore bodies until further drilling and metallurgical work
are complete, and until other economic and technical feasibility
factors based upon such work are resolved.
Union Pacific Exploration Project
- ---------------------------------
Under its agreement with Union Pacific Resources Group, Inc.
("UPR"), originally executed in May 1994, the Company conducted
reconnaissance on some 7.5 million acres of UPR land in Utah,
Wyoming and Colorado, including the State Line District of
Wyoming and Colorado. The Company conducted preliminary
exploration throughout UPR's holdings and then designated 50,000
acres for more extensive exploration.
During fiscal 1996, Royal Gold and UPR amended their agreement,
to reflect additional expenditure levels, and an emphasis on
diamond exploration on the State Line District of Colorado and
Wyoming. The entire term of the agreement remains unchanged,
expiring on December 31, 1999, with aggregate exploration
commitments totaling $2.375 million. Royal Gold may also elect
to terminate the agreement after spending at least $375,000 in
either of calendar years 1997 or 1998, and the Company will
exceed the threshold amount in calendar year 1997.
The Company has already identified ten large prospect areas in
the State Line District where it has conducted geochemical
sampling surveys, that have yielded indicator minerals. These
indicator minerals suggest the presence of kimberlites and the
potential for diamond discoveries, in drainages where kimberlites
were not previously known to exist. Royal Gold's stream sediment
sampling program involved taking samples of approximately 90
pounds each of material able to pass through a 3mm screen.
Samples were taken on approximately one kilometer centers.
Additional sampling occurred in fiscal 1997, and more sampling is
planned for fiscal 1998. Exploring for diamonds is a long and
complicated process which is both expensive and time consuming.
At this early stage of exploration, there is no assurance that
kimberlites or commercial quantities of diamonds will be found.
If the Company identifies attractive deposits on the UPR lands,
it has the opportunity, under the terms of its agreements with
UPR, to assign further exploration and development rights to
third parties; to develop such deposits in collaboration with
UPR; or to develop such deposits for Royal Gold's own account.
-11-
In all circumstances where UPR does not itself elect to become
operator, UPR will retain a royalty interest. Under certain
other circumstances, UPR may elect both a minority working
interest plus a royalty interest.
The extent of any such UPR royalty will depend on market factors,
including, among others, the desirability to a third party of the
particular deposit that may be discovered on the UPR property.
Buckhorn South
- --------------
The Buckhorn South project is located in Eureka County, Nevada,
approximately 50 miles southwest of Elko. The property consists
of 265 unpatented mining claims.
Of the 265 claims that comprise Buckhorn South, the Company
leases 131 such claims from Ronald and Arlene Damele, et al., and
the Company staked the balance of the project area. Over the
next fiscal year, the Company is obliged to pay the lessor
$210,000 in advance minimum royalties. The leased claims are
burdened by cumulative royalties equal to a 4% NSR; the remaining
claims are subject to a 1% NSR.
A predecessor in interest at the property completed some 10,400
feet of drilling, and on the basis of such work and other
exploration had, by 1984, estimated that the "Zeke" deposit
contains two million tons of mineralization with an average grade
of 0.056 ounces of gold per ton.
During 1994, the Company conducted geophysical surveys and
drilled nine holes aggregating 6,800 feet. Through its work, the
Company identified new areas of gold mineralization about one
mile south of the Zeke deposit, and also identified structurally
complex areas that may contain significant alteration and
sulfides.
During 1995, the Company drilled 24 reverse-circulation holes,
totaling 13,825 feet. As anticipated, gold mineralization was
discovered, and several of the drill holes contained intervals
exceeding 0.01 ounce per ton of gold.
During fiscal 1997, seven additional reverse-circulation holes
were drilled. Gold mineralization in five of these drill holes
contained intervals exceeding 0.045 ounces per ton of gold.
Ferber
- ------
The Ferber project is located in Elko County, Nevada,
approximately 80 miles southeast of Elko, and consists of 98
unpatented mining claims. Royal Gold leases 51 of the claims
from Donald Jennings, and Royal Gold located the other 47 claims.
The Jennings lease involves advance minimum royalties of $10,000
-12-
per year, expiring in February 1998, and a royalty burden of 2%
NSR. The Company also has work commitments of $100,000 per year
in 1999 and 2000, and $150,000 per year through 2003. In April
1995, five reverse circulation holes were completed totaling
3,020 feet. These holes were drilled to test for mineralization
along the southwestern margin of an intrusive where copper and
gold are known to occur in skarns. Three of the holes
encountered strongly anomalous gold and copper in both the skarn
and the intrusive. The presence of such anomalous intervals in
the intrusive opens large areas of the district for further
exploration. Additional drilling was conducted in October 1995.
Other Exploration Properties
- ----------------------------
During fiscal 1997, the Company explored four additional
properties in Nevada and Utah. Two of these properties yielded
interesting results that will require additional work. The other
two properties were dropped. The Company will continue to acquire
and explore other properties, to the extent that the Company
believes they have the potential to host major gold deposits. It
can be anticipated, because of the nature of the business, that
exploration on many of these properties will prove unsuccessful
and that the Company will terminate its interest in such
properties. As significant results are generated at any
exploration property, the Company will re-evaluate the property,
and the Company may substantially increase or decrease the level
of expenditures on any particular property, at any time.
Sales Contracts
- ---------------
The Company sold 10,000 ounces of gold bullion in fiscal 1997,
utilizing one metal trader during the period. The Company
maintains trading relationships with a number of metal traders.
The Company is currently receiving its net profits interest
royalty in-kind. This gold is being held with a view towards
sale at a higher gold price.
Competition
- -----------
There is aggressive competition within the minerals industry to
discover and acquire properties considered to have commercial
potential. The Company competes for the opportunity to
participate in promising exploration projects with other
entities, many of which have greater resources than the Company.
In addition, the Company competes with others in efforts to
obtain financing to explore and develop mineral properties, and
it also competes with others in efforts to purchase gold royalty
interests.
-13-
Company Personnel
- -----------------
At September 1, 1997, the Company had fourteen full-time
employees located in Denver, Colorado. The Company's employees
are not subject to a union labor contract or collective
bargaining agreement.
Consulting services, relating primarily to geologic and
geophysical interpretations, and advice with respect to
metallurgical, engineering, legal and such other technical
matters as may be deemed useful in the operation of the Company's
business, are provided by independent contractors.
Regulation
- ----------
The Company's activities in the United States are subject to
various federal, state and local laws and regulations governing
prospecting, development, production, labor standards,
occupational health, mine safety, control of toxic substances,
other matters involving environmental protection, and taxation.
The environmental protection laws address, among other things,
the maintenance of air and water quality standards, the
preservation of threatened and endangered species of wildlife and
vegetation, the preservation of certain archaeological sites,
reclamation, and limitations on the generation, transportation,
storage and disposal of solid and hazardous wastes. There can be
no assurances that all the required permits and governmental
approvals can be obtained on a timely basis and maintained as
required. In 1992, the Company received notice of a response
action initiated by the U.S. Forest Service with respect to
Goldstripe, but based on information currently available believes
that no further action by the Company is likely to be required.
Therefore, the Company believes that the response action will not
result in any material adverse effect on the Company. See "LEGAL
PROCEEDINGS." The Company believes that the property and
operations in which it retains interests are currently in
material compliance with all applicable laws and regulations.
Foreign Operations
- ------------------
The Company owns a 50% interest in Greek American Exploration
Ltd. ("GRAMEX"), a Bulgarian private limited company that has
entered into an agreement with the Bulgarian Committee of Geology
and Mineral Resources to conduct geological research and
exploration over 700 square kilometers in the Krumovgrad and
Ivaylovgrad areas of Bulgaria.
This cancelable agreement was for an initial term of two years,
requiring expenditures of $100,000 per year by GRAMEX. The
agreement was extended for an additional two year period,
expiring 1999. The Company is obligated to fund 50% of GRAMEX's
expenditures.
-14-
GRAMEX and Phelps Dodge Exploration Corporation ("PDX") joined
together to form a Bulgarian company named Sofia Minerals Ltd.
("SOMIN"). SOMIN is a joint venture company held equally by
GRAMEX and PDX. SOMIN will explore, evaluate and develop
properties in Bulgaria. SOMIN has signed a concession agreement
with the Bulgarian Committee of Geology and Mineral Resources to
conduct geological research in two major areas in Bulgaria.
The Company has also formed an entity that will seek to acquire
existing gold royalties in Australia as well as invest in junior
Australian resource companies with emerging or advanced
exploration play. Investment may be by way of loans with a
convertibility element to royalties at a later stage. The new
company, Royal Gold Australia Pty Ltd, is based in Perth, West
Australia, and the Company has a 67% interest in the entity. The
remainder of the equity in the new entity is held by affiliates
of Resource Finance Corporation ("RFC"). RFC is an investment
and merchant banking firm that caters to natural resource firms.
RISK FACTORS
Risks of Passive Ownership
- --------------------------
At present, the Company's principal asset is its interest in the
South Pipeline property. The Company's success is dependent on
the extent to which South Pipeline proves to be successful and on
the extent to which Royal Gold is able to acquire or create other
lucrative royalty interests.
The holder of a royalty interest typically has no executive
authority regarding development or operation of a mineral
property. Therefore, unless the Company is able to secure and
enforce certain extraordinary rights, it can be expected that the
Company will not be in control of basic decisions regarding
development and operation of the other properties in which the
Company may have an interest.
Thus, the Company's strategy of having others operate properties
in which it retains a royalty or other passive interest puts the
Company generally at risk to the decisions of others regarding
all basic operating matters, including permitting, feasibility
analysis, mine design and operation, and processing, plant and
equipment matters, among others. While the Company attempts to
obtain contractual rights that will permit the Company to protect
its position, there can be no assurance that such rights will be
sufficient or that the Company's efforts will be successful in
achieving timely or favorable results.
Risks Inherent in the Mining Industry
- -------------------------------------
Mineral exploration and development is highly speculative and
capital intensive. Most exploration efforts are not successful,
-15-
in that they do not result in the discovery of mineralization of
sufficient quantity or quality to be profitably mined. The
operations of the Company are also indirectly subject to all of
the hazards and risks normally incident to developing and
operating mining properties. These risks include insufficient
ore reserves, fluctuations in production costs that may make
mining of reserves uneconomic; significant environmental and
other regulatory restrictions; labor disputes; geological
problems; failure of pit walls or dams; force majeure events; and
the risk of injury to persons, property or the environment.
Uncertainty of Reserves and Mineralization Estimates
- ----------------------------------------------------
There are numerous uncertainties inherent in estimating proven
and probable reserves and mineralization, including many factors
beyond the control of the Company. The estimation of reserves
and mineralization is a subjective process and the accuracy of
any such estimates is a function of the quality of available data
and of engineering and geological interpretation and judgment.
Results of drilling, metallurgical testing and production and the
evaluation of mine plans subsequent to the date of any estimate
may justify revision of such estimates. No assurances can be
given that the volume and grade of reserves recovered and rates
of production will not be less than anticipated. Assumptions
about prices are subject to greater uncertainty and gold prices
have fluctuated widely in the past. Declines in the market price
of gold or other precious metals also may render reserves or
mineralization containing relatively lower grades of ore
uneconomic to exploit. Changes in operating and capital costs
and other factors including, but not limited to, short-term
operating factors such as the need for sequential development of
ore bodies and the processing of new or different ore grades, may
materially and adversely affect reserves.
Proposed Federal Legislation
- ----------------------------
The U.S. Congress is currently considering a proposed major
revision of the General Mining Law, which governs the creation of
mining claims and related activities on federal public lands in
the United States. A bill has been introduced in the Senate
which would amend the current mining laws, and it is possible
that a new law could be enacted. The Company expects that if and
when the new law is effective, it will impose a royalty upon
production of minerals from federal lands and will contain new
requirements for mined land reclamation, and similar
environmental control and reclamation measures. It remains
unclear to what extent any such new legislation may affect
existing mining claims or operations. The effect of any such
revision of the General Mining Law on the Company's operations in
the United States cannot be determined conclusively until such
revision is enacted; however, such legislation could materially
increase costs at Long Valley and at a number of the Company's
-16-
other exploration properties in Nevada and Utah, each of which is
located entirely on federal lands, and such revision could also
impair the Company's ability to develop, in the future, any
mineral prospects that are located on unpatented mining claims.
Fluctuations in the Market Price of Minerals
- --------------------------------------------
The profitability of gold mining operations (and thus the value
of the Company's royalty interests and exploration properties) is
directly related to the market price of gold. The market price
of gold fluctuates widely and is affected by numerous factors
beyond the control of any mining company. These factors include
expectations with respect to the rate of inflation, the exchange
rates of the dollar and other currencies, interest rates, global
or regional political, economic or banking crises, and a number
of other factors. If the market price of gold should drop
dramatically, the value of the Company's royalty interests and
exploration properties could also drop dramatically, and the
Company might not be able to recover its investment in those
interests or properties. The selection of a property for
exploration or development, the determination to construct a mine
and place it into production, and the dedication of funds
necessary to achieve such purposes are decisions that must be
made long before the first revenues from production will be
received. Price fluctuations between the time that such
decisions are made and the commencement of production can
drastically affect the economics of a mine.
The volatility in gold prices is illustrated by the following
table, which sets forth, for the periods indicated, the high and
low prices in U.S. dollars per ounce.
Year Gold Price Per Ounce($)
High Low
---- ----
1992 359 331
1993 406 327
1994 396 370
1995 393 372
1996 416 368
January-June, 1997 367 335
At August 29, 1997, the gold price was $325.35 per ounce. At
present, the Company has no hedging programs in place. At June
30, 1997, the Company held 8,509 ounces of gold bullion in
inventory. Additionally, at June 30, 1997, the Company had a
royalty receivable of 7,601 ounces. The Company would consider
hedging programs in the event certain production levels are
obtained and maintained, and market conditions justify the
economic use of hedging programs.
-17-
Environmental Risks
- -------------------
Mining is subject to potential risks and liabilities associated
with pollution of the environment and the disposal of waste
products occurring as a result of mineral exploration and
production. Insurance against environmental risks (including
potential liability for pollution or other hazards as a result of
the disposal of waste products occurring from exploration and
production) is not generally available to the Company (or to
other companies within the gold industry) at a reasonable price.
To the extent that the Company becomes subject to environmental
liabilities, the satisfaction of any such liabilities would
reduce funds otherwise available to the Company and could have a
material adverse effect on the Company. Laws and regulations
intended to ensure the protection of the environment are
constantly changing, and are generally becoming more restrictive.
Title to Properties
- -------------------
The validity of unpatented mining claims, which constitute a
significant portion of the Company's property holdings in the
United States, is often uncertain, and such validity is always
subject to contest. Unpatented mining claims are unique property
interests and are generally considered subject to greater title
risk than patented mining claims, or real property interests that
are owned in fee simple. The Company has not yet filed a patent
application for any of its properties that are located on federal
public lands in the United States and, under proposed legislation
to change the General Mining Law, patents may be hard to obtain.
Although the Company has attempted to acquire satisfactory title
to its undeveloped properties, the Company does not generally
obtain title opinions until financing is sought to develop a
property, with the attendant risk that title to some properties,
particularly title to undeveloped properties, may be defective.
Foreign Operations
- ------------------
The Company's foreign activities are subject to the risks
normally associated with conducting business in foreign
countries, including exchange controls and currency fluctuations,
limitations on repatriation of earnings, foreign taxation, laws
or policies of particular countries, labor practices and
disputes, and uncertain political and economic environments, as
well as risks of war and civil disturbances, or other risks that
could cause exploration or development difficulties or stoppages,
restrict the movement of funds or result in the deprivation or
loss of contract rights or the taking of property by
nationalization or expropriation without fair compensation.
Foreign operations could also be adversely impacted by laws and
policies of the United States affecting foreign trade, investment
and taxation. The Company currently has exploration projects in
Bulgaria, and is actively seeking other gold exploration and gold
-18-
royalty acquisition or development opportunities in several
countries, including Australia, Europe, Russia and other
republics of the former Soviet Union.
Item 3. LEGAL PROCEEDINGS
Goldstripe Project
- ------------------
In May 1997, the Forest Service reconfirmed to the Company that
its reclamation activities were substantially completed at the
Goldstripe property, located in Plumas County California, and
that the Forest Service believed that such activities should
satisfy all outstanding permit requirements for reclamation,
except for ongoing post-reclamation monitoring of water quality.
However, it is possible that additional reclamation or water
quality monitoring could be required, and that any such
requirement could result in additional cost to the Company.
Following cessation of the Company's operations at Goldstripe,
and in connection with efforts to obtain funding for reclamation,
on August 5, 1992, the U.S. Forest Service notified the Company
that it had determined to initiate a response action at the
Goldstripe site, under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), in order to assess
the threat of a possible release of cyanide from a processed
material residue pile. To date, the only action undertaken by the
Forest Service in connection with the response action has been to
establish four monitoring wells at the site, at an estimated cost
of $27,000. Although not formally related to the response action
notice, on October 5, 1992, the Company released $341,000 in cash
security for a reclamation bond to fund reclamation to be
performed at Goldstripe by the Forest Service. The Company
believes, based on oral communications with the Forest Service,
that approximately $325,000 of the $341,000 has been spent to
date. The Company also believes, based on such communications
over several years, and the current status of reclamation at the
site, that no additional "response action" or other remediation
is likely to be undertaken by the Forest Service under CERCLA or
under any other governmental regulation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the quarter ended June 30, 1997. Annual meeting results will be
described in Item 4 to the Company's report that will be filed on
Form 10-Q, for the quarter ended December 31, 1997.
-19-
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the National Market
System of the National Association of Securities Dealers, under
the symbol "RGLD." The following table shows the high and low
closing sales prices for the Common Stock for each quarter since
June 30, 1995.
Sales Prices
High Low
Fiscal Year Closing Closing
------- -------
1996:
First Quarter (July, Aug., Sept. - 1995) $ 9 3/8 $ 7 7/8
Second Quarter (Oct., Nov., Dec. - 1995) $ 8 1/2 $ 7 1/2
Third Quarter (Jan., Feb., March - 1996) $ 11 $ 8
Fourth Quarter (April, May, June - 1996) $ 15 5/8 $11
1997:
First Quarter (July, Aug., Sept. - 1996) $ 14 1/2 $ 9 7/8
Second Quarter (Oct., Nov., Dec. - 1996) $ 14 1/8 $12
Third Quarter (Jan., Feb., March - 1997) $ 13 1/2 $10
Fourth Quarter (April, May, June - 1997) $ 10 3/4 $ 8 1/4
As of August 30, 1997, there were approximately 3,000
shareholders of record of the Company's common stock.
Dividends
- ---------
The Company has never paid any cash dividends on its Common Stock
and does not have any current plans to pay such dividends.
Item 6. SELECTED FINANCIAL DATA
For the Year Ended June 30,
--------------------------------------------
Selected Statement of 1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Operations Data (Amounts in thousands, except per share data)
Royalty income $ 8,202 $ 3,680 $ 470 $ 153 $ 150
Exploration expense 1,738 1,434 1,485 686 151
General and administrative
expense 1,706 1,204 1,015 753 582
Net income (loss) 4,054 589 (2,025) (1,452) (618)
Net income (loss)
per share $ .26 $ .04 $ (.14) $ (.11) $ (.06)
-20-
As of June 30,
--------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Selected Balance Sheet Data (Amounts in thousands)
Total assets $ 18,981 $14,063 $10,273 $ 8,183 $2,727
Working capital 13,942 11,130 8,723 6,884 1,229
Long-term obligations 134 111 117 131 193
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997, the Company had current assets of $15,056,000
compared to current liabilities of $1,114,000 for a current ratio
of 14 to 1. This compares to current assets of $11,659,000 and
current liabilities of $530,000, at June 30, 1996, resulting in a
current ratio of 22 to 1. The Company's current assets include
$4,995,000 of marketable securities that consist of U.S. treasury
securities with maturities of 18 months or less. The Company's
initial cost of these marketable securities was $4,998,000.
During fiscal 1997, liquidity needs were met from: (i) $8,884,000
in revenues from production at the Crescent Pit (of which
$5,390,000 is maintained as gold inventory and royalty
receivables in gold), (ii) the Company's available cash resources
and interest income of $413,000 and (iii) cash receipts from the
exercise of options and warrants of $242,000. The Company's
operating activities provided approximately $2,080,000 of cash
during the fiscal year ended June 30, 1997.
During the fiscal year, the Company spent $2,238,000 on
development at the Long Valley property.
The only material commitments of the Company that cannot be
terminated at the sole discretion of the Company are (i) the
Union Pacific Agreement which requires approximately $125,000 to
be spent on exploration during the period July 1, 1997 through
December 31, 1997; (ii) employment agreements with four officers,
calling for minimum payments of approximately $335,000 through
January 1998; and (iii) office lease payments of $304,935 through
the lease period ending October 1999.
The Union Pacific Agreement provides that the Company can extend
the agreement for two additional terms of 12 months each upon
making additional exploration commitments of $375,000 and
$1,000,000, respectively. (If the Company exercises all of its
rights to extend the agreement, total exploration expenditures
-21-
under the agreement are estimated to be $2,375,000 over the full
55-month term, which commenced in 1994.)
The Company anticipates total expenditures for fiscal 1998 for
general and administrative expenses to be approximately
$1,400,000 and expenditures for exploration and property holding
costs to be approximately $1,400,000 (including amounts spent
under the Union Pacific Agreement). Development costs at Long
Valley are anticipated to be $1,200,000 which includes the
$900,000 payment to Standard Industrial Minerals. Exploration
and holding cost expenditures include $325,000 for Buckhorn
South, $250,000 for the Union Pacific project, $200,000 for the
Royal High Desert joint venture, and $250,000 for generative
exploration. These amounts could increase or decrease
significantly, at any time during the fiscal year, based on
exploration results and decisions about releasing or acquiring
additional properties, among other factors.
The Company will continue to explore its remaining properties and
intends to acquire new projects, all with a view to enhancing the
value of such properties prior to possible farm out to major
mining company partners.
The Company's current financial resources and sources of income
should be adequate to cover the Company's anticipated
expenditures for general and administrative costs, exploration
and leasehold expenses, and capital expenditures for at least the
next fiscal year.
The Company anticipates utilizing its $635,000 net deferred tax
asset, based on the Company's estimate of projected sales of gold
inventory. This net deferred tax asset is evaluated quarterly
and could increase based on the production of reserves at South
Pipeline, or at Long Valley or at other new discoveries.
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1997 Compared with Fiscal Year Ended
June 30, 1996
For the year ended June 30, 1997, the Company recorded net income
of $4,055,000, or $0.26 per share, as compared to a net income of
$589,000, or $0.04 per share, for the year ended June 30, 1996.
The net income for the current fiscal year resulted mainly from
the increased royalty revenue related to the Company's interest
in the Crescent Pit.
The Company received net profits interest royalty income from the
Crescent Pit of $6,855,000 relating to mill-grade material and
$1,580,000 relating to heap leach material. This was reduced by
an unrealized loss on gold held in inventory, as of June 30,
-22-
1997, of $689,000. As of June 30, 1997, all of the Crescent Pit
mill-grade material had been processed. It is anticipated that
the remaining heap leach material will be processed during fiscal
1998. As a result, the Company's NPI royalty income from South
Pipeline will decrease significantly in fiscal 1998.
Costs of operations increased over the prior year, which related
to the payment of Nevada Net Proceeds Tax associated with the
increased production at the Crescent Pit.
General and administrative expenses of $1,706,000, for the year
ended June 30, 1997, increased from $1,204,000 for the year ended
June 30, 1996, as a result of increased employee compensation,
the cost of listing on the NASDAQ National Market System,
increased investor relations expenses and increased office
expenses. General and administrative expenses consist primarily
of employee compensation and benefits, office lease expense,
investor relations expenses, office equipment expenses, travel
and communication costs.
Exploration costs increased from $1,435,000 in fiscal 1996 to
$1,737,000 in fiscal 1997, due to expenditures at the Royal High
Desert joint venture and increased expenses related to analysis
of potential gold royalty acquisitions.
Lease maintenance and holding costs remained flat, at $266,000 in
fiscal 1997 and $275,000 in fiscal 1996, as the Company
maintained its level of property holding costs.
Interest and other income was $413,000 in fiscal 1997, down from
$442,000 in fiscal 1996, due primarily to decreased funds
available for investing.
Depreciation and amortization decreased from $229,000 for fiscal
1996 to $51,000 for fiscal 1997, primarily due to the depletion
associated with the Company's capped net smelter return royalty
at South Pipeline.
Fiscal Year Ended June 30, 1996 Compared with Fiscal Year Ended
June 30, 1995
For the year ended June 30, 1996, the Company recorded net income
of $589,000, or $.04 per share, as compared to a net loss of
$2,025,000, or $.14 per share, for the year ended June 30, 1995.
The net income for the current fiscal year resulted mainly from
the increased royalty revenue related to the Company's interest
in the Crescent Pit.
The Company received net profits interest royalty income from the
Crescent Pit of $3,045,000 relating to mill-grade material,
$444,000 relating to heap leach material, and $258,000 relating
-23-
to the Company's capped royalty. This was reduced by an
unrealized loss on gold held in inventory, as of June 30, 1996,
of $77,000. Based on the current rate of production, the
Crescent Pit mill-grade material will be exhausted by the end of
fiscal 1997.
Costs of operations increased over the prior year, which related
to the payment of Nevada Net Proceeds Tax associated with the
increased production at the Crescent Pit.
Consulting revenues and costs of consulting revenues decreased
over the prior year primarily because of the termination of one
consulting arrangement.
General and administrative expenses of $1,204,000, for the year
ended June 30, 1996, increased from those of $1,015,000 for the
year ended June 30, 1995, as a result of increased employee
compensation and office expenses. General and administrative
expenses consist primarily of employee compensation and benefits,
office lease expense, office equipment expenses, travel and
communication costs.
Exploration costs remained flat, at $1,485,000 in fiscal 1995 and
$1,434,000 in fiscal 1996, as the Company continued its active
exploration program.
Lease maintenance and holding costs increased, from $190,000 in
fiscal 1995 to $229,000 in fiscal 1996, due to scheduled
increased holding costs at Buckhorn South.
Interest and other income was $442,000 in fiscal 1996, up from
$386,000 in fiscal 1995, due primarily to increased funds
available for investing. At June 30, 1996, the Company had an
unrealized loss of $37,000 on its U.S. treasury securities
portfolio versus a gain of $76,000 in fiscal 1995 due to the
increase in short term interest rates during the year.
Depreciation and amortization increased, from $102,000 for fiscal
1995 to $229,000 for fiscal 1996, primarily due to the depletion
associated with the Company's capped net smelter return royalty
at South Pipeline.
Impact of Inflation
- -------------------
The Company's operations have been subject to general
inflationary pressures, which have not had a significant impact
on its operating costs.
-24-
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROYAL GOLD, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 26
REPORT OF INDEPENDENT AUDITORS 27
FINANCIAL STATEMENTS
Consolidated Balance Sheets 28
Consolidated Statements of Operations 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 35
-25-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Royal Gold, Inc.:
We have audited the accompanying consolidated balance sheets of Royal
Gold, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Royal Gold, Inc. and Subsidiaries as of June 30,
1997 and 1996, and the consolidated results of its operations and its
cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Denver, Colorado
September 11, 1997
-26-
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Royal Gold, Inc.
We have audited the accompanying consolidated statements of
operations, stockholders' equity, and cash flows of Royal Gold, Inc.
and Subsidiaries for the year ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall presentation of the statements referred to
above. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
results of operations and cash flows of Royal Gold, Inc. and
Subsidiaries for the year ended June 30, 1995, in conformity with
generally accepted accounting principles.
Williams, Richey & Co.
Denver, Colorado
August 28, 1995
-27-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1997 and 1996
ASSETS
1997 1996
----------- -----------
Current Assets
Cash and equivalents (including $270,000
and $250,000, respectively, subject
to repurchase agreements) $ 3,333,298 $ 3,308,292
Marketable securities 4,995,370 5,015,000
Trade and other receivables 77,546 336,162
Royalty receivable in gold 2,542,975 1,637,573
Gold inventory 2,872,366 1,205,406
Prepaid expenses and other 599,091 131,718
Deferred income tax benefit, net 635,000 25,000
----------- -----------
Total current assets 15,055,646 11,659,151
Property and equipment, at cost
Mineral properties 4,070,390 1,832,091
Furniture, equipment and improvements 814,976 756,016
----------- -----------
4,885,366 2,588,107
Less accumulated depreciation
and depletion (982,950) (931,997)
----------- -----------
Net property and equipment 3,902,416 1,656,110
Other Assets
Other 22,767 22,767
Deferred income tax benefit 0 725,000
----------- -----------
Total other assets 22,767 747,767
Total Assets $18,980,829 $14,063,028
=========== ===========
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
-28-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
as of June 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
--------- ---------
Current Liabilities
Accounts payable $ 961,059 $ 487,252
Accrued liabilities
Retirement benefits 26,400 26,400
Other 126,455 15,877
--------- ---------
Total current liabilities 1,113,914 529,529
Retirement benefit liabilities 133,897 110,549
Commitments and contingencies
(Notes 2, 5 & 9)
Stockholders' equity
Common stock, $.01 par value, authorized
40,000,000 shares; and issued
15,877,202 and 15,478,152 shares,
respectively 158,772 154,782
Additional paid-in capital 47,447,397 47,200,643
Accumulated deficit (29,797,978) (33,852,502)
---------- ----------
17,808,191 13,502,923
Less treasury stock, at cost
(15,026 and 15,986 shares, respectively) (75,173) (79,973)
---------- ----------
Total stockholders' equity 17,733,018 13,422,950
Total liabilities and stockholders' equity $18,980,829 $14,063,028
========== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
-29-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Royalty income $8,202,049 $3,680,145 $470,421
Consulting revenue 18,585 31,544 163,681
Costs and expenses
Costs of operations 645,627 371,777 217,109
Costs of consulting 5,796 13,215 108,216
General and administrative 1,705,649 1,203,846 1,014,761
Exploration 1,737,798 1,434,264 1,484,599
Lease maintenance and
holding costs 266,245 274,864 189,921
Depreciation and depletion 50,953 228,936 102,398
--------- --------- ---------
Total costs and expenses 4,412,068 3,526,902 3,117,004
Operating income (loss) 3,808,566 184,787 (2,482,902)
Interest and other income 412,523 441,728 386,036
Gain (loss)on marketable securities (23,895) (37,320) 75,721
Interest and other expense (27,670) 0 (4,075)
--------- --------- ---------
Income (loss) before
income taxes 4,169,524 589,195 (2,025,221)
Income tax expense 115,000 0 0
--------- --------- ---------
Net income (loss) $ 4,054,524 $ 589,195 $(2,025,221)
========= ========= =========
Net income (loss) per share $ 0.26 $ 0.04 $ (0.14)
========= ========= =========
Weighted average shares
outstanding 15,615,729 14,868,109 14,265,462
The accompanying notes are an integral
part of these consolidated financial statements.
-30-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1997, 1996 and 1995
Additional
Common Stock Paid-In
Shares Amount Capital
---------- -------- ----------
Balance, June 30, 1994 13,835,712 $138,357 $40,176,895
Issuance of common stock for:
Exercise of options 139,750 1,398 314,977
Exercise of warrants 17,500 175 23,855
Private placement 500,000 5,000 3,795,000
Issuance of treasury shares
for lease bonus payment 3,875
Net loss for the year
ended June 30, 1995
---------- ------- ----------
Balance, June 30, 1995 14,492,962 144,930 44,314,602
---------- ------- ----------
Issuance of common stock for:
Exercise of options 11,190 112 22,521
Exercise of warrants 974,000 9,740 2,863,520
Net income for the year
ended June 30, 1996
---------- ------- ----------
Balance, June 30, 1996 15,478,152 154,782 47,200,643
---------- ------- ----------
Issuance of common stock for:
Exercise of options 168,550 1,685 110,414
Exercise of warrants 230,500 2,305 127,820
Issuance of treasury shares
for lease bonus payment 8,520
Net income for the year
ended June 30, 1997
---------- ------- ----------
Balance, June 30, 1997 15,877,202 $158,772 $47,447,397
========== ======= ==========
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
-31-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
for the years ended June 30, 1997, 1996 and 1995
Total
Stock-
Accumulated Treasury Stock holders'
Deficit Shares Amount Equity
---------- ------ ------- ---------
Balance, June 30, 1994 ($32,416,476) 16,986 ($ 84,973) $7,813,803
Issuance of common stock for:
Exercise of options 316,375
Exercise of warrants 24,030
Private placement 3,800,000
Issuance of treasury shares
for lease bonus payment (1,000) 5,000 8,875
Net loss for the year
ended June 30, 1995 (2,025,221) (2,025,221)
---------- ------ ------ ---------
Balance, June 30, 1995 (34,441,697) 15,986 (79,973) 9,937,862
---------- ------ ------ ---------
Issuance of common stock for:
Exercise of options 22,633
Exercise of warrants 2,873,260
Net income for the year
ended June 30, 1996 589,195 589,195
---------- ------ ----- ----------
Balance, June 30, 1996 (33,852,502) 15,986 (79,973)13,422,950
---------- ------ ------ ----------
Issuance of common stock for:
Exercise of options 112,099
Exercise of warrants 130,125
Issuance of treasury shares
for lease bonus payment (960) 4,800 13,320
Net income for the year
ended June 30, 1997 4,054,524 4,054,524
---------- ------ ------ ----------
Balance, June 30, 1997 ($29,797,978) 15,026 ($75,173)$17,733,018
========== ====== ====== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
-32-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities
Net income (loss) $4,054,527 $589,195 ($2,025,221)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and depletion 50,953 228,936 102,398
Unrealized (gain) loss on
marketable securities 23,895 37,320 (75,721)
Deferred tax expense 115,000 0 0
Non cash lease bonus expense 13,320 0 8,875
(Increase) decrease in:
Trade and other receivables 258,616 (128,478) (16,980)
Marketable securities (4,265) (40,750) (38,224)
Royalties receivable in gold (905,402) (1,608,738) (28,835)
Gold inventory (1,666,960) (1,051,168) (154,238)
Prepaid expenses and other (467,373) (41,811) (24,058)
Restricted investments 0 0 (10,000)
Increase (decrease) in:
Accounts payable and
accrued liabilities 584,385 311,052 8,198
Retirement and other
liabilities 23,348 (6,400) (42,134)
--------- --------- ---------
Total adjustments (1,974,483) (2,300,037) 270,719
--------- --------- ---------
Net cash provided by (used in)
operating activities 2,080,041 (1,710,842) (2,295,940)
--------- --------- ---------
(continued)
The accompanying notes are an integral
part of these consolidated financial statements.
-33-
ROYAL GOLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS, Continued
for the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
Cash flows from investing activities
Capital expenditures for
property and equipment (2,297,259) (1,300,853) (363,283)
--------- --------- ---------
Net cash provided by (used in)
investing activities (2,297,259) (1,300,853) (363,283)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of
common stock 242,224 2,895,893 4,140,405
--------- --------- ---------
Net cash provided by
financing activities 242,224 2,895,893 4,140,405
--------- --------- ---------
Net increase (decrease) in cash
and equivalents 25,006 (115,802) 1,481,182
--------- --------- ---------
Cash and equivalents at beginning
of year 3,308,292 3,424,094 1,942,912
--------- --------- ---------
Cash and equivalents at end of year $3,333,298 $3,308,292 $3,424,094
========= ========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
-34-
1. Operations and Summary of Significant Accounting Policies
---------------------------------------------------------
Operations:
----------
Royal Gold, Inc. (the "Company" or "Royal Gold"), was
incorporated under the laws of the state of Delaware on January
5, 1981, and is a gold royalty company engaged in the
acquisition, exploration, development, and sale of gold
properties, and in the acquisition of gold royalty interests.
The Company also provides financial, operational, and
environmental consulting services to companies serving the mining
industry. Substantially all the Company's revenues are and can
be expected to be derived from royalty interests rather than
mining activity conducted by the Company.
Summary of Significant Accounting Policies:
-------------------------------------------
The preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Basis of Consolidation:
The consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and its
proportionate share of the accounts of unincorporated joint
ventures. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. At June 30, 1997, the Company held $270,000
of U.S. government securities under an agreement to resell
in July 1997. Due to the short term nature of the
agreement, the Company did not take possession of the
securities, which were instead held in the Company's
safekeeping account by FBS Investments Services, Inc. At
June 30, 1997, cash equivalents included approximately
$2,758,000 of temporary cash investments in an uninsured
government securities money market fund.
-35-
Marketable securities:
Marketable securities are classified as trading and
recorded at market value. At June 30, 1997, the Company
held U.S. treasury securities in a principal amount of
$5,000,000. The Company acquired these securities, with
maturities ranging from September 1997 to November 1998, at
a cost of $4,997,890. At June 30, 1997, the market value
of these securities was $4,995,370. Included in the
statement of operations is the net change in unrealized
(losses) for the trading securities of $(23,895) and
$(37,320) for the years ended June 30, 1997 and 1996,
respectively.
Royalties Receivable in Gold:
Royalties receivable consists of gold held by Cortez, the
operator of the South Pipeline Project, prior to making in-
kind royalty payments. These quarterly, in-kind royalty
payments are received one month and one day after the
production quarter. At June 30, 1997, 7,601 ounces of gold
related to the June 30 quarterly production is recorded as
a receivable valued at current market value. This gold was
received on August 1, 1997. Royal Gold has exposure for
any changes in gold price on this receivable between the
end of the quarter and the time of receipt.
Gold Inventory:
Gold inventory on the balance sheet consists of refined
gold bullion held in uninsured accounts. This gold is
leased by gold traders or stored by the Company's refiner
in Utah. The inventory is carried at market value with
unrealized gains or losses included in the results of
operations for the period. At June 30, 1997, the Company
held 8,509 ounces of gold bullion in inventory.
Mineral Properties:
Acquisition costs relating to mineral properties with a
known mineralization are deferred until the properties are
put into commercial production, sold or abandoned.
Exploration costs, including an allocation of employee
salaries and related costs, are charged to operations when
incurred. Mine development costs incurred to develop new
ore bodies, to expand or rehabilitate the capacity of
operating mines, or to develop areas substantially in
advance of production are deferred. For properties placed
-36-
in production, the related deferred costs are depleted
using the units-of-production method over the life of the
reserves. Deferred costs applicable to sold or abandoned
properties are charged against operations at the time of
sale or abandonment of the property. Upon disposition of a
portion of a mineral property, including equipment sales,
any proceeds are treated as a reduction of the carrying
value of the portion of the property retained. The
recoverability of the carrying value of development
projects is evaluated based upon estimated future net cash
flows from each property using estimates of contained
mineralization expected to be classified as proven and
probable reserves upon completion of a feasibility study.
Reductions in the carrying value of each property are
recorded to the extent that the Company's carrying value in
each property exceeds its estimated future discounted cash
flows.
Management's estimates of gold prices, recoverable proven
and probable reserves, operating, capital and reclamation
costs are subject to certain risks and uncertainties which
may affect the recoverability of the Company's investment
in property, plant and equipment. Although management has
made its best estimate of these factors based on current
conditions, it is possible that changes could occur in the
near term which could adversely affect management's
estimate of the net cash flows expected to be generated
from properties in operation.
Office Furniture, Equipment and Improvements:
The Company depreciates its office furniture, equipment and
improvements over estimated useful lives of 3 to 15 years
using the straight-line method. The cost of normal
maintenance and repairs is charged to expense as incurred.
Significant expenditures which increase the life of the
asset are capitalized and depreciated over the estimated
remaining useful life of the asset. Upon retirement or
disposition of office furniture, equipment, or
improvements, related gains or losses are recorded in
operations.
Income Taxes:
Deferred income taxes reflect the expected future tax
consequences of temporary differences between the tax basis
amounts and financial statement carrying amounts of assets
and liabilities at each year end and the expected future
-37-
benefits of net operating loss carryforwards, tax credits
and other carryforwards.
Reclassifications:
Certain accounts in the prior period financial statements
have been reclassified for comparative purposes to conform
with the presentation in the current period financial
statements.
Net Income and Net Income or Loss Per Share:
Net income or loss per share is computed by dividing the
net income or loss by the weighted average number of common
shares outstanding during each year. Common stock
equivalents have been excluded from the computation since
the effect is immaterial or antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share("SFAS 128"),
which is required to be adopted for both interim and annual
financial statements for periods ending after December 15,
1997. SFAS 128 will change the computation, presentation
and disclosure requirements for earnings per share. SFAS
128 requires presentation of "basic" and "diluted" earnings
per share, as defined, on the face of the income statement.
Beginning with the first quarter of fiscal 1998, the
Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Management has not determined the effect of this
statement on earnings per share as presented.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130
(" SFAS 130"), Comprehensive Income. SFAS 130 establishes
standards for the reporting and display of comprehensive
income and its components in financial statements.
Comprehensive income generally represents all changes in
shareholders' equity except those resulting from
investments by or distributions to shareholders.
Management is currently evaluating the requirements of SFAS
130.
2. Property and Equipment
The net carrying value of the Company's property and equipment
consists of the following components at June 30, 1997 and 1996:
-38-
1997 1996
--------- ---------
Mineral Properties:
South Pipeline-
Net Profits Interest $ - $ -
South Pipeline-
Capped NSR Royalty - 3,831
Long Valley 3,675,281 1,436,981
Camp Bird 120,110 120,110
--------- ---------
3,795,391 1,560,922
Office furniture, equipment
and improvements 107,025 95,188
--------- ---------
Net property and equipment $3,902,416 $1,656,110
========= =========
The Company's mining operations and exploration activities are
subject to various federal, state, and local laws and
regulations governing protection of the environment. These
laws are continually changing and, as a general matter, are
becoming more restrictive. Management believes that the
Company is in material compliance with all applicable laws and
regulations.
Presented below is a discussion of the status of each of the
Company's currently significant mineral properties.
A. South Pipeline Project
The Company owns a royalty interest in the South Pipeline
Project, a sediment-hosted gold deposit located in Lander
County, Nevada, and covers over 4,000 acres of unpatented
mining claims. The South Pipeline Project is operated by Cortez
Gold Mines ("Cortez"), a joint venture of Placer Dome North
America ("PDNA") and Kennecott Minerals Company.
Under a royalty interest agreement, Cortez, as operator,
committed to an exploration and development work program.
After payback, as defined in the agreement, the Company will
receive a 20% net profits royalty or, at its election beginning
with production and annually thereafter, a Net Smelter Returns
("NSR") royalty according to a schedule tied to indexed gold
prices. The NSR royalty ranges from 2.5% for an indexed price
of $350 per ounce to 5.5% for an indexed price in excess of
$500 per ounce. Under either royalty arrangement, the Company
may elect to take its royalty "in-kind."
The Company receives advance royalty payments of $150,000 per
year, and all such payments are to be recouped by Cortez from
production royalty payments.
-39-
If Cortez does not diligently proceed with development of the
Project, then the Company may elect to put the Project into
production, thereby securing 100% of the working interest
therein, subject to granting a 20% production royalty to Cortez
identical to the one described above. Royal Gold would then be
entitled to use, under a normal tolling arrangement and as
available, the Cortez milling facilities in the vicinity,
including any built or to be built for the Pipeline project.
B. Long Valley
In April 1989, the Company entered into a joint venture
agreement with Standard Industrial Minerals, Inc. ("Standard")
to explore and develop a property located in Mono County,
California (the "Long Valley Project").
In November 1993, the Company and Standard amended the joint
venture agreement to provide for the Company's option,
exercisable through December 31, 1997, to acquire the entirety
of Standard's interest at Long Valley upon payment of
$1,000,000. Option consideration payments aggregating $125,000
are payable each November of 1993, 1994, 1995 and 1996, with
$125,000 of such sum having been paid. Up to $100,000 of such
payments (the total of the payments made in 1995 and 1996) are
creditable against the option exercise amount.
The Company has conducted substantial drilling programs at Long
Valley in fiscal 1995, fiscal 1996, and fiscal 1997 and has
discovered additional deposits of gold mineralization.
Based on the results of the drilling, the Company has
determined that a proven/probable reserve exists at the Long
Valley property as of July 1, 1995.
Subsequent to June 30, 1997, the Company formed an agreement
with AMAX Gold Inc. This agreement provides that AMAX Gold has
an option, exercisable through December 31, 1997, to enter into
a lease and become responsible for further exploration,
permitting, and development at Long Valley. Royal Gold will
retain a royalty interest.
C. Camp Bird Mine
The Camp Bird Venture (the "Venture") was formed in August
1986, primarily for the purpose of re-opening the Camp Bird
Mine, located in Ouray County, Colorado, as a gold and silver
mine.
-40-
At June 30, 1996, capitalized costs of $120,110 reflect the
Company's ownership of these patented mining claims.
Management believes these claims are valuable both for their
mineral and real estate potential.
3. Retirement Benefits
In 1987, the Company's Board of Directors agreed to provide
retirement benefits for the remaining lifetime of a former
executive officer. At June 30, 1997, the liability of $160,297
represents the net present value of estimated future payments
to this former officer.
4. Income Taxes
The tax effects of significant temporary differences and
carryforwards which give rise to the Company's deferred tax
assets and liabilities at June 30, 1997 and 1996, are as
follows:
1997 1996
--------- ---------
Net operating loss carryforwards $ 8,994,000 $ 8,787,000
Mineral property basis 0 0
Mineral properties 265,000 265,000
Other 235,000 135,000
--------- ---------
Total gross deferred tax assets 9,494,000 9,187,000
Valuation allowance (6,354,000) (7,174,000)
--------- ---------
Net deferred tax assets 3,140,000 2,013,000
Gold Inventory (1,918,000) (995,000)
Mineral property basis (576,000) (204,000)
Mineral properties 0 0
Deferred taxable income 0 (53,000)
Other (11,000) (11,000)
--------- ---------
Total deferred tax liabilities (2,505,000) (1,263,000)
--------- ---------
Total net deferred taxes $ 635,000 $ 750,000
========= =========
At June 30, 1997, the Company has approximately $25.6 million
of net operating loss carryforwards which, if unused, will
expire during the years 2001 through 2011. The Company's
ability to generate future taxable income to realize the
benefit of its tax assets will depend primarily on the timing
and amount of royalty revenue from its South Pipeline net
profits interest royalty. Based upon the potential timing of
-41-
sales of gold inventory, management has estimated that it is
more likely than not that the Company will have some net future
taxable income within the net operating loss carryforward
period. Accordingly, a valuation allowance against the
deferred tax asset has been established such that operating
loss carryforwards will be utilized primarily to the extent of
estimated future taxable income from the net profits interest
royalty and reversals of existing deferred tax liabilities.
The components of income tax expense (benefit) for the years
ended June 30, 1997, 1996 and 1995, are as follows:
1997 1996 1995
------- ------- -------
Current tax expense $ - $ - $ -
Deferred tax expense(benefit) 935,000 136,000 (685,000)
Increase (decrease) in
deferred tax asset
valuation allowance (820,000) (136,000) 685,000
------- ------- -------
$ 115,000 $ - $ -
======= ======= =======
The provision for income taxes for the years ended June 30,
1997, 1996 and 1995, differs from the amount of income tax
determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax loss from operations as a result of
the following differences:
1997 1996 1995
--------- ------- -------
Total expense(benefit)
computed by applying
statutory rate $ 1,418,000 $ 200,000 $(689,000)
Adjustments of valuation
allowance (1,310,000) (227,000) 685,800
Other 7,000 27,000 4,000
--------- ------- --------
$ 115,000 $ - $ -
========= ======= ========
Included in the fiscal 1997 adjustments of valuation allowance
is $820,000 related to fiscal 1997 and $490,000 related to
fiscal 1996 caused by changes in fiscal 1996 taxable temporary
differences.
Included in the fiscal 1996 adjustments of valuation allowance
is $136,000 related to fiscal 1966 and $91,000 related to
fiscal 1995 caused by changes in fiscal 1995 temporary
differences.
-42-
5. Commitments
Operating Lease
The Company leases office space under a lease agreement
which expires October 31, 1999. Future minimum cash rental
payments are as follows:
Years ending June 30,
1998 128,823
1999 132,084
2000 44,028
-------
$ 304,935
=======
The lease may be terminated at any time after October 31,
1997, upon proper notice and payment of a termination fee
equal to the next nine months' ensuing rent.
Rent expense charged to operations for the years ended June
30, 1997, 1996, and 1995, amounted to $122,300, $143,300 and
$122,052, respectively. The Company subleased a portion of
its premises on a month-to-month basis. The Company
recorded sublease rental income of $0, $14,870, and $35,831,
for the years ended June 30, 1997, 1996 and 1995,
respectively.
In order for the Company to maintain its current exploration
and development properties through fiscal 1998, the Company
would incur lease maintenance and holding costs of
$1,200,000, which includes the $900,000 payment at the Long
Valley property. It can be anticipated, because of the
nature of the business, that exploration on many of these
properties will prove unsuccessful and that the Company will
terminate its interest in these properties rather than
continue to pay holding costs.
Employment Agreements
The Company has one-year employment agreements with four of
its officers which require total minimum future
compensation, at June 30, 1997, of $335,000 through January
1998. The terms of each of these agreements automatically
-43-
extend, every February, for one additional year, unless
terminated by the Company or the officer, according to the
terms of the agreements.
6. Stockholders' Equity
Preferred Stock:
The Company has 10,000,000 authorized and unissued shares of
$.01 par value Preferred Stock.
Private Placements:
During fiscal 1995, the Company completed a private
placement for net proceeds of $3,800,000, from the sale of
500,000 shares at $8.00 per share.
During fiscal 1996, warrants to purchase a total of 974,000
shares were exercised, providing proceeds to the Company of
$2,864,000.
During fiscal 1997, warrants to purchase a total of 230,500
shares were exercised, providing proceeds to the Company of
$130,125.
Stock Options and Warrants:
During fiscal 1990, the Directors Stock Option Plan
("Directors Plan") was adopted and the Company reserved
200,000 shares of common stock for issuance under this Plan.
Only non-employee directors are eligible to participate.
Options granted under the Directors Plan are exercisable at
prices equal to the market value of the Company's common
stock at the date of grant. The options are exercisable for
a period of five years and terminate three months after the
director resigns or is removed from office. During fiscal
1996, no options were exercised. Additionally, options for
an additional 30,000 shares were issued during the year. As
of June 30, 1996, options are outstanding for 90,000 shares
at an average exercise price of $6.49 per share.
On February 5, 1993, the Board of Directors granted to a
director, who is a former president of the Company and
currently a consultant to the Company, a non-incentive
option to acquire up to 150,000 shares of the Company's
common stock, at a price of $3.75 per share. During each of
fiscal years 1995 and 1994, such director exercised options
-44-
for 75,000 shares, generating proceeds to the Company, in
each year, of $281,250.
During fiscal 1989, an Employee Stock Option Plan ("Employee
Plan") was adopted. In December 1994, shareholders approved
an amendment increasing the aggregate number of shares
available for issuance under the Employee Plan to 2,150,000.
Provisions of the Employee Plan provide for the issuance of
either incentive or non-qualified stock options or stock
appreciation rights.
In December 1996, shareholders approved the adoption of an
Equity Incentive Plan to replace it stock option plan. A
total of 800,000 shares of the Company's common stock have
been reserved for issuance under the new plan. The options
are exercisable at prices equal to the market value of the
Company's common stock as of the date of grant and, in the
event of incentive options, expire ten years after the date
of grant. (The non-qualified options expire five years
after the date of grant.) There have been no stock
appreciation rights granted under either the Employee Plan
nor the Equity Incentive Plan. During fiscal 1997, options
were exercised for 168,550 shares for a total of $112,099.
The following schedules detail activity related to options
and warrants for the years ended June 30, 1995, 1996 and
1997:
Optioned Average
Shares Option Prices
--------- ----
Options Outstanding, June 30, 1994 1,122,470 $0.67
Granted 229,250 7.88
Exercised (139,750) 2.26
--------- ----
Options Outstanding, June 30, 1995 1,211,970 1.85
--------- ----
Granted 191,000 8.50
Exercised (11,190) 3.25
Surrendered or expired (1,810) 7.88
--------- ----
Options Outstanding, June 30, 1996 1,389,970 2.75
--------- ----
Granted 204,000 14.13
Exercised (168,550) 0.67
--------- ----
Options Outstanding, June 30, 1997 1,425,420 4.63
========= ====
-45-
Warranted Average
Shares Warrant Prices
--------- ----
Warrants Outstanding, June 30, 1994 1,425,000 $2.34
Exercised (17,500) 1.37
--------- ----
Warrants Outstanding, June 30, 1995 1,407,500 2.35
--------- ----
Exercised (974,000) 2.95
--------- ----
Warrants Outstanding, June 30, 1996 433,500 1.00
--------- ----
Exercised (230,500) 0.56
--------- ----
Warrants Outstanding, June 30, 1997 203,000 1.50
========= ====
At June 30, 1997, under the Directors and Employee Plans and
otherwise, the following options are outstanding:
Number of Exercise Expiration
Shares Price Total Date
-------- ------- --------- -------------
7,500 2.1875 $ 16,406 December 1997
21,500 4.00 86,000 December 1998
10,000 9.125 91,250 April 1999
40,000 7.875 315,000 December 1999
41,000 8.50 348,500 December 2000
45,000 14.125 635,625 December 2001
755,920 .125 94,490 December 2001
14,000 4.00 56,000 December 2003
181,500 7.875 1,429,313 December 2004
150,000 8.50 1,275,000 December 2005
159,000 14.125 2,245,875 December 2006
--------- ---------
1,425,420 $6,593,459
========= =========
Additionally, warrants to purchase the Company's common
shares are outstanding, as follows:
Number of Exercise Expiration
Shares Price Total Date
-------- ------ -------- ----------
203,000 1.50 304,500 July 1997
------- -------
203,000 $ 304,500
======= =======
The shares and exercise prices listed above are generally
subject to adjustment in accordance with anti-dilution
provisions of each of the warrant agreements.
-46-
The Company measures compensation cost as prescribed by APB
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees. No compensation cost has been recognized in the
financial statements as the exercise price of all options
grants is equal to the market price of the Company's common
stock at the date of grant. In October 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"). SFAS
defines a "fair value" based method of accounting for
employee options or similar equity instruments. Had
compensation cost been determined under the provisions of
SFAS 123, the following pro forma net income (loss) and per
share amounts would have been recorded.
1997 1996
--------- -------
Net income
As reported $4,054,503 $589,195
Pro Forma $3,187,290 $ 82,878
Net income per share
As reported $ 0.26 $ 0.04
Pro Forma $ 0.20 $ 0.01
The pro forma amounts were determined using the Black
Scholes model with the following assumptions:
1997 1996
--------- --------
Expected volatility 53.2 % 53.2 %
Expected option term
10 year options 5.5 years 5.5 years
5 year options 3.5 years 3.5 years
Risk-free Interest rate
10 year options 6.2 % 6.2 %
5 year options 6.0 % 6.0 %
Forfeiture rate 5 % 5 %
Preferred Stock Purchase Rights:
On September 10, 1997, the Company's board of directors
adopted a stockholders' rights plan in which preferred stock
purchase rights ("Rights") were distributed as a dividend at
the rate of one Right for each share of common stock held as
of the close of business on September 11, 1997. The terms
of the Rights plan provide that if any person or group were
-47-
to announce an intention to acquire or were to acquire 15
percent or more of the Company's outstanding common stock,
then the owners of each share of common stock (other than
the acquiring person or group) would become entitled to
exercise a right to buy one one-hundredth of a newly issued
share of Series A junior Participating Preferred Stock of
the Company at an exercise price of $50 per Right.
7. Major Customers
In each of fiscal years 1997, 1996, and 1995, $8,202,049,
$3,680,145 and $444,411, respectively, of the Company's
royalty income was received from the same source. (See Note
2.A.)
8. Simplified Employee Pension ("SEP") Plan
The Company maintains a SEP Plan in which all employees are
eligible to participate. The Company contributes a minimum
of 3% of an employee's compensation to an account set up for
the benefit of the employee. If an employee chooses also
to contribute to the SEP Plan through salary reduction
contributions, the Company will match such contributions to
a maximum of 7% of the employee's salary. The Company
contributed $67,041, $59,157 and $50,271, in fiscal years
1997, 1996, and 1995, respectively.
9. Contingencies
The Goldstripe Mine was an open pit, heap leach facility
located in Plumas County, California. A subsidiary of the
Company operated Goldstripe, but discontinued mining
operations after the 1989 season. The Company completed
required reclamation work on the mine pits and at the plant
facility site, and disposed of all major mining and crushing
equipment.
The Forest Service has advised the Company that all
outstanding requirements, except for post-reclamation
groundwater monitoring, have been satisfied.
At this time, the Company believes that it will have no
further reclamation liability related to the Goldstripe
property, unless post-reclamation groundwater monitoring
indicates unanticipated migration of residual cyanide into
ground or surface waters.
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PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stanley Dempsey
- ---------------
Age 58, Director Since August 1984; Term Expires 1997
Chairman of the Board and Chief Executive Officer of the Company
since April 4, 1988. President and Chief Operating Officer of
the Company from July 1, 1987 to April 4, 1988. Consultant to
the Company from 1986 to 1987. Member of the Board of Directors
of Dakota Mining Corporation, Hazen Research, Inc. and Behre
Dolbear and Company, Inc. Prior to 1986, was a Vice President of
AMAX, Inc., Greenwich, Connecticut, and Sydney and Perth,
Australia, and an attorney at law in private practice. (1)
Edwin W. Peiker, Jr.
- --------------------
Age 66; Director Since May 1987; Term Expires 1999
Director. President and Chief Operating Officer of the Company
from April 4, 1988, until retirement on February 1, 1992. Vice
President of Engineering of the Company from May 1987 to April 4,
1988. From 1983 to 1986, Mr. Peiker was engaged in mineral
consulting activities. Mr. Peiker was also a principal in Denver
Mining Finance Company from 1984 until 1986. During the period
1966-1983, Mr. Peiker was with the Climax Molybdenum division of
AMAX involved in exploration activities worldwide. (1) (2)
John W. Goth
- ------------
Age 70; Director Since August 1988; Term Expires 1997
Director. Director of Development of the Minerals Information
Institute and a consultant to the mining industry. Mr. Goth was
formerly a senior executive of AMAX, Inc. and a Director of Magma
Copper Company. Mr. Goth is a Director of U.S. Gold Corporation,
U.S. Zeolites Inc. and Banro Resources Corp. (2) (3)
James W. Stuckert
- -----------------
Age 59; Director Since September 1989; Term Expires 1998
Director. Chairman and CEO of Hilliard Lyons, Inc. Mr. Stuckert
is also a Director of Hilliard, Lyons, Inc., DataBeam
Corporation, McBar Medical Industries, and Lawson United
Corporation and a Board Member of the Security Industries
Association. (2) (3)
Pierre Gousseland
- -----------------
Age 75; Director Since June 1992; Term Expires 1998
Director. Financial Consultant. From 1977 until January 1986,
Mr. Gousseland was Chairman and Chief Executive Officer of AMAX,
Inc. Mr. Gousseland is a director of Guyanor Ressources, S.A.,
Hanover Gold Company, and SMB North America Inc. Mr. Gousseland
was Chairman and Chief Executive Officer of AMAX, Inc. Formerly,
Director of the French American Banking Corp. of New York, the
American International Group, Inc., Union Miniere, S.A.
(Belgium), Degussa AG (Germany) and IBM World Trade Europe/Middle
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East Africa Corporation. Mr. Gousseland has served on the Chase
Manhattan and Creditanstaldt (Vienna, Austria) International
Advisory Boards and is Past President of the French American
Chamber of Commerce in the United States. (3)
S. Oden Howell, Jr.
- -------------------
Age 57; Director Since December 1992; Term Expires 1999
Director. Secretary and Treasurer of H&N Constructors, Inc., a
contractor specializing in remodeling and rehabilitation of
government facilities. From 1972 until 1988, Mr. Howell was
Secretary/Treasurer of Howell & Howell, Inc. He is currently
Director of Florafax International, Inc., and Lawson United
Corporation.
Merritt Marcus
- --------------
Age 63; Director Since December 1992; Term Expires 1998
Director. President and Chief Executive Officer of Marcus Paint
Company, a manufacturer of industrial coatings and Performance
Powders, LLC, a manufacturer of industrial powder coatings. Mr.
Marcus is also a Director of Lawson United Corporation, and has
served several terms as a Director of National Paint and Coatings
Association.
Peter B. Babin: Age 43
- ----------------------
President of the Company since December 1996, formerly Executive
Vice President from July 1995 through December 1996 and Senior
Vice President from July 1993 through June 1995. From 1989 until
1993, Mr. Babin was a consultant to the Company. From 1986
through 1989, Mr. Babin was Senior Vice President and General
Counsel of Medserv Corporation.
Thomas A. Loucks: Age 48
- ------------------------
Executive Vice President and Treasurer of the Company. From
August 1985 until August 1988, Mr. Loucks was a Business
Development Analyst with Newmont Mining Company.
Karen P. Gross: Age 43
- ----------------------
Vice President of the Company since June of 1994. Corporate
Secretary of the Company since 1989. From 1987 until 1989, Ms.
Gross was the Assistant Secretary to the Company and Executive
Assistant.
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
The officers of the Company have one-year employment agreements
that renew for an additional year in February each year.
-50-
ITEMS 11, 12, and 13
The information called for by Item 11, "Executive Compensation,"
Item 12, "Security Ownership of Certain Beneficial Owners and
Management," and Item 13, "Certain Relationships and Related
Transactions," is incorporated by reference to the Company's
definitive proxy statement to be filed with respect to the
upcoming Annual Meeting of Stockholders to be held December 10,
1996, in Denver, Colorado.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following is a list of documents filed as part of this
report and are included herewith (*) or have been filed
previously:
(1) Financial Statements included in Item 8.
(2) Financial Statement schedules:
All Schedules are omitted because the information
called for is not applicable or is not required or
because the required information is set forth in the
financial statements or notes thereto.
(3) The following exhibits are filed with this annual
report on Form 10-K. The exhibit numbers correspond
to the numbers assigned in Item 601 of Regulation
S-K. Those exhibits that have been marked with an
asterisk are filed herewith; all other exhibits have
been previously filed with the Commission pursuant to
the Company's various reports on Forms 10-K, 10-Q,
8-K, 8-A, S-1 and S-8, and are incorporated herein by
reference.
Exhibit
Number
-------
3 (a) Certificate of Incorporation - Exhibit (b)
to the Company's Form 10-K for the fiscal
year ended December 31, 1980.
(b) Amendment to Certificate of Incorporation -
Exhibit (c) to the Company's Form 10-K for
the fiscal year ended December 31, 1980.
(c) Amendment to Certificate of Incorporation
dated February 2, 1983 - Exhibit 3 (c) of
Registration Statement on Form S-1,
Registration No. 2-84642.
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Exhibit
Number
-------
(d) Amendments to Articles of Incorporation
dated May 7, 1987 - Exhibit (xiv) to the
Company's Form 10-K for the year ended
June 30, 1987.
(e) Amendment to Articles of Incorporation
dated February 2, 1988 - Exhibit 3(f) to
the Company's Form 10-K for the year ended
June 30, 1990.
(f) By-Laws - Exhibit (d) to the Company's Form
10-K, for the fiscal year ended December
31, 1980.
10 (a) Employee Stock Option Plan - Exhibit 4(a)
to the Company's Form S-8 dated February 6,
1990.
(b) Directors' Stock Option Plan - Exhibit 4(b)
to the Company's Form S-8 dated February 6,
1990.
(c) Lease of premises at 1660 Wynkoop Street,
Denver, Colorado, dated November 1, 1989 -
Exhibit 10 (c) to the Company's Form 10-K
for the year ended June 30, 1990.
(d) Agreement for Resolution of Disputes and
Litigation and for the Formation of the
South Pipeline Project, dated September 18,
1992, between Royal Crescent Valley, Inc.,
and Placer Dome U.S. Inc - Exhibit 10(l) to
the Company's Form 10-K for the year ended
June 30, 1992.
(e) Memorandum of Royalty Interest executed
September 18, 1992, by Royal Gold, Inc. and
Cortez Gold Mines - Exhibit 10(m) to the
Company's Form 10-K for the year ended June
30, 1992.
(f) Mining Lease and Purchase Option, dated
effective August 23, 1993, between Royal
Gold, Inc. and Donald K. Jennings, relating
to the "Ferb" claims, in Elko County,
Nevada - Exhibit 10(o) to the Company's
Form 10-K for the year ended June 30, 1993.
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Exhibit
Number
-------
(g) Mining Claim and Purchase Option Agreement,
dated effective November 30, 1993, between
Standard Industrial Minerals, Inc. and
Royal Long Valley, Inc - Exhibit 10(p) to
the Company's Form 10-K for the year ended
June 30, 1994.
(h) Option Agreement and Grant of Exploration
Rights, dated effective May 1, 1994,
between Union Pacific Minerals, Inc. and
Royal Gold, Inc - Exhibit 10(q) to the
Company's Form 10-K for the year ended June
30, 1994.
(i) Amendment to Option Agreement and Grant of
Exploration Rights between Union Pacific
Minerals, Inc. and Royal Gold, Inc., dated
effective November 30, 1994, - Exhibit
10(k) to the Company's Form 10-K for the
year ended June 30, 1995.
(j) Assignment Agreement dated effective
December 1, 1994, between Royal Gold, Inc.
and Santa Fe Pacific Gold Corporation,
relating to the Bob Creek Project -
Exhibit 10(l) to the Company's Form 10-K
for the year ended June 30, 1995.
(k) Second Amendment to Option Agreement and
Grant of Exploration Rights between Union
Pacific Minerals, Inc. and Royal Gold,
Inc., dated effective January 1, 1996 -
Exhibit 10(k) to the Company's Form 10-k
for the year ended June 30, 1996.
(l) Third Amendment to Option Agreement and
Grant of Exploration Rights between Union
Pacific Minerals, Inc. and Royal Gold,
Inc., dated effective August 15, 1996 -
Exhibit 10(l) to the Company's Form 10-K
for the year ended June 30, 1996.
(m) Consent of Independent Accountants
(n) Consent of Independent Accountants
-53-
Exhibit
Number
------
(o) Shareholders' Rights Agreement Exhibit B to
the Company's Form 8-A dated September 11,
1997.
(p)* Restated Option Agreement and Grant of
Exploration Rights between Union Pacific
Minerals, Inc. and Royal Gold, Inc. dated
effective August 22, 1997.
(q)* Letter agreement among Royal Gold, Inc. and
Amax Gold Inc. - Lease and Option to
Purchase dated effective August 1, 1997.
21 *(a) The Company and Its Subsidiaries.
(b) Reports on Form 8-K:
1. None.
* - Filed herewith.
EXHIBIT 21
THE COMPANY
AND ITS SUBSIDIARIES
ROYAL GOLD, INC. AND SUBSIDIARIES
Denver Mining Finance Company (1)
Royal Trading Company (1)
Calgom Mining, Inc. (1)(4)
Royal Long Valley, Inc. (1)
Royal Camp Bird, Inc. (1)
Royal Crescent Valley, Inc. (1)
Royal Kanaka Creek Corporation (1)
Environmental Strategies, Inc. (2)
GRAMEX LTD (3)
SOMIN LTD (5)
Royal Gold Australia (3)
(1) Owned 100% by Royal Gold, Inc.
(2) Owned 100% by Denver Mining Finance Company
(3) Owned 50% by Royal Gold, Inc.
(4) Owns a 100% interest in the Goldstripe Project.
(5) Owned 25% by Royal Gold, Inc.
-54-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROYAL GOLD, INC.
Date: September 29, 1997 By: /s/Stanley Dempsey
-------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Date: September 29, 1997 By: /S/Stanley Dempsey
------------------------
Stanley Dempsey, Chairman,
Chief Executive Officer,
and Director
Date: September 29, 1997 By: /S/Thomas A. Loucks
-------------------------
Thomas A. Loucks,
Treasurer
Date: September 29, 1997 By: /S/John Skadow
-------------------------
John Skadow
Controller
Date: September 29, 1997 By: /S/Edwin W. Peiker, Jr.
-------------------------
Edwin W. Peiker, Jr.,
Director
Date: September 29, 1997 By: /S/John W. Goth
--------------------------
John W. Goth,
Director
Date: September 29, 1997 By: /S/James W. Stuckert
-------------------------
James W. Stuckert,
Director
Date: September 29, 1997 By: /S/Pierre Gousseland
-------------------------
Pierre Gousseland,
Director
-55-
Date: September 29, 1997 By: /S/Merritt E. Marcus
-------------------------
Merritt E. Marcus
Director
Date: September 29, 1997 By: /S/S. Oden Howell, Jr.
--------------------------
S. Oden Howell, Jr.
Director
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