UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended March 31, 2005

Commission File Number 0-5664

Royal Gold, Inc.
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202-1132
(303) 573-1660
(Name, State of Incorporation, Address and Telephone Number)

I.R.S. Employer Identification Number 84-0835164

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: 21,009,562 shares of the Company’s Common Stock, par value $0.01 per share, were outstanding as of April 30, 2005.

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ROYAL GOLD, INC.
Table of Contents

INDEX

The accompanying notes are an integral part of these consolidated financial statements

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ROYAL GOLD, INC.

The accompanying notes are an integral part of these consolidated financial statements

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ROYAL GOLD, INC.

The accompanying notes are an integral part of these consolidated financial statements

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ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

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ROYAL GOLD, INC.

The accompanying notes are an integral part of these consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.	OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Operations

Royal Gold, Inc. (the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue from the project after deducting specified costs, if any.

We seek to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. We also explore and develop properties thought to contain precious metals and seek to obtain royalties and other carried ownership interests in such properties through the subsequent transfer of operating interests to other mining companies. Substantially all of our revenues are and can be expected to be derived from royalty interests. We do not conduct mining operations at this time.

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been included in this Form 10-Q. Operating results for the three and nine months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 2005. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2004.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (“Statement 123(R)”), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Statement 123(R) supersedes Accounting Practices Board No. 25, Accounting for Stock Issued to Employees (“APB 25”), and amends FASB Statement No. 95, Statement of Cash Flows. Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Statement 123(R) is effective for the Company beginning with its first fiscal quarter ending September 30, 2005. We are currently evaluating the effect of Statement 123(R) on our consolidated financial statements and results of operations, including the transition method we expect to utilize and any potential changes to our compensation strategy resulting from the adoption of the revised standard.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2.	STOCKHOLDER’S EQUITY AND STOCK OPTION COMPENSATION

2004 Omnibus Long-Term Incentive Plan

In November 2004, the Company adopted the Omnibus Long-Term Incentive Plan (“2004 Plan”). The 2004 Plan replaces the Company’s Equity Incentive Plan. Under the 2004 Plan, 900,000 shares of Common Stock are available for future grants to officers, directors, key employees and other persons. The Plan provides for the grant of stock options, unrestricted stock, restricted stock, dividend equivalent rights, stock appreciation rights, and cash awards. Any of these awards may, but need not, be made as performance incentives. Stock options granted under the 2004 Plan may be non-qualified stock options or incentive stock options.

Royal Gold granted various awards under the 2004 Plan during the second quarter of fiscal 2005, as detailed below.

Stock-based Compensation

Performance awards were granted to certain employees and officers consisting of 58,250 shares of common stock (“Performance Shares”). The Performance Shares can be earned only if defined multi-year performance goals are met within a period of five years from the date of grant. If the performance goals are not earned by the end of this five year period, the Performance Shares will be forfeited. Vesting of Performance Shares is subject to certain performance measures being met and can be based on an interim earn out of 25%, 50%, 75% or 100%. The defined performance goals are tied to three performance measures, including growth of free cash flow per share on a trailing twelve month basis, growth of royalty ounces in reserve on a annual basis, and growth in market capitalization during the five year vesting period.

There was no compensation expense recorded for the three or nine months ended March 31, 2005, with respect to the Performance Shares. The measurement date for the Performance Shares will be determined at such time that the performance goals are attained or that it is probable they will be attained. In accordance with APB 25, at such time that compensation expense for the Performance Shares can be estimated, compensation expense will be measured by the number of shares that will ultimately be earned at the then-current market price of our common stock. Interim recognition of compensation expense will be made at such time as management can reasonably estimate the number of shares that will be earned. As of March 31, 2005, our estimates indicate that there was not a reasonable projection of the number of Performance Shares to be earned, if any.

Certain employees, officers, and the Board of Directors (“BOD”) were granted 42,000 shares of restricted common stock (“Restricted Stock”). Restricted Stock vests by continued service alone. For certain employees and officers, the vesting period for Restricted Stock begins after a three-year holding period from the date of grant with one-third of the shares vesting in years four, five and six, respectively. Shares of Restricted Stock represent issued and outstanding shares of common stock, with dividend and voting rights, subject to forfeiture upon termination of employment with the Company.

In accordance with APB 25, for the three and nine month period ending March 31, 2005, we recorded non-cash stock compensation expense associated with the restricted stock of $43,088 and $162,213, respectively, representing amortization of the fair value of the Restricted Stock for the given period. The measurement date to begin amortization for the Restricted Stock was the grant date (November 10, 2004). The fair value of the Restricted Stock at the measurement date was $17.38 per share. Amortization is based on a straight line basis over the expected six year vesting period, except for non-executive BOD restricted shares which are vested 50% immediately and 50% after one year from the date of grant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Stock Options

During August 2004, 10,000 stock options were granted to an employee under the Company’s Equity Incentive Plan, at an exercise price of $14.97 per share, which was the closing market price for our common stock on the date of grant. These options vest over a one-year period.

During November 2004, 136,000 stock options were granted to certain employees, officers, and the BOD under the 2004 Plan. These options have an exercise price of $17.38, which was the closing market price for our Common Stock on the date of grant. The options have vesting terms ranging from one to three years, except for BOD options of which 50% vests immediately and 50% vests after one year from the date of grant.

During the three months ended March 31, 2005, options to purchase 156,339 shares were exercised, resulting in proceeds of $752,212. During the nine months ended March 31, 2005, options to purchase 184,203 were exercised, resulting in proceeds of $882,766. During the nine months ended March 31, 2004, options to purchase 129,164 shares were exercised, resulting in proceeds of $738,177.

We measure compensation cost as prescribed by APB 25, whereby no compensation cost related to the granting of stock options has been recognized in the financial statements because the exercise price of all option grants was equal to the market price of our Common Stock at the date of grant. In October 1995, the FASB issued SFAS 123 which 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 and earnings per share amounts would have been recorded:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3.	INVESTMENT IN REVETT SILVER COMPANY AND THE TROY MINE

On October 14, 2004, in a three-part transaction, the Company paid $8.5 million to Revett Silver Company (“Revett”) and its wholly-owned subsidiary, Genesis Inc. (“Genesis”), in exchange for two royalty interests in the Troy underground silver and copper mine, located in northwestern Montana, and shares in Revett.

For consideration of $7.25 million, the Company obtained the right to receive a production payment equivalent to a 7.0% gross smelter return royalty (“GSR Royalty”) from all metals and products produced and sold from the Troy mine. As reported by Revett at the time of the transaction, total contained proven and probable reserves at the Troy mine were 13.6 million ounces of silver and 113 million pounds of copper. The GSR Royalty will extend until either cumulative production of approximately 9.9 million ounces of silver and 84.6 million pounds of copper, or the Company receives $10.5 million in cumulative payments, whichever occurs first. As of March 31, 2005, we have received payments associated with the GSR Royalty totaling $304,175.

As a second component of the transaction, the Company acquired a perpetual GSR royalty (“Perpetual Royalty”) at the Troy mine for $250,000. The rate for this Perpetual Royalty begins at 6.1% on any production in excess of 11.0 million ounces of silver and 94.1 million pounds of copper, and steps down to a perpetual 2% royalty after cumulative production has exceeded 12.7 million ounces of silver and 108.2 million pounds of copper. In the third component of the transaction, the Company purchased approximately 1.3 million shares of Revett common stock for $1.0 million. These shares can be converted, under certain circumstances and at the election of the Company, into a 1% net smelter return (“NSR”) royalty on the Rock Creek mine, also located in northwestern Montana and owned by Revett.

Under the terms of the share agreement, the Company has the right, but not the obligation, to cure any default by Revett or Genesis under their obligations pursuant to an existing mortgage payable, secured by a Promissory Note, to Kennecott Montana Company (“Kennecott”), a third party and prior Joint Venture interest owner of the Troy mine. The principal and accrued interest under the Promissory Note as of December 31, 2004, was approximately $6.6 million with a maturity date of February 2008.

We have recorded the acquisition of the GSR Royalty and the Perpetual Royalty interests as components of Royalty Interests in Mineral Properties on the consolidated balance sheets. The acquisition of the 1.3 million shares of Revett is recorded as an investment in available for sale securities on the Consolidated Balance Sheets. During February 2005, Revett completed an initial public offering through a newly created parent company, Revett Minerals Inc., a publicly traded Canadian company. Accordingly, its shares now have a readily determinable market value. Unrealized gains and loses on these investments are recorded in accumulated other comprehensive income (net of tax) as a separate of component of stockholders’ equity, which are recognized in determining net income when investments are sold. We recorded an unrealized gain of $65,448 (net of tax) in these investments for the three and nine months ended March 31, 2005.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4.	AVAILABLE FOR SALE SECURITIES

Investments in securities that have readily determinable market values are classified as available for sale investments. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income (net of tax) as a separate component of stockholders’ equity. When investments are sold, the realized gains and losses on the sale of these investments, as determined using the specific identification method, and any unrealized gain/loss recorded in accumulated other comprehensive income are included in determining net income. We recorded a gain on sale of available for sale securities of $51 and $163,577 during the three and nine months ended March 31, 2005, respectively. We had no sales of available for sale investments during the three and nine months ended March 31, 2004.

5.	ROYALTY INTERESTS IN MINERAL PROPERTIES

As of March 31, 2005:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As of June 30, 2004:

Discussed below is a status of each of our royalty interests in mineral properties.

Pipeline Mining Complex

We own two sliding-scale gross smelter return royalties (“GSR1” ranging from 0.40% to 5.0% and “GSR2” ranging from 0.72% to 9.0%), a 0.71% fixed rate gross smelter return royalty (“GSR3”), and a 0.39% net value return royalty (“NVR1”) over the Pipeline Mining Complex that includes the Pipeline and South Pipeline gold deposits in Lander County, Nevada.

The Pipeline Mining Complex is owned by the Cortez Joint Venture, a joint venture between Placer Cortez Inc. (60%), a subsidiary of Placer Dome Inc., and Kennecott Explorations (Australia) Ltd. (40%), a subsidiary of Rio Tinto.

Bald Mountain

We own a 1.75% to 3.5% sliding-scale net smelter return (“NSR”) royalty that burdens a portion of the Bald Mountain mine, in White Pine County, Nevada. Bald Mountain is an open pit, heap leach mine operated by Placer Dome U.S. Inc. The sliding-scale royalty increases or decreases with the gold price, adjusted by the 1986 Producer Price Index. Our royalty rate would increase to 2% at a gold price of approximately $500 per ounce.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SJ Claims

We own a 0.9% NSR on the SJ Claims that covers a portion of the Betze-Post gold mine, in Eureka County, Nevada. Betze-Post is an open pit mine operated by Barrick Gold Corporation at its Goldstrike property.

Leeville Project

We own a 1.8% carried working interest, equal to a 1.8% NSR royalty, which covers the majority of the Leeville Project, in Eureka County, Nevada. The Leeville Project is an underground gold operation, currently under development by Newmont Mining Corporation (“Newmont”). Newmont has announced its intention to initiate production at Leeville North during the fourth quarter of calendar 2005. Current production on the Leeville Project ground is derived from underground production on the Leeville South (formerly Carlin East) mine, also operated by Newmont.

We carry our interest in the proven and probable reserves at Leeville North as a development stage royalty interest, which will be depleted using the units of production method based on proven and probable reserves once production begins. Amortization of our development stage interest will begin upon commencement of production at Leeville North. At that time, the development stage cost basis of Leeville North will be reclassified as a production stage royalty interest.

We carry our interest in the non-reserve portion of Leeville North as an exploration stage royalty interest, which is not subject to periodic amortization. In the event that future proven and probable reserves are developed at Leeville associated with our interest, the cost basis of our exploration stage royalty interest will be reclassified as a development stage royalty interest or a production stage royalty interest in future periods, as appropriate. In the event that future events or circumstances indicate that the non-reserve portion of Leeville North will not be converted into proven and probable reserves, we will evaluate our carrying value in the exploration stage interest for impairment.

Martha Mine

We own a 2% NSR royalty on the Martha mine located in Argentina, a silver mine operated by Coeur d’Alene Mining Corporation. Our cost basis in the Martha mine has been fully amortized.

Troy Mine

As discussed in Note 3, we own a production payment equivalent to a 7.0% gross smelter return royalty (“GSR Royalty”) from all metals and products produced and sold from the Troy mine located in northeastern Montana. The GSR Royalty will extend until either cumulative production of approximately 9.9 million ounces of silver and 84.6 million pounds of copper, or the Company receives $10.5 million in cumulative payments, whichever occurs first. As of March 31, 2005, we have received payments associated with the GSR Royalty totaling $304,175. We carry our interest in the proven and probable reserves for the GSR Royalty as a production stage royalty interest, which will be depleted using the units of production method estimated by using proven and probable reserves. Mining operations commenced at the Troy Mine during December 2004, with the first shipment of concentrate occurring during January 2005. Amortization of our production stage interest commenced with the first concentrate shipment from the Troy Mine during the third quarter of our fiscal 2005.

We own a perpetual GSR royalty (“Perpetual Royalty”) at the Troy mine. The royalty rate for the Perpetual Royalty begins at 6.1% on any production in excess of 11.0 million ounces of silver and 94.1 million pounds of copper, and steps down to a perpetual 2% after cumulative production has exceeded 12.7 million ounces of silver and 108.2 million pounds of copper. We carry our interest in the non-reserve portion

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

of the Perpetual Royalty as an exploration stage royalty, which is not subject to periodic amortization. In the event that future proven and probable reserves are developed, that are associated with our Perpetual Royalty interest, the cost basis of our exploration stage royalty interest will be reclassified as a development stage royalty interest or a production stage royalty interest in future periods, as appropriate. In the event that future events or circumstances indicate that the non-reserve portion of the Perpetual Royalty will not be converted into proven and probable reserves, we will evaluate our carrying value in the exploration stage interest for impairment.

6.	EARNINGS PER SHARE (“EPS”) COMPUTATION

Options to purchase 409,540 shares of common stock, at an average purchase price of $19.11 per share, were outstanding at March 31, 2005, but were not included in the computation of diluted EPS because the exercise price of these options was greater than the average market price of the common shares for the period.

Options to purchase 249,980 shares of common stock, at an average price of $20.61 per share, were outstanding at March 31, 2004, but were not included in the computation of diluted EPS because the exercise price of the options was greater than the average market price of these common shares for the period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Options to purchase 409,540 shares of common stock, at an average purchase price of $19.11 per share, were outstanding at March 31, 2005, but were not included in the computation of diluted EPS because the exercise price of these options was greater than the average market price of the common shares for the period.

Options to purchase 179,980 shares of common stock, at an average purchase price of $21.09, were outstanding at March 31, 2004, but were not included in the computation of diluted EPS because the exercise price of these options was greater than the average market price of common shares for the period.

7.	INCOME TAXES

For the three months ended March 31, 2005, we recorded current and deferred tax expense of $895,341 compared with $1,040,609 during the three months ended March 31, 2004. Our effective tax rate for the three months ended March 31, 2005, was 24.7%, compared with 26.1% for the three months ended March 31, 2004. As of December 31, 2004, we no longer carry a valuation allowance with respect to any of our deferred tax assets.

For the nine months ending March 31, 2005, we recognized current and deferred tax expense totaling $2,481,687 compared with $2,295,352 during the nine months ended March 31, 2004. This resulted in an effective tax rate of 24.0% in the current period compared with 25.9% in the prior period. The decrease in the effective tax rate between periods was associated with the release of a valuation allowance associated with the sale of our available for sale securities of approximately $320,000 during the nine months ended March 31, 2005. As of December 31, 2004, we no longer carry a valuation allowance with respect to any of our deferred tax assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

During the nine months ending March 31, 2005, and March 31, 2004, we remitted $1,755,000 and $383,000 in cash for taxes, respectively.

8.	COMMITMENTS AND CONTINGENCIES

RG Russia

On June 20, 2003, through a newly formed wholly-owned subsidiary, RG Russia, Inc., we entered into an agreement for exploration in Russia with a subsidiary of Phelps Dodge Exploration Corporation, which holds an exploration license granted by the Russian government. We have committed to provide exploration funding totaling $1.3 million over a period not to exceed 24 months in return for a 1% NSR royalty.

As of March 31, 2005, we have funded our entire commitment of $1.3 million. We have expensed the funding amount as a component of Exploration and Business Development in the accompanying financial statements.

Casmalia

On March 24, 2000, the United States Environmental Protection Agency (“EPA”) notified Royal Gold and 92 other entities that they were considered potentially responsible parties (“PRPs”) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“Superfund”), at the Casmalia Resources Hazardous Waste Disposal Site (the “Site”) in Santa Barbara County, California. EPA’s allegation that Royal Gold was a PRP was based on the disposal of allegedly hazardous petroleum exploration wastes at the Site by Royal Gold’s predecessor, Royal Resources, Inc., during 1983 and 1984.

After extensive negotiations, on September 23, 2002, Royal Gold, along with 35 members of the PRP group targeted by EPA, entered into a Partial Consent Decree with the United States of America intending to settle their liability for the United States of America’ past and future clean-up costs incurred at the Site. Based on the minimal volume of allegedly hazardous waste that Royal Resources, Inc. disposed of at the Site, our share of the $25.3 million settlement amount was $107,858, which we deposited into the escrow account that the PRP group set up for that purpose in January 2002. The funds were paid to the United States of America on May 9, 2003. The United States of America may only pursue Royal Gold and the other PRPs for additional clean-up costs if the United States of America total clean-up costs at the Site significantly exceed the expected cost of approximately $272 million. We believe this to be a remote possibility; therefore, we consider our potential liability to the United States of America to be resolved.

The Partial Consent Decree does not resolve Royal Gold’s potential liability to the State of California (“State”) for its response costs or for natural resource damages arising from the Site. The State has not expressed any interest in pursuing natural resource damages. However, on October 1, 2002, the State notified Royal Gold and the rest of the PRP group that participated in the settlement with the United States of America that the State would be seeking response costs totaling approximately $12.5 million from them. It is not known what portion of these costs the State expects to recover from this PRP group in settlement. If the State agrees to a volumetric allocation, we will be liable for 0.438% of any settlement amount. However, we expect that our share of liability will be completely covered by a $15 million, zero-deductible insurance policy that the PRP group purchased specifically to protect itself from claims such as that brought by the State.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our 2004 Annual Report on Form 10-K.

This MD&A contains forward-looking information. Our important note about forward-looking statements, which you will find following this MD&A and following the MD&A in our 2004 Annual Report on Form 10-K, applies to these forward-looking statements.

Overview

Royal Gold, Inc. (the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties.

We seek to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue from the project after deducting specified costs, if any. We also explore and develop properties thought to contain precious metals and seek to obtain royalty interests and other carried ownership interests in these properties through the subsequent transfer of interests to other mining companies. We expect that substantially all of our revenues are and will be derived from royalty interests. We do not conduct mining operations at this time. During the third quarter of fiscal 2005, we focused on the management of our existing royalty interests, the acquisition of royalty interests, and the creation of royalty interests through exploration and financing.

Our financial results are closely tied to the price of gold. For the quarter ended March 31, 2005, the price of gold averaged $427 per ounce, compared with an average price of $408 per ounce for the quarter ended March 31, 2004. As a result of the increased gold price, our GSR1 sliding-scale royalty at the Pipeline Mining Complex was 4.25% for the quarter ended March 31, 2005, compared with a rate of 4.0% during the prior period. This increase in our sliding-scale royalty rate, partially offset by a decrease in production at the Pipeline Mining Complex, contributed to revenues of $5,868,538 during the quarter ended March 31, 2005, compared with revenues of $6,020,841 for the quarter ended March 31, 2004.

Our principal mineral property interests are:

		– two sliding-scale gross smelter return, or GSR, royalty interests;
		– one fixed GSR royalty interest; and
		– one net value royalty interest,

all relating to a mining complex known as the Pipeline Mining Complex, which includes the Pipeline and South Pipeline gold deposits, operated by the Cortez Joint Venture, which is a joint venture between Placer Cortez, Inc. (60%), a subsidiary of Placer Dome, Inc., and Kennecott Explorations (Australia) Ltd. (40%), a subsidiary of Rio Tinto;

–

one 1.8% NSR royalty on the majority of the Leeville Project, which includes the development stage Leeville North underground mine and a portion of the Leeville South deposit (formerly Carlin East), operated by Newmont Mining Corporation; and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

–

one 0.9% NSR royalty on the SJ Claims, which covers a portion of the Betze-Post open pit mine, at the Goldstrike project operated by Barrick Gold Corporation.

Our other producing royalty interests include a 1.75% to 3.5% NSR sliding-scale royalty interest covering a portion of the Bald Mountain mine, operated by Placer Dome U.S. Inc. This sliding-scale royalty increases or decreases with the gold price, adjusted by the 1986 Producer Price Index. Our royalty rate would increase to 2% around a gold price of $500 per ounce. We also own a 2% NSR royalty on a number of properties in Santa Cruz Province, Argentina, including the Martha silver mine, which is operated by Coeur d’Alene Mines Corporation.

On October 14, 2004, we purchased two royalty interests in the Troy underground silver and copper mine, operated by Revett Silver Company (“Revett”), located in northeastern Montana. The first royalty is a production payment equivalent to a 7.0% GSR Royalty from all metals and products produced and sold from the Troy mine. As reported by Revett at the time of transaction, total contained proven and probable reserves at the Troy mine were 13.6 million ounces of silver and 113 million pounds of copper. The GSR Royalty will extend until either cumulative production of approximately 9.9 million ounces of silver and 84.6 million pounds of copper, or we receive $10.5 million in cumulative payments, whichever occurs first. The second royalty is a Perpetual Royalty, also from the Troy mine, which begins at 6.1% on any production in excess of 11.0 million ounces of silver and 94.1 million pounds of copper, and steps down to a perpetual 2% after cumulative production has exceeded 12.7 million ounces of silver and 108.2 million pounds of copper.

Estimates received from the mine operators during the first quarter of calendar year 2005 indicated that gold production, attributable to our royalty interests, for calendar year 2005 was expected to be approximately 860,000 ounces from the Pipeline Mining Complex, 90,000 ounces from the Leeville South mine and 51,000 from the Leeville North mine at the Leeville Project, 674,000 ounces from the SJ Claims and 40,000 ounces from the Bald Mountain mine. The Martha silver mine is expected to produce 1.7 million ounces of silver attributable to our royalty interest for the 2005 calendar year. The Troy mine is expected to produce 2.8 million ounces of silver and 23.4 million pounds of copper attributable to our royalty interest for the 2005 calendar year. As of March 31, 2005, the mine operators have reported production attributable to our royalty interests of 216,851 ounces from the Pipeline Mining Complex, 19,253 ounces from the Leeville South mine located at the Leeville Project, 127,031 ounces from the SJ Claims and 10,000 ounces from the Bald Mountain mine. Revett reported that the Troy mine produced 214,595 ounces of silver and 1,886,823 pounds of copper during the three months ended March 31, 2005.

Results of Operations

Quarter Ended March 31, 2005, Compared to Quarter Ended March 31, 2004

For the quarter ended March 31, 2005, we recorded net earnings of $2,726,089, or $0.13 per basic and diluted share, as compared to net earnings of $2,950,814, or $0.14 per basic and diluted share, for the quarter ended March 31, 2004.

For the quarter ended March 31, 2005, we received total royalty revenues of $5,868,538, consisting of $4,832,009 from our royalties at the Pipeline Mining Complex, $490,957 from the SJ Claims, $146,017 from Leeville South, $304,175 from the Troy mine, $74,765 from Bald Mountain and $20,615 from the Martha mine, compared to total royalty revenues of $6,020,841 for the quarter ended March 31, 2004. Although our sliding-scale royalty rate increased to 4.25%, compared to 4.0% in the prior period, and the average gold price increased over the prior period, royalty revenues decreased primarily due to an overall decrease in production, compared to the prior year.

Cost of operations decreased to $395,272 for the quarter ended March 31, 2005, compared to $418,900 for the quarter ended March 31, 2004. This decrease was primarily related to a decrease in the Nevada net proceeds tax accruals of approximately $18,000, which is associated with the decreased royalty revenues.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General and administrative expenses increased to $913,775 for the quarter ended March 31, 2005, from $834,031 for the quarter ended March 31, 2004, primarily due to an increase in accounting and consulting fees of approximately $132,000, which are related primarily to Sarbanes-Oxley compliance work. This increase was partially offset by a decrease in corporate filing fees of approximately $49,000.

As discussed in Note 2 in the accompanying Notes to Consolidated Financial Statements, we recorded non-cash employee stock compensation expense of $43,088 for the quarter ended March 31, 2005, compared to $0 for the quarter ended March 31, 2004. The non-cash compensation expense during the period represents amortization, based on the employees’ service period, of the fair value of the Restricted Stock issued pursuant to the 2004 Omnibus Long-Term Incentive Plan at the issuance or measurement date.

Exploration and business development expenses increased to $380,665 for the quarter ended March 31, 2005, from $150,705 for the quarter ended March 31, 2004. The increase was primarily due to increased salary allocation and the associated employees’ costs of approximately $207,000.

Depreciation, depletion and amortization decreased to $695,152 for the quarter ended March 31, 2005, from $762,288 for the quarter ended March 31, 2004. The decrease was primarily due to a decrease in our depletion rates, which are updated during our third quarter each year to reflect updated reserve figures received from the operators.

Interest and other income increased to $202,827 for the quarter ended March 31, 2005, from $142,018 for the quarter ended March 31, 2004. The increase is primarily due to an increase in funds available for investing over the prior year and higher interest rates.

For the quarter ended March 31, 2005, we sold available for sale securities resulting in a gain of approximately $51, compared with $0 for the quarter ended March 31, 2004, which is included in gain on sale of available for sale securities in the accompanying Consolidated Statements of Operations and Comprehensive Income.

For the three months ended March 31, 2005, we recorded current and deferred tax expense of $895,341 compared with $1,040,609 during the three months ended March 31, 2004. Our effective tax rate was 24.7% for the three months ended March 31, 2005, compared with 26.1% for the three months ended March 31, 2004. As of December 31, 2004, we no longer carry a valuation allowance with respect to any of our deferred tax assets.

Nine Months Ended March 31, 2005, Compared to Nine Months Ended March 31, 2004

For the nine months ended March 31, 2005, we recorded net earnings of $7,842,835, or $0.38 per basic share and $0.37 per diluted share, as compared to net earnings of $6,571,392, or $0.32 per basic share and $0.31 per diluted share, for the nine months ended March 31, 2004.

For the nine months ended March 31, 2005, we received total royalty revenues of $17,824,462, consisting of $15,006,004 from our royalties at the Pipeline Mining Complex, $1,585,954 from the SJ Claims, $630,408 from Leeville South, $304,175 from the Troy mine, $175,063 from Bald Mountain, and $122,859 from the Martha mine, compared to total royalty revenues of $15,285,788 for the nine months ended March 31, 2004. This increase in royalty revenues resulted primarily from a higher sliding-scale royalty rate from the Pipeline Mining Complex, and an average gold price of $421 per ounce for the nine months ended March 31, 2005, compared to an average gold price of $388 for the nine months ended March 31, 2004.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of operations increased to $1,373,957 for the nine months ended March 31, 2005, compared to $1,093,357 for the nine months ended March 31, 2004. The increase was primarily related to an increase in accrued Nevada net proceeds tax of approximately $118,000, which is associated with the increased royalty revenues and an increase in consulting services for operations of approximately $159,000.

General and administrative expenses increased to $2,716,250 for the nine months ended March 31, 2005, from $2,198,726 for the nine months ended March 31, 2004. An increase in accounting and consulting fees, primarily due to Sarbanes-Oxley compliance work, of approximately $265,000 contributed to the increase. An increase in investor relations costs of approximately $125,000 and an increase in employee costs of approximately $124,000 also contributed to the overall increase in general and administrative costs.

As discussed in Note 2 in the accompanying Notes to Consolidated Financial Statements, we recorded non-cash employee stock compensation expense of $162,213 for the nine months ended March 31, 2005, compared to $0 for the nine months ended March 31, 2004. The non-cash compensation expense recorded during the period represents amortization, based on the employees’ service period, of the fair value of the Restricted Stock issued pursuant to the 2004 Omnibus Long-Term Incentive Plan at the issuance or measurement date.

Exploration and business development expenses increased to $1,423,808 for the nine months ended March 31, 2005, from $931,653 for the nine months ended March 31, 2004. The increase was due to an increase in the funding of our RG Russia commitment of approximately $201,000. As discussed in Note 8 in the accompanying Notes to Consolidated Financial Statements, we have funded our entire commitment to RG Russia. The increase was also due to increased salary allocation and the associated employees’ costs of approximately $529,000. These increases were offset by a decrease in expenditures related to the High Desert properties that were acquired in December 2002 of approximately $210,000.

Interest and other income increased to $515,241 for the nine months ended March 31, 2005, from $331,702 for the nine months ended March 31, 2004. The increase is primarily due to an increase in investable funds along with higher interest rates.

For the nine months ended March 31, 2005, we sold available for sale securities resulting in a gain of approximately $163,577, which is included in gain on sale of available for sale securities in the accompanying Consolidated Statements of Operations and Comprehensive Income.

For the nine months ended March 31, 2005, we recognized current and deferred tax expense totaling $2,481,687 compared with $2,295,352 as of March 31, 2004. This resulted in an effective tax rate of 24.0% in the current period, compared with 25.9% in the prior period. The decrease in the effective tax rate resulted from an increase in allowable percentage depletion deductions associated with higher revenue from our GSR1 royalty during the period, and the release of the valuation allowance associated with the sale of our available for sale securities of approximately $320,000 during the period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

At March 31, 2005, we had current assets of $53,222,167 compared to current liabilities of $3,679,443 for a current ratio of nearly 14 to 1. This compares to current assets of $51,901,175 and current liabilities of $2,441,434 at June 30, 2004, resulting in a current ratio of 21 to 1. The decrease in the current ratio is due primarily to an increase in our dividend and accounts payable of approximately $1,077,000. We continue to have no long term debt.

During the nine months ended March 31, 2005, liquidity needs were met from $17,824,462 in royalty revenues, our available cash resources, proceeds from issuance of stock of approximately $882,000, and interest and other income of $515,241.

We have a $10 million line of credit from HSBC that may be used to acquire producing royalties. Any loan under the line of credit will be secured by a mortgage on our GSR3 royalty at the Pipeline Mining Complex, and by a security interest in the proceeds from any of our royalties at the Pipeline Mining Complex. Any assets purchased with the line of credit will also serve as collateral. During our second fiscal quarter of 2005, we extended the maturity date of our line of credit through June 30, 2006. As of March 31, 2005, no funds have been drawn under the line of credit.

We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for general and administrative costs, exploration and business development costs, and capital expenditures for the foreseeable future. Our current financial resources are also available for royalty acquisitions and to fund dividends. Our long-term capital requirements are primarily affected by our ongoing business development activities. In the event of a substantial royalty or other acquisition, we may seek additional debt or equity financing.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (“Statement 123(R)”), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Statement 123(R) supersedes Accounting Practices Board No. 25, Accounting for Stock Issued to Employees (“APB 25”), and amends FASB Statement No. 95, Statement of Cash Flows. Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Statement 123(R) is effective for us beginning with our first fiscal quarter ending September 30, 2005. We are currently evaluating the effect of Statement 123(R) on our consolidated financial statements and results of operations, including the transition method we expect to utilize and any potential changes to our compensation strategy resulting from the adoption of the revised standard.

Forward-Looking Statements

Cautionary “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements regarding projected gold and silver production, estimates of production received from the operators of our royalty properties, settlement of the Casmalia matter, the potential need for additional funding for acquisitions and our expectation that substantially all our revenues will be derived from royalty interests. Factors that could cause actual results to differ materially from these forward-looking statements include, among others, changes in precious metals prices, decisions and activities of the operators of our royalty properties, unanticipated grade, geological, metallurgical, processing or

21

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

other problems at these properties, changes in project parameters as plans of the operators are refined, economic and market conditions, future financial needs, the availability of acquisitions, and the ultimate additional liability, if any, to the State of California in connection with the Casmalia matter, as well as other factors described elsewhere in this report. Most of these factors are beyond our ability to predict or control. We disclaim any obligation to update any forward-looking statement made herein. Readers are cautioned not to put undue reliance on forward-looking statements.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flow are significantly impacted by changes in the market price of gold. Gold prices can fluctuate widely and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events, and the strength of the U.S. dollar relative to other currencies. During the last five years, the market price for gold has fluctuated between $256 per ounce and $453 per ounce.

During the nine month period ended March 31, 2005, we reported royalty revenues of $17,824,462, with an average gold price for the period of $421 per ounce. Our GSR1 royalty, on the Pipeline Mining Complex, which produced the majority of our revenues for the period, is a sliding-scale royalty with variable royalty rate steps based on the average London PM gold price for the period. These variable steps are described in our Annual Report on Form 10-K. For the quarter ended March 31, 2005, if the price of gold had averaged higher or lower by $20 per ounce (which includes a one price step in GSR1), we would have recorded an increase in revenues of approximately $481,000 or a decrease in revenues of approximately $503,000. Due to the set price steps in GSR1, the effects of changes in the price of gold cannot be extrapolated on a linear basis.

ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our chief executive officer and our chief accounting officer, based on their evaluation of our disclosure controls and procedures as of March 31, 2005, concluded that our disclosure controls and procedures were effective for this purpose.

Changes in Internal Controls

During the fiscal quarter ended March 31, 2005, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

Not applicable.

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.	OTHER INFORMATION

Not applicable.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

25

Exhibit Index