UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-K
(Mark One) | ||
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2010 | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Transition Period From to |
Commission File Number 001-13357
Royal Gold, Inc.
Delaware | ||
(State or Other Jurisdiction of Incorporation or Organization) | 84-0835164 (I.R.S. Employer Identification No.) | |
1660 Wynkoop Street, Suite 1000 | ||
Denver, Colorado | ||
(Address of Principal Executive Offices) | 80202 (Zip Code) |
Registrant's telephone number, including area code: (303) 573-1660
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | ||||
---|---|---|---|---|---|
Common stock, $0.01 par value | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yeso Noþý
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. Yesþý Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
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’sregistrant'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.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”"accelerated filer", “large"large accelerated filer”filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act. (Check one):
(Check one): | ||||||||
Large accelerated filer | Accelerated filero | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþý
Aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the closing sale price of Royal Gold common stock on December 31, 2008,2009, as reported on the NASDAQ Global Select Market was $1,517,565,636. As of August 14, 2009, there$1,794,606,869. There were 40,763,19553,671,158 shares of the registrant’sCompany's common stock, $0.01 par value issued$0.01 per share, outstanding as of August 24, 2010. In addition, as of such date, there were 1,610,464 exchangeable shares of RG Exchangeco Inc., a subsidiary of registrant, outstanding which are exchangeable at any time into shares of the Company's common stock on a one-for-one basis and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 20092010 Annual Meeting of Stockholders scheduled to be held on November 18, 2009,17, 2010, and to be filed within 120 days after June 30, 2009,2010, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on
Form 10-K.
Page | |||||||||||
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PART I. | |||||||||||
ITEM 1. | 1 | ||||||||||
ITEM 1A. | Risk Factors | 9 | |||||||||
ITEM 1B. | Unresolved Staff Comments | 18 | |||||||||
ITEM 2. | Properties | 18 | |||||||||
ITEM 3. | Legal Proceedings | 40 | |||||||||
ITEM 4. | (Removed and Reserved) | 40 | |||||||||
PART II. | |||||||||||
ITEM | |||||||||||
41 | |||||||||||
ITEM 6. | Selected Financial Data | 42 | |||||||||
ITEM 7. | |||||||||||
42 | |||||||||||
ITEM 7A. | |||||||||||
62 | |||||||||||
ITEM 8. | |||||||||||
63 | |||||||||||
ITEM 9. | |||||||||||
95 | |||||||||||
ITEM 9A. | Controls and Procedures | 95 | |||||||||
ITEM 9B. | Other Information | 96 | |||||||||
PART III. | |||||||||||
ITEM | |||||||||||
97 | |||||||||||
ITEM 11. | Executive Compensation | 97 | |||||||||
ITEM 12. | |||||||||||
97 | |||||||||||
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence | 97 | |||||||||
ITEM 14. | Principal Accountant Fees and Services | 97 | |||||||||
PART IV. | |||||||||||
ITEM | |||||||||||
98 | |||||||||||
SIGNATURES | 99 | ||||||||||
EXHIBIT INDEX | |||||||||||
100 | |||||||||||
1
This document (including information incorporated herein by reference) contains “forward-looking statements”"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty due to various factors affecting Royal Gold, Inc. and its subsidiaries. For a discussion of some of these factors, see the discussion in Item 1A, Risk Factors, of this report. In addition, please see our note about forward-looking statements included in Item 7, Management’sManagement's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (“("MD&A”&A"), of this report.
Royal Gold, Inc. (“("Royal Gold”Gold", the “Company”"Company", “we”"we", “us”"us", or “our”"our"), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties.royalties and similar interests derived from production. Royalties are passive (non-operating) interests in mining projects that provideentitle the rightCompany to a portion of the revenue or production from the project after deducting specified costs, if any. We seek to acquire existing royalties or to finance projects that are in production or in development stage in exchange for royalty interests. We are engaged in a continual review of opportunities to acquire existing royalties, to create new royalties through the financing of mine development or exploration, or to acquire companies that hold royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial legal and other confidential information, submission of indications of interest, participation in preliminary discussions and involvement as a bidder in competitive auctions.
As of June 30, 2010, the Company received royalty revenue fromowns royalties on 33 producing properties, 23 producing properties. In addition, we own royalty interests on 10 development stage properties and over 80130 exploration stage properties, of which the Company considers 2537 to be evaluation stage projects.projects.32 producing properties. The Company uses “evaluation stage”"evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. We do not conduct mining operations nor are we required to contribute to capital costs, exploration costs, environmental compliance costs or other operating costs on the properties in which we hold royalty interests. During the fiscal year ended June 30, 2009,2010, we focused on the management of our existing royalty interests, the acquisition of royalty interests, the acquisition and integration of International Royalty Corporation ("IRC"), and the creation of royalty and similar interests through financing and strategic exploration alliances.
As discussed in further detail throughout this report, some significant developments to our business during fiscal year 20092010 were as follows:
RG Exchangeco (valued at $79.5 million on the date of acquisition) that are exchangeable at any time into shares of our common stock on a one-for-one basis ("Exchangeable Shares");
Additional Mineralized Material:Additional mineralized material is that part of a mineral system that has potential economic significance but cannot be included in the proven and probable ore reserve estimates until further drilling and metallurgical work is completed, and until other economic and technical feasibility factors based upon such work have been resolved. The Securities and Exchange Commission (the “SEC”"SEC") does not recognize this term. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves.
Gross Proceeds Royalty (GPR):A royalty in which payments are made on contained ounces rather than recovered ounces.
Gross Smelter Return (GSR) Royalty:A defined percentage of the gross revenue from a resource extraction operation, in certain cases reduced by certain contract-defined costs paid by or charged to the operator.
g/t:A unit representing grams per tonne.
Net Profits Interest (NPI): A defined percentage of the gross revenue from a resource extraction operation, after recovery of certain contract-defined pre-production costs, and after deduction of certain contract-defined mining, milling, processing, transportation, administrative, marketing and other costs.
Net Smelter Return (NSR) Royalty:A defined percentage of the gross revenue from a resource extraction operation, less a proportionate share of incidental transportation, insurance, refining and smelting costs.
Net Value Royalty (NVR):A defined percentage of the gross revenue from a resource extraction operation, less certain contract-defined transportation costs, milling costs and taxes.
Proven (Measured) Reserves: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: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.
Payable Metal:Ounces or pounds of metal in concentrate payable to the operator after deduction of a percentage of metal in concentrate that is paid to a third-party smelter pursuant to smelting contracts.
Reserve:That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.
Royalty:The right to receive a percentage or other denomination of mineral production from a resource extraction operation.
Ton:A unit of weight equal to 2,000 pounds or 907.2 kilograms.
Tonne:A unit of weight equal to 2,204.6 pounds or 1,000 kilograms.
3
Our producing royalty interests on mines that were in production and generated revenue tofor the Company during all or part of fiscal year 20092010 are shown in the following table. The number of properties listed here as production stage could change periodically due to developments at the properties. Please see Item 2, Properties, of this report for further discussion of our principal producing royalty interests.
Mine | Location | Operator | Royalty (Gold unless otherwise stated) | |||||
---|---|---|---|---|---|---|---|---|
Cortez | Nevada, USA | Barrick Gold Corporation ("Barrick") | GSR1: | 0.40%-5.0% sliding-scale GSR | ||||
0.40%-5.0% | ||||||||
GSR3: | 0.71% GSR | |||||||
NVR1: | 0.39% NVR | |||||||
Robinson | Nevada, USA | QuadraFNX Mining Ltd. | 3.0% NSR (copper, gold, silver, molybdenum) | |||||
Leeville | Nevada, USA | Newmont Mining Corporation | 1.8% NSR | |||||
Goldstrike | Nevada, USA | Barrick | 0.9% NSR | |||||
Bald Mountain | Nevada, USA | Barrick | 1.75%-3.5% sliding-scale NSR | |||||
Twin Creeks | Nevada, USA | Newmont | 2.0% GPR | |||||
Wharf | South Dakota, USA | Goldcorp Inc. | 0.0%-2.0% sliding-scale NSR | |||||
Skyline(1) | Utah, USA | Arch Coal, Inc. | 1.41% GOR | |||||
Dolores | Chihuahua, Mexico | Minefinders Corporation, Ltd. ("Minefinders") | 3.25% NSR; 2.0% NSR (silver) | |||||
El Chanate(2) | Sonora, Mexico | Capital Gold Corporation | 2.0%-4.0% sliding-scale NSR | |||||
Mulatos(3) | Sonora, Mexico | Alamos Gold, Inc. ("Alamos") | 1.0%-5.0% sliding-scale NSR | |||||
Peñasquito(4) | Zacatecas, Mexico | Goldcorp | 2.0% NSR (gold, | |||||
Las Cruces(1) | Andalucía, Spain | Inmet Mining ("Inmet") | 1.5% NSR (copper) | |||||
Taparko(5) | ||||||||
Namantenga, Burkina Faso | High River Gold Mines Ltd. | 15% GSR (TB-GSR1); 0%-10% sliding-scale GSR (TB-GSR2) | ||||||
Inata(1) | Soum, Burkina Faso | Avocet Mining PLC | 2.5% NSR | |||||
Siguiri(6) | Kankan, Guinea | AngloGold Ashanti Limited | 0.0%-1.875% sliding-scale NSR | |||||
Martha | ||||||||
Santa Cruz Province, Argentina | Coeur | 2.0% NSR | ||||||
Don Mario | Chiquitos Province, Bolivia | Orvana Minerals Corp. | 3.0% NSR |
Mine | Location | Operator | Royalty (Gold unless otherwise stated) | |||||
---|---|---|---|---|---|---|---|---|
Region | 75% of gold produced | |||||||
El Toqui | Region XI, Chile | Breakwater Resources | 1.0%-3.0% sliding-scale NSR (gold, lead and zinc) | |||||
Voisey's Bay(1) | Labrador, Canada | Vale Ltd. ("Vale") | 2.7% NSR (nickel, copper, cobalt) | |||||
Williams | Ontario, Canada | Barrick | 0.97% NSR | |||||
Allan | Saskatchewan, Canada | Potash Corporation of Saskatchewan | $0.36-$1.44 per ton | |||||
El Limon | El Limon, Nicaragua | B2Gold Corp. (95%) and Inversiones Mineras S.A. (5%) | 3.0% NSR | |||||
Balcooma | Queensland, Australia | Kagara | 1.5% NSR | |||||
Gwalia Deeps(1) | Western Australia, Australia | St. Barbara Limited ("St. Barbara) | 1.5% NSR | |||||
Mt. Goode (Cosmos South) | Western Australia, Australia | Xstrata PLC | 1.5% NSR (nickel) | |||||
South Laverton(1) | Western Australia, Australia | Saracen Mineral Holdings Limited | 1.5% NSR | |||||
Southern Cross(1) | Western Australia, Australia | St. Barbara | 1.5% NSR |
4
We own royalty interests that are currently in development stage. We categorize development stage royalties as theyproperties that are either not yet in production or not yet generating revenue tofor the Company. Please see Item 2, Properties, of this report for further discussion on our principal development stage royalty interests.
The following royalty interests are currently in development stage asbecause they have not yet provided revenue to the Company butCompany. These royalties are associated with a propertyproperties currently in production.
Mine | Location | Operator | Royalty | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Gold unless otherwise stated) | |||||||||||||
Marigold(1) | Nevada, USA | Goldcorp | 2.0% NSR | ||||||||||
Troy(2) | Montana, USA | Revett Minerals, Inc. | 3.0% GSR | ||||||||||
Taparko | Burkina Faso, West Africa | High River | |||||||||||
2.0% GSR | |||||||||||||
Avebury(3) | Tasmania, Australia | Minerals and Metals Group | 2% NSR | ||||||||||
Koolanooka | Western | ||||||||||||
Sinosteel Midwest Corporation Ltd. | AUD$0.25 per ton (iron | ||||||||||||
Meekatharra(3) (Yaloginda) | Western Australia, Australia | Mercator Gold PLC | 0.45% NSR | ||||||||||
Reedy's Burnakura(4) | Western Australia, Australia | Jinka Metals Ltd. | 1.5%-2.5% NSR |
Mine | Location | Operator | Royalty | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Gold unless otherwise stated) | |||||||||||||
Soledad Mountain(1) | Golden Queen Mining Co. Ltd. | 3.0% NSR (gold and silver) | |||||||||||
Gold Hill(2) | Nevada, USA | Kinross Gold Corporation (50%), Barrick (50%) | 1.0% | ||||||||||
Relief Canyon | Nevada, USA | Firstgold Incorporated | 3.0% NSR and 1.0% NSR | ||||||||||
Pascua-Lama(2,3) | Region III, Chile | Barrick | 0.67% to 4.48% sliding-scale NSR | ||||||||||
Bundarra(1) | Western Australia, | Terrain Minerals Ltd. | 1.5% NSR | ||||||||||
Meekatharra(2) (Paddy's Flat) | Western Australia, Australia | Mercator Gold | A$10.00 per gold ounce produced and 1.5% NSR | ||||||||||
Tarmoola(1) | Western Australia, Australia | St. Barbara | 1.5% NSR | ||||||||||
Schaft Creek(1) | British Columbia, Canada | Copper Fox Metals Inc. | 3.5% NPI (gold, silver, copper, molybdenum) | ||||||||||
Pine Cove | Newfoundland, Canada | New Island Resources Inc. (70%), Anaconda Mining Inc. (30%) | 7.5% NPI | ||||||||||
Rambler North | Newfoundland, Canada | Rambler Metals and Mining PLC | 1.0% NSR | ||||||||||
Holt(4) | Ontario, Canada | St Andrew Goldfields Ltd. | 0.00013 | ||||||||||
Caber(1) | Quebec, Canada | Breakwater Resources | 1.0% NSR (copper, zinc) | ||||||||||
Canadian Malartic(5) | Quebec, Canada | Osisko Mining Corporation ("Osisko") | 2.0% to 3.0% sliding-scale NSR | ||||||||||
Wolverine(1) | Yukon, Canada | Yukon Zinc Corporation ("Yukon Zinc") | 0.00% to 9.45% sliding-scale NSR (gold and silver) | ||||||||||
Lluvia deOro(6) | Sonora, Mexico | NWM Mining Corp. | 4.0% NSR | ||||||||||
Tambor(1) | South-Central, Guatemala | Radius Gold Inc. | 4.0% NSR |
Our Exploration Stage Royalty Interests
We own royalty interests on over 80130 exploration stage projects on six continents. None of our exploration stage projects contain proven and probable reserves as of December 31, 2008,2009, as determined by the owner or operator.
6
Financial Information about Geographic Areas
Royal Gold’sGold's royalty revenue and long-lived assets (royalty interests in mineral properties, net) are geographically distributed as shown in the following table. Please refer to Item 2, Properties, for further discussion onof our significantprincipal royalty interests on producing mineral properties.
Royalty Interests in | Royalty Revenue | Royalty Interests in Mineral Property, net | |||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty Revenue | Mineral Properties, net | Fiscal Year Ended June 30, | Fiscal Year Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||
United States | 56 | % | 79 | % | 97 | % | 13 | % | 18 | % | 25 | % | 40 | % | 56 | % | 79 | % | 5 | % | 13 | % | 18 | % | |||||||||||||||||||
Africa(1) | 29 | % | 21 | % | 11 | % | 2 | % | 8 | % | 12 | % | |||||||||||||||||||||||||||||||
Mexico | 15 | % | 4 | % | 2 | % | 45 | % | 55 | % | 49 | % | 15 | % | 15 | % | 4 | % | 13 | % | 45 | % | 55 | % | |||||||||||||||||||
Australia | 5 | % | 2 | % | — | 6 | % | 6 | % | — | |||||||||||||||||||||||||||||||||
Canada | 2 | % | 1 | % | — | 19 | % | 1 | % | — | 4 | % | 2 | % | 1 | % | 27 | % | 19 | % | 1 | % | |||||||||||||||||||||
Africa(1) | 21 | % | 11 | % | — | 8 | % | 12 | % | 16 | % | ||||||||||||||||||||||||||||||||
Chile | 1 | % | — | — | 6 | % | 7 | % | 10 | % | 4 | % | 1 | % | — | 42 | % | 6 | % | 7 | % | ||||||||||||||||||||||
Other(2) | 5 | % | 5 | % | 1 | % | 9 | % | 7 | % | — | ||||||||||||||||||||||||||||||||
Other | 3 | % | 3 | % | 5 | % | 5 | % | 3 | % | 7 | % |
Our financial results are primarily tied to the price of gold, silver, copper and other metals, as well as production from our producing stage royalty interests. For the fiscal years ended June 30, 2010, 2009 and 2008, gold, silver and 2007, thecopper price averages and percentage of gold averaged $874, $821 and $638 per ounce, respectively, the price of silver averaged $12.91, $15.40 and $12.74 per ounce, respectively, and the price of copper averaged $2.25, $3.53 and $3.22 per pound, respectively. For the fiscal years ended June 30, 2009, 2008 and 2007, Royal Gold derived 84%, 74% and 71%, respectively, of its total royalty revenue from gold royalties; 3%, 3% and 2%, respectively, of its total royalty revenue was derived from silver royalties; while 11%, 23%. 27%, respectively, of its total royalty revenue was derived from copper royalties, and 2%, 0% and 0%, respectively, of its total revenue was derived from otherrevenues by metal royalties.were as follows:
| Fiscal Year Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2010 | June 30, 2009 | June 30, 2008 | ||||||||||||||||
Metal | Average Price | Percentage of Royalty Revenue | Average Price | Percentage of Royalty Revenue | Average Price | Percentage of Royalty Revenue | |||||||||||||
Gold ($/ounce) | $ | 1,089 | 81 | % | $ | 874 | 84 | % | $ | 821 | 74 | % | |||||||
Silver ($/ounce) | $ | 16.85 | 3 | % | $ | 12.91 | 3 | % | $ | 15.40 | 3 | % | |||||||
Copper ($/pound) | $ | 3.03 | 9 | % | $ | 2.25 | 11 | % | $ | 3.53 | 23 | % | |||||||
Other | N/A | 7 | % | N/A | 2 | % | N/A | 0 | % |
Our financial results are discussed in further detail within Part II, Item 7, MD&A, and within our audited consolidated financial statements which are included in Part II, Item 8, Financial Statements and Supplementary Data. The risks associated with the operations of our royalty interests in various geographic regions are discussed in PartItem 1A, Risk Factors.
Competition
The mining industry in general and the royalty segment in particular are competitive. We compete with other royalty companies, mine operators and financial buyers in efforts to acquire existing royalties and with the lenders and investors providing debt and equity financing to operators of mineral properties in our efforts to create new royalties. Many of our competitors in the lending and mining business are larger than we are and have greater resources and access to capital than we have. Key
competitive factors in the royalty acquisition and financing business include price, structure and access to capital.
7
Like all mining operations, in the United States, the operators of the mines that are subject to our royalties must comply with environmental laws and regulations promulgated by federal, state and local governments including, but not limited to, the National Environmental Policy Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Clean Air Act; the Clean Water Act; the Hazardous Materials Transportation Act; and the Toxic Substances Control Act. Mines located on public lands in the United States are subject to the General Mining Law of 1872 and are subject to comprehensive regulation by either the United States Bureau of Land Management (an agency of the United States Department of the Interior) or the United States Forest Service (an agency of the United States Department of Agriculture). The mines also are subject to regulations of the United States Environmental Protection Agency (“EPA”("EPA"), the United States Mine Safety and Health Administration and similar state and local agencies. Operators of mines that are subject to our royalties in other countries are obligated to comply with similar laws and regulations in those jurisdictions. Although we are not responsible as a royalty owner for ensuring compliance with these laws and regulations, failure by the operators of the mines on which we have royalties to comply with applicable laws, regulations and permits can result in injunctive action, damages and civil and criminal penalties on the operators which could reduce or eliminate production from the mines and thereby reduce or eliminate the royalties we receive and negatively affect our financial condition.
Corporate Information
We were incorporated under the laws of the State of Delaware on January 5, 1981. Our executive offices are located at 1660 Wynkoop Street, Suite 1000, Denver, Colorado 80202; our telephone number is (303) 573-1660.
Available Information
Royal Gold maintains an internet website at www.royalgold.com. Royal Gold makes available, free of charge, through the Investor Relations section of theits website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with the SEC. Our SEC filings are available from the SEC’sSEC's internet sitewebsite at www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file electronically. These reports, proxy statements and other information may also be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. The charters of Royal Gold’sGold's key committees of the Board of Directors and Royal Gold’sGold's Code of Business Conduct and Ethics are also available on the Company’sCompany's website. Any of the foregoing information is available in print to any stockholder who requests it by contacting Royal Gold’sGold's Investor Relations Department at (303) 573-1660.
Company Personnel
We currently have 1720 employees, all of whom are located in Denver, Colorado. Our employees are not subject to a labor contract or a collective bargaining agreement. We consider our employee relations to be good.
We also retain independent contractors to provide consulting services, relating primarily to geologic and geophysical interpretations and also relating to such metallurgical, engineering, and other technical matters as may be deemed useful in the operation of our business, are primarily provided by independent contractors.business.
8
Risks Related to Our Business
We own passive interests in mining properties, and it is difficult or impossible for us to ensure properties are operated in our best interest.
All of our current revenue is derived from royalties on properties operated by third parties. The holder of a royalty interest typically has no authority regarding the development or operation of a mineral property. Therefore, we are not in control of decisions regarding development or operation of any of the properties on which we hold a royalty interest, and we have limited or no legal rights to influence those decisions.
Our strategy of having others operate properties on which we retain a royalty or other passive interest puts us generally at risk tofor the decisions of others regarding all operating matters, including permitting, feasibility analysis, mine design and operation, processing, plant and equipment matters and temporary or permanent suspension of operations, among others. These decisions are likely to be motivated by the best interests of the operator rather than to maximize royalties. Although we attempt to secure contractual rights, such as audit or access rights, when we create new royalties that will permit us to protect our interests, there can be no assurance that such rights will always be available or sufficient, or that our efforts will be successful in achieving timely or favorable results or in affecting the operation of the properties in which we have royalty interests in ways that would be beneficial to our stockholders.
Volatility in gold, silver, copper and other metal prices may have an adverse impact on the value of our royalty interests and reduce our royalty revenues. Certain of our royalty contracts have features that may amplify the negative effects of a drop in commodity prices.
The profitability of our royalty interests is directly related to the market price of gold, silver, copper and other metal prices. The market price of each metal may fluctuate widely and is affected by numerous factors beyond the control of any mining company. These factors include metal supply, industrial and jewelry fabrication and investment demand, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and other currencies, interest rates, gold sales and loans by central banks, forward sales by metal producers, global or regional political, economic or banking crises and a number of other factors. If the market price of gold, copper or certain other metals should drop, then our royalty revenues could also drop. Our sliding-scale royalties at Cortez, Taparko and other properties amplify this effect.
9
Furthermore, if the market price of gold, copper or certain other metals should drop, then our royalty revenues would also drop. Our sliding-scale royalties, such as those at Cortez, Taparko, Mulatos and other properties, amplify this effect. When the gold price falls below a certain mark in a sliding-
scale royalty, we receive a lower royalty rate on production. In addition, certain royalty agreements, such as our royalty agreement for the Robinson mine and the Peñasquito mine are based on the operator's concentrate sales to smelters, which include price adjustments between the operator and the smelter based on commodity prices at a later date, three to four months in the case of Robinson. In such cases, our royalty payments from the operator include a component of these later adjustments, which can result in decreased royalty revenue in later periods if commodity prices have fallen.
Volatility in gold, silver and copper prices is illustrateddemonstrated by the following table, which sets forth, for the periods indicated (calendar year), theannual high and low prices in U.S. dollarsfor those metals from selected years during the past decade. High and low gold prices per ounce, of gold, based on the London Bullion Market Association P.M. fix.
Year | High | Low | ||||||
2000 | 312 | 263 | ||||||
2001 | 293 | 256 | ||||||
2002 | 349 | 278 | ||||||
2003 | 416 | 320 | ||||||
2004 | 454 | 375 | ||||||
2005 | 537 | 411 | ||||||
2006 | 725 | 525 | ||||||
2007 | 841 | 608 | ||||||
2008 | 1,011 | 713 | ||||||
2009 (through August 14, 2009) | 989 | 810 |
Year | High | Low | ||||||
2000 | 5.45 | 4.57 | ||||||
2001 | 4.82 | 4.07 | ||||||
2002 | 5.10 | 4.24 | ||||||
2003 | 5.97 | 4.37 | ||||||
2004 | 8.29 | 5.50 | ||||||
2005 | 9.23 | 6.39 | ||||||
2006 | 14.94 | 8.83 | ||||||
2007 | 15.82 | 11.67 | ||||||
2008 | 20.92 | 8.88 | ||||||
2009 (through August 14, 2009) | 15.97 | 10.51 |
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Year | High | Low | |||||||||
2000 | 0.89 | 0.76 | |||||||||
2001 | 0.81 | 0.62 | |||||||||
2002 | 0.75 | 0.67 | |||||||||
2003 | 1.00 | 0.72 | |||||||||
2004 | 1.43 | 1.10 | |||||||||
2005 | 2.08 | 1.44 | |||||||||
2006 | 3.65 | 2.15 | |||||||||
2007 | 3.77 | 2.37 | |||||||||
2008 | 4.08 | 1.26 | |||||||||
2009 (through August 14, 2009) | 2.90 | 1.38 |
Our revenues are subject to operational and other risks faced by operators of our mining properties.
Although we are not required to pay capital costs or operating costs, our financial results are indirectly subject to hazards and risks normally associated with developing and operating mining properties both for the properties where we may conduct exploration or indirectly for properties operated by others where we hold royalty interests. These risks include:
Operating cost increases can have a negative effect on the value of and income from our royalty interests by potentially causing an operator to curtail, delay or close operations at a mine site.
Acquired royalty interests, particularly on development stage properties, are subject to the risk that they may not produce anticipated royalty revenues.
The royalty interests we acquire may not produce the anticipated royalty revenues. Royalty interests acquired on development stage properties are particularly sensitive to this risk. The success of our royalty acquisitions is based on our ability to make accurate assumptions regarding the valuation, timing and amount of royalty payments, particularly with respect to acquisitions of royalties on development stage properties. If the operator does not bring the property into production and operate in accordance with feasibility studies, technical or reserve reports or other plans, then acquired royalty interests may not yield sufficient royalty revenues to be profitable. Furthermore, operators of development stage properties must obtain all necessary environmental permits and access to water, power and other raw materials needed for operations in order to begin production, and there can be no assurance operators will be able to do so. Pascua-Lama in Chile, the Canadian Malartic, Holt and Wolverine mining projects in Canada, are among our principal development stage royalty acquisitions to date. The failure of any of these projects to produce anticipated royalty revenues may materially and adversely affect our financial condition and results of operations.
We depend on our operators for the calculation of royalty payments, and wepayments. We may not be able to detect errors oramd payment calculations may call for retroactive adjustments.
Our royalty payments are calculated by the operators of the properties on which we have royalties based on their reported production. Each operator’soperator's calculation of our royalty payments is subject to and dependent upon the adequacy and accuracy of its production and accounting functions, and errors may occur from time
11
If the current economic downturn,global financial conditions and challenging credit markets and depressed prices of certain commodities isare prolonged, it may affect the ability of the operators of the properties on which we have royalties to meet liquidity needs or operate profitably, which in turn could have material adverse effects on the value of and revenue from our royalty interests. In addition, the current economic downturnglobal financial conditions may adversely affect our ability to obtain financing for additional royalty acquisitions.
Current global financial conditions have been subject to increased volatility and uncertainty. The valuedevelopment and operation of mines is very capital intensive, and revenue from our royalty interests may be materially adversely affected if commodity prices for the various metals on which we have royalties or which are the primary production at mines on which we have royalties decline significantly, as occurred with respect to copper during the second half of calendar 2008. For example, the decline in prices for copper negatively impacted our revenue for the three-month period ended December 31, 2008 by approximately $3.3 million, in comparison to our total revenue for such period of approximately $14.6 million. In addition, our royalty interests and revenues may be materially adversely affected if operators of the properties on which we have royalties do not have, in light of prevailing economic conditions, the financial strength or sufficient credit or other financing capability to cover the costs of operatingdeveloping or developingoperating a mine, causing anthe operator tomay curtail, delay or closecease development of or operations at a mine site. Further disruptionMany of our principal royalty interests are on development stage properties that require very significant capital to bring the properties into production and volatility of financial markets could also
12
a going concern depends on, among other things, its ongoing discussions with its lenders and obtaining additional financing. For these or other reasons, it is possible the operators could delay or cease making royalty payments to us.change of control. If any of the operators of the properties on which we have royalties suffer these material adverse effects, enter into bankruptcy or liquidation, or undergo a change of control, then our royalty interests and the value of and revenue from our royalty interests may be materially adversely affected. In addition, a continued economic downturn or credit crisis could adversely affect our abilityif we are unable to obtain debt or equity financing, forour ability to acquire additional assets would be adversely affected.
We received significant revenue from royalties on five properties and adverse developments at those properties, as well as depleting resources, could adversely affect our revenue.
Approximately 64% of our revenues were derived from our royalty acquisitions.
As mines on which we have royalties mature, we can expect overall declines in production over the years unless operators are able to replace reserves that are mined through mine expansion or successful new exploration. There can be no assurance that the operators of Cortez or our other properties will be able to maintain or increase production or replace reserves as they are mined.
Certain of our royalty interests are subject to payment or production caps or rights in favor of the operator or third parties that could reduce the revenues generated from the royalty assets.
Some royalty interests are subject to limitations, such that the royalty will extinguish after threshold production is achieved or royalty payments at stated thresholds are made. For example, two of our four royalties at Taparko will terminate once we have received an aggregate of $35 million in revenue from TB-GSR1. We expect that the $35 million payment threshold could be achieved during the first quarter of fiscal year 2011. When the threshold amount is paid, TB-GSR1 and TB-GSR2 will expire and be replaced by TB-GSR3, an ongoing 2% GSR, which will significantly reduce our Taparko revenue. We also expect that the payment cap on our royalty at Siguiri could be reached in the second quarter of fiscal year 2011, at which time we will no longer receive any royalty from Siguiri. Furthermore, other of our royalty agreements contain rights that favor the operator or third parties. Osisko, the operator of Canadian Malartic, one of our principal development properties, has a buy-down right that, if exercised, would reduce our royalty interest. Also, certain individuals from whom we purchased portions of our royalty interest at Pascua-Lama, another of our principal development properties, are entitled to one-time payments if the price of gold exceeds certain thresholds. If any of these thresholds are met or rights are exercised, our future royalty revenue could be reduced.
We may enter into acquisitions or other material royalty transactions at any time.
We are engaged in a continual review of opportunities to acquire existing royalties, to create new royaltiesroyalty assets or similar interests through the financing of mining projects or to acquire companies that hold royalty assets.royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial and other confidential information, submission of indications of interest, obtaining or providing debt commitments for acquisition financing, participation in preliminary discussions regarding serving as a financing source in connection with royalty acquisitions, and involvement as a bidder in competitive auctions. Any such acquisition could be material to us and could significantly increase the size and scope of our business. In such event, we could issue substantial amounts of common stock or incur substantial additional indebtedness to fund the acquisition.
Issuances of common stock would dilute the ownership of our existing stockholders and could reduce some or all of our earningsfinancial measures on a per share.
In addition, we may consider opportunities to restructure our royalties where we believe such restructuring would provide a long-term benefit to the Company, though such restructuring may reduce near-term revenues. For example, we restructured our royalties at Cortez in connection with the Barrick royalty portfolio acquisition, which reduced our royalty revenue from Cortez during the fiscal year ended June 30, 2009 by approximately $1.1 million. We could enter into one or more acquisition or restructuring transactions at any time.
We mayhave incurred indebtedness in connection with our royalty acquisitions and could incur substantial additional indebtedness that could have adverse effects on our business.
During the fiscal year 2010, the Company borrowed $255 million under its existing credit facilities. As a result of this indebtedness, we are required to use a portion of our cash flow to service the principal and interest on our debt. This limits the cash flow available to fund acquisitions and dividends and other general corporate purposes. In addition, we may incur substantial additional indebtedness in the future in connection with financing acquisitions, strategic transactions or for other purposes. If we were to incur substantial additional indebtedness, it may become difficult for us to satisfy our debt obligations, increase our vulnerability to general adverse economic and industry conditions or require us to dedicate a substantial portion of our cash flow from operations and proceeds of any equity issuances to payments on our indebtedness, thereby reducing the availabilityany of cash flow to fund acquisitions and dividends and other general corporate purposes, which results may place us at a competitive disadvantage to our competitors that have less debt or have other adverse effects onupon us.
We may be unable to successfully acquire additional royalty and other similar interests.
Our future success largely depends upon our ability to acquire royalty interests at appropriate valuations, including through corporate acquisitions, to replace depleting reserves and to diversify our royalty portfolio. We anticipate that most of our revenues will be derived from royalty and other similar interests that we acquire or finance, rather than through exploration and development of properties. There can be no assurance that we will be able to identify and complete the acquisition of such royalty interests, or businesses that own desired royalty interests, at reasonable prices or on favorable terms. In addition, we face competition in the acquisition of royalty and other similar interests. If we are unable to successfully acquire additional royalties or other similar interests, the reserves subject to our royalties will decline as the producing properties on which we have royalties are mined.mined or payment or production caps on certain of our royalties are met. We may also experience negative reactions from the financial markets or operators of properties on which we seek royalties and other similar interests if we are unable to successfully complete acquisitions of royalty interests or
13
On July 15, 2010, we entered into a letter agreement pursuant to which we agreed to acquire 25% of the riskpayable gold produced from the Mt. Milligan copper-gold project in British Columbia from Thompson Creek Metals Company Inc. or its affiliate ("Thompson Creek") concurrent with the closing of Thompson Creek's proposed acquisition of Terrane Metals Corp. ("Terrane"). There can be no assurance that they may not produce anticipated royalty revenues.
Estimates of production by the Peñasquito and Doloresoperators of mines in Mexico, both ramping upwhich we have royalty interests are subject to change, and actual production Pascua-Lamamay vary materially from such estimates.
Production estimates are prepared by the operators of mining properties. There are numerous uncertainties inherent in Chile,estimating anticipated production attributable to our royalty interests, including many factors beyond our control and the Canadian Malartic and Holloway-Holt mining projectscontrol of the operators of properties in Canada, are among our principal development stagewhich we
have royalty acquisitions to date. In addition, the Andacollo Production Interest that we expect to acquire from CDA isinterests. We do not participate in the development stagepreparation or verification of production estimates and willhave not produce royalty revenue unless CDAindependently assessed or verified the accuracy of such information. The estimation of anticipated production is able to complete permittinga subjective process and construction and successfully produce copper, as well as gold by-product, from the sulfide portionsaccuracy of any such estimates is a function of the depositquality of available data, reliability of production history, variability in grade encountered, mechanical or other problems encountered, engineering and geological interpretation and operator judgment. Rates of production may be less than expected. Results of drilling, metallurgical testing and production, changes in commodity prices, and the evaluation of mine plans subsequent to operate the project at full capacity. See “Recent Developments — Proposed Acquisition of Andacollo Production Interest” within Item 7, MD&A, of this report. The failuredate of any of these projectsestimate may cause actual production to produce anticipated royalty revenues mayvary materially and adversely affect our financial condition and results of operations.
Estimates of reserves and mineralization by the operators of mines in which we have royalty interests are subject to significant revision.
There are numerous uncertainties inherent in estimating proven and probable reserves and mineralization, including many factors beyond our control and the control of the operators of mineral properties on which we have a royalty interest.interests. Reserve estimates on our royalty interests are prepared by the operators of the mining properties. We do not participate in the preparation or verification of such reports and have not independently assessed or verified the accuracy of such information. The estimation of reserves and of other mineralized material 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 cause a revision of such estimates. The volume and grade of reserves recovered and rates of production may be less than anticipated. Assumptions about gold and other precious metal prices are subject to great uncertainty, and such prices have fluctuated widely in the past. Declines in the market price of gold or other precious metals also may render reserves or mineralized material containing relatively lower grades of ore uneconomical to exploit. Changes in operating and capital costs and other factors including short-term operating factors, such as the need for sequential development of ore bodiesgeotechnical characteristics and the processing of new or different ore grades,metallurgical recovery, may materially and adversely affect reserves. Finally, it is important to note that our royalties give us only small percentage interests in only a portion of the production from any reserve,the operators' aggregate reserves, and those percentage interests vary widely based on the individual royalty documents.
EstimatesOur disclosure controls and internal control over our financial reporting are subject to inherent limitations.
Management has concluded that as of productionthe period ended June 30, 2010, our disclosure controls and procedures and our internal control over financial reporting were effective. Such controls and procedures, however, may not be adequate to prevent or identify existing or future internal control weaknesses due to inherent limitations that are beyond our control, including, but not limited to, our dependence on operators for the calculations of royalty payments as discussed in the above risk factor. There is a risk that material misstatements in results of operations and financial condition may not be prevented or detected on a timely basis by our internal controls over financial reporting and may require us to restate our financial statements, as we did in fiscal year 2008. This could, in turn, adversely affect the trading price of our common stock and there is a risk that repeated restatements could result in an investigation by the operators of mines in which we have royaltySEC.
Royalty interests are subject to change,title and actual production may vary materially from such estimates.
We sometimes acquire portfolios of royalty interests. For example, we acquired 80 royalty interests including many factors beyond our controlwhen we acquired IRC. While Royal Gold seeks to confirm the existence, validity, enforceability and the controlgeographic extent of the operatorsroyalties it acquires, there can be no assurance that disputes over these and other matters will not arise. Royalty interests in mining projects or properties generally are subject to uncertainties and complexities arising from the application of properties in which we have royalty interests. We do not participatecontract and property laws governing
private parties and/or local or national governments in the preparation or verification of production estimates and have not independently assessed or verifiedjurisdiction where mining projects are located. For example, the accuracy of such information. The estimation of anticipated production is a
14
Changes in federal and property laws governing private parties and/or local or national governments in the jurisdiction where mining projects are located.
A number of the properties on which we have royalties are located on U.S. federal lands that are subject to federal mining and other public land laws. Changes in federal or state laws or the regulations promulgated under them could affect mine development and expansion, significantly increase regulatory obligations and compliance costs with respect to mine development and mine operations, increase the cost of holding mining claims or impose additional taxes on mining operations, all of which could adversely affect our royalty revenue from such properties. In recent years, the United States Congress has considered a number of proposed major revisions to the General Mining Law of 1872 (the “General"General Mining Law”Law"), which governs the creation, maintenance and possession of mining claims and related activities on federal public lands in the United States. ThreeFour such proposals are currently pending. Bills H.R. 699 and S. 140 were introduced in the Congress in January 2009 and S. 796 and H.R. 3201 were introduced in the Congress in January, April and July, 2009, respectively. H.R. 699 would,Provisions in these proposed bills, if enacted, would impose a royaltyroyalties payable to the U.S. Governmentgovernment on existingproduction, increase land holding fees, impose federal reclamation fees, impose additional environmental operating standards and future production of minerals from unpatented mining claims in the United States, render certain federal lands unavailable for the location of unpatented mining claims, afford greater public involvement and regulatory discretion in the mine permitting process, provide for citizen suits against miners operating on federal lands, and impose new and stringent environmental operating standards and mined land reclamation requirements in addition to those already in effect.
15
Foreign operations and operation by foreign operators are subject to many risks.
We derived approximately 44%60% of our revenues from foreign sources during fiscal 2009,2010, compared to 21%44% in fiscal 2008.2009. Our principal producing royalties on properties outside of the United States are located in Australia, Burkina Faso, Canada, Mexico and Spain. We currently have interests in mines and projects outside of the United States in Argentina, Australia, Bolivia, Brazil, Burkina Faso, Canada, Chile, Colombia, Dominican Republic, Finland, Ghana, Guatemala, Honduras, Mexico, Nicaragua, Peru, the Republic of Guinea, Russia, Spain and Russia. We also evaluate precious metal royalty acquisitions or development opportunities in other parts of the world, including Central America, Europe, Republics of the former Soviet Union, Asia, Africa and South America.Tunisia. Our foreign activities are subject to the risks normally associated with conducting business in foreign countries. These risks include, depending on the country, such things as volatile exchange controls and currency fluctuations, inflation, limitations on
repatriation of earnings, foreign taxation, enforcement of unfamiliar or uncertain foreign real estate, contract and environmental laws, and enforcement, expropriation or nationalization of property, labor practices and disputes, changes in legislation that could substantially increase the cost of mining operations, war, civil unrest and uncertain political and economic environments. There are also risks of warRecently proposed tax legislation in Australia, Chile and civil disturbances, as well as other risksforeign jurisdictions could impose large tax obligations on operators that could cause exploration ormaterially adversely affect the feasibility of new mine development difficulties or stoppagesand the profitability of operations, restrict the movement of funds or result in the deprivation or loss of contract or real property rights or the taking of property by nationalization or expropriation. Exploration licenses granted by some foreign countries do not include the right to mine, and in some jurisdictions the right to convert an exploration license intoexisting mining rights may not be automatic. Each country has discretion in determining whether to grant a license to mine. If an operator cannot secure a mining license following exploration of a property, or were to lose such a license, then the value of our royalty interest would be negatively affected or its validity undermined. Foreign operations also could be adversely impacted by laws and policies of the United States affecting foreign trade, investment and taxation. Furthermore,operations. In addition, many of our operators are organized outside of the United States. Our royalty interests may be subject to the application of foreign laws to our operators, and their stockholders, including laws relating to foreign ownership structures, corporate transactions, creditors’creditors' rights, bankruptcy and liquidation.
The mining industry is subject to significant 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. Laws and regulations in the United States and abroad intended to ensure the protection of the environment are constantly changing and generally are becoming more restrictive and costly. 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 companies
16
Regulations and pending legislation governing issues involving climate change could result in increased operating costs to the operators of the properties on which we have royalties.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change. The December 1997 Kyoto Protocol, which ends in 2012, established a set of greenhouse gas emission targets for countries that have ratified the Protocol, which include Canada, Ghana, Australia and Peru. Furthermore, the U.S. Congress and several states have initiated legislation regarding climate change that will affect energy prices and demand for carbon intensive products. Additionally, the Australian Government may potentially reintroduce a national emissions trading scheme and mandatory renewable energy targets. Legislation and increased regulation regarding climate change could impose significant costs on the operators of the properties on which we have royalties, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. If an operator of a property on which we have royalty interests is forced to incur significant costs to comply with climate change regulation or becomes subject to environmental restrictions that limit its ability to continue or expand operations, our royalty revenues from that property could be reduced, delayed, or eliminated.
We depend on the services of our President and Chief Executive Officer and other key employees and on the participation of our Chairman.
We believe that our success depends on the continued service of our key executive management personnel. Currently, Tony Jensen is serving as our President and Chief Executive Officer. Mr. Jensen’sJensen's extensive commercial experience, mine operations background and industry contacts give us an important competitive advantage. Furthermore, our Chairman, Stanley Dempsey, who served as our Executive Chairman until his retirement in January 2009, remains closely involved with us. Mr. Dempsey’sDempsey's knowledge of the royalty business and long-standing relationship with the mining industry are important to our success. The loss of the services of Mr. Jensen or other key employees could jeopardize our ability to maintain our competitive position in the industry. We currently do not have key person life insurance for any of our officers or directors.
17
Our stock price may continue to be volatile and could decline.
The market price of our common stock has fluctuated and may decline in the future. The high and low sale prices of our common stock were $37.50 and $23.25 inon the fiscal year ended June 30, 2007,NASDAQ Global Select Market were $35.42 and $23.85 for the fiscal year ended June 30, 2008, and $49.81 and $22.75 for the fiscal year ended June 30, 2009.2009 and $55.96 and $37.35 for the fiscal year ended June 30, 2010. The fluctuation of the market price of our common stock has been affected by many factors that are beyond our control, including:
Additional issuances of equity securities by us would dilute the ownership of our existing stockholders and could reduce some or all of our earningsfinancial measures on a per share.share basis, reduce the trading price of our common stock or impede our ability to raise future capital.
We may issue equity in the future in connection with acquisitions, strategic transactions or for other purposes. Any such acquisition could be material to us and could significantly increase the size and scope of our business. To the extent we issue additional equity securities, the ownership of our existing stockholders couldwould be diluted and some or all of our earningsfinancial measures on a per share wouldbasis could be reduced.
18
We have paid a cash dividend on our common stock for each fiscal year beginning in fiscal year 2000. Our board of directors has discretion in determining whether to declare a dividend based on a number of factors, including prevailing gold prices, economic market conditions and funding requirements for future opportunities or operations. If our board of directors declines to declare dividends in the future or reduces the current dividend level, then our stock price could fall, and the success of an investment in our common stock would depend solely upon any future stock price appreciation. We have increased our dividends in prior years. There can be no assurance, however, that we will continue to do so. For example, if we were to materially increase our borrowings to conduct a material acquisition, our board of directors could elect to modify our practice of paying dividends and potentially reduce or eliminate dividends on common stock.
Certain anti-takeover provisions could delay or prevent a third party from acquiring us.
Provisions in our restated certificate of incorporation may make it more difficult for third parties to acquire control of us or to remove our management. Some of these provisions:
We are also subject to the business combination provisions of Delaware law that could delay, deter or prevent a change in control. In addition, we have adopted a stockholder’sstockholder's rights plan that imposes significant penalties upon a person or group that acquires 15% or more of our outstanding common stock without the approval of the board of directors. Any of these measures could prevent a third party from pursuing an acquisition of Royal Gold, even if stockholders believe the acquisition is in their best interests.
None.
We do not own or operate the properties in which we have royalty interests and therefore much of the information disclosed in this Form 10-K regarding these properties is provided to us by the operators. For example, the operators of the various properties provide us information regarding metals production, estimates of mineral reserves and additional mineralized material. Reserves are summarized below in this report in Item 2, Properties, Reserve Information. Our rights to information from the operators under our royalty agreements vary by royalty and by operator and we may not be entitled to information regarding certain properties. We do not participate in the preparation or calculation of the operators’operators' estimates, production reports or reserve calculations and have not independently assessed or verified the accuracy of such information.
There is more information available to the public regarding thecertain properties in which we have royalties, including reports filed with the SEC byor with the operators Barrick, Newmont, Coeur d’Alene, Capital Gold and Goldcorp.Canadian securities regulatory agencies available at www.sec.gov or www.sedar.com, respectively. For risks to our business associated with operations of mining properties by third parties see generally the risks described under Part I, Item 1A, “RiskRisk Factors.” For risks associated with the operators’operators' reserve estimates, please see Part I, Item 1A, “Risk Risk
Factors, —Estimates of reserves and
19
The description of our principal royalties set forth in this Item 2, Properties, includes the location, operator, reserves and our royalty rate and interests. The descriptions do not include material current developments at each property. Material current developments announced by the operators are discussed in Item 7, MD&A, of this report.
Principal Royalties on Producing Properties
Recent activities and further information for each of the principal producing properties in which we have a royalty interest are described in the following pages. The Company considers both historical and future potential revenues in determining which royalties in our portfolio are principal to our business. Estimated future potential royalty revenues from both producing and development properties are based on a number of factors, including reserves subject to our royalty interests, production estimates, feasibility studies, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause Royal Gold to conclude that one or more of such royalties are no longer principal to our business. Reserves for all of our producing properties are summarized in this report in Item 2, Properties, Reserve Information. As of June 30, 2010, the Company considers the properties discussed below principal to our business.
Andacollo (Region IV, Chile)
We own a royalty on all gold produced from the sulfide portion of the Andacollo copper and gold deposit. The Andacollo Royalty equals 75% of the gold produced from the sulfide portion of the deposit at the Andacollo mine until 910,000 payable ounces of gold have been sold, and 50% of the gold produced in excess of 910,000 payable ounces of gold.
Andacollo is an open-pit copper mine located in central Chile, Region IV in the Coquimbo Province and is operated by a subsidiary of Teck Resources Limited ("Teck"). Andacollo is located in the foothills of the Andes Mountains approximately 1.5 miles southwest of the town of Andacollo. The provincial capital of La Serena and the coastal city of Coquimbo are approximately 34 miles northeast of the Andacollo project by road and Santiago is approximately 215 miles south by air. Access to the mine is provided by taking Route 43 (R-43) south from La Serena to El Peñon. From El Peñon, D-51 is followed east and eventually curving to the south to Andacollo. Both R-43 and D-51 are paved roads.
As of December 31, 2009, Teck estimated that at a $500 per ounce gold price, proven and probable reserves were 437.2 million tons, at an average grade of 0.004 ounces per ton containing 1.631 million ounces of gold.
Please refer to Item 7, MD&A, of this report for further discussion on the Andacollo Royalty.
The following aerial photo depicts the area subject to our royalty interest at Andacollo:
Voisey's Bay (Labrador, Canada)
As a result of the IRC Transaction, we own an effective 2.7% NSR royalty on the Voisey's Bay nickel-copper-cobalt mine located in Newfoundland and Labrador, Canada and operated by Vale. The Company owns 90% of a 3.0% NSR (or 2.7%) while a non-controlling interest owns the remainder. The Voisey's Bay project is located on the northeast coast of Labrador, on a peninsula bordered to the north by Anaktalak Bay and to the south by Voisey's Bay. The nearest communities are Nain, approximately 20 miles northeast, and Natuashish, approximately 50 miles southeast. The property is 205 miles north of Happy Valley-Goose Bay, in south-central Labrador, and 560 miles north-northwest of St. John's, the capital of the Province. Access to the property is by helicopter, small aircraft or tracked vehicles during the winter.
As of December 31, 2009, Vale reported that nickel, copper and cobalt reserves were 27.6 million tons, at an average grade of 2.71% nickel, 1.58% copper and 0.13% cobalt containing 1,493 million pounds of nickel, 873 million pounds of copper and 74 million pounds of cobalt. Reserves were calculated at $11.01 or less per pound of nickel, $2.91 or less per pound of copper, and $22.70 or less per pound of cobalt.
Please refer to Item 7, MD&A, of this report for a further discussion on the IRC Transaction.
The following aerial photo depicts the area subject to our royalty interest at Voisey's Bay:
Cortez Pipeline Mining Complex (Nevada, USA)
Cortez is a large open pit;pit, mill and heap leach operation located approximately 60 air miles southwest of Elko, Nevada, in Lander County. The site is reached by driving west from Elko on Interstate 80 approximately 46 miles, and proceeding south on State Highway 306 approximately 23 miles. Cortez includes the Pipeline, South Pipeline, Gap and Crossroads deposits and is operated by subsidiaries of Barrick.
The royalty interests we hold at Cortez include:
royalty rate on the Reserve Claims is tied to the gold price as shown in the table below and does not include indexing for inflation or deflation.
The following shows the current sliding-scale GSR1 and GSR2 royalty rates under our royalty agreement with Cortez, as restructured as part of the Barrick transaction which is discussed in more detail within Item 7, MD&A, of this report:Cortez:
London PM Quarterly Average | GSR1 and GSR2 | |||||||||||
Price of Gold Per Ounce ($U.S.) | Royalty Percentage | |||||||||||
Below | $ | 210.00 | 0.40 | % | ||||||||
$ | 210.00 | — | $ | 229.99 | 0.50 | % | ||||||
$ | 230.00 | — | $ | 249.99 | 0.75 | % | ||||||
$ | 250.00 | — | $ | 269.99 | 1.30 | % | ||||||
$ | 270.00 | — | $ | 309.99 | 2.25 | % | ||||||
$ | 310.00 | — | $ | 329.99 | 2.60 | % | ||||||
$ | 330.00 | — | $ | 349.99 | 3.00 | % | ||||||
$ | 350.00 | — | $ | 369.99 | 3.40 | % | ||||||
$ | 370.00 | — | $ | 389.99 | 3.75 | % | ||||||
$ | 390.00 | — | $ | 409.99 | 4.00 | % | ||||||
$ | 410.00 | — | $ | 429.99 | 4.25 | % | ||||||
$ | 430.00 | — | $ | 449.99 | 4.50 | % | ||||||
$ | 450.00 | — | $ | 469.99 | 4.75 | % | ||||||
$ | 470.00 | — | and above | 5.00 | % |
London P.M. Quarterly Average Price of Gold Per Ounce ($U.S.) | GSR1 and GSR2 Royalty Percentage | ||||
---|---|---|---|---|---|
Below $210.00 | 0.40 | % | |||
$210.00 - $229.99 | 0.50 | % | |||
$230.00 - $249.99 | 0.75 | % | |||
$250.00 - $269.99 | 1.30 | % | |||
$270.00 - $309.99 | 2.25 | % | |||
$310.00 - $329.99 | 2.60 | % | |||
$330.00 - $349.99 | 3.00 | % | |||
$350.00 - $369.99 | 3.40 | % | |||
$370.00 - $389.99 | 3.75 | % | |||
$390.00 - $409.99 | 4.00 | % | |||
$410.00 - $429.99 | 4.25 | % | |||
$430.00 - $449.99 | 4.50 | % | |||
$450.00 - $469.99 | 4.75 | % | |||
$470.00 - and above | 5.00 | % |
Under certain circumstances we would be entitled to delayed production payments (i.e., payments not recoupable by Cortez) of $400,000 per year.
Barrick estimated that at a $725an $825 per ounce gold price, proven and probable reserves related to our royalty interests at Cortez includes 110.9134.2 million tons of ore, at an average grade of 0.0380.039 ounces per ton, containing approximately 4.2615.244 million ounces of gold as of December 31, 2008. In addition, Barrick has reported additional mineralized material2009.
Please refer to Item 7, MD&A, of this report for further discussion of recent developments at Cortez totaling 59.9 million tons, at an average grade of 0.017 ounces of gold per ton.
21
We own a 15.0% GSR royalty (TB-GSR1) and a sliding-scale GSR royalty (TB-GSR2), ranging from 0% to 10.0% depending on the price of gold, on all gold produced from the Taparko open pit gold mine. The Taparko mine is located in Burkina Faso, West Africa, and is operated by Somita, a subsidiary of High River. The Taparko mine is accessible by paved roads and is approximately 125 miles northeast of Ouagadougou, the capital of Burkina Faso.
TB-GSR1 will remain in effect until cumulative production of 804,420 ounces of gold is achieved or until cumulative payments of $35 million have been made to Royal Gold, whichever is earlier. TB-GSR2 will remain in effect until the termination of TB-GSR1. Production at the Taparko mine commenced during our first fiscal quarter of 2008. As of June 30, 2009,2010, we have recognized royalty revenue associated with the TB-GSR1 royalty totaling $11.2$30.6 million, which is attributable to cumulative production of approximately 84,000202,000 ounces of gold.
We also own a perpetual 2.0% GSR royalty (TB-GSR3) on all gold produced from the Taparko mine that applies to production following the termination of TB-GSR1 and TB-GSR2 royalties. A portion of the TB-GSR3 royalty is associated with existing proven and probable reserves and has been classified as a development stage royalty interest. The remaining portion of the TB-GSR3 royalty, which is not
22
In addition, we own a 0.75% milling fee royalty (TB-MR1) on all gold processed through the Taparko mine processing facilities that is mined from any area outside of the Taparko mine area, subject to a maximum of 1.1 million tons per year. There currently are no proven and probable reserves associated with TB-MR1, and this royalty is classified as an exploration stage royalty interest.
As of December 31, 2008,2009, High River estimated that at an $800 per ounce gold price, proven and probable reserves include 3.18.0 million tons of ore, at an average grade of 0.085 ounces per ton, containing 0.2620.683 million ounces of gold, which reflects the remaining portion undergold. Management estimates that as of December 31, 2009, 0.132 million contained ounces will be depleted to reach the $35 million cap ason TB-GSR1 royalty. Upon meeting the $35 million cap, the remaining 0.551 million contained ounces of December 31, 2008, onestimated gold will be associated with the TB-GSR1 royalty.
Please refer to Item 7, MD&A, of this report for further discussion onof recent developments at Taparko.
The following mapaerial photo depicts the area subject to our royalty interests at the Taparko mine:
Robinson Mine (Nevada, USA)
We own a 3.0% NSR royalty on all mineral production from the Robinson open pit mine operated by a subsidiary of Quadra. The Robinson mine produces two flotation concentrates for sale to third party smelters. One concentrate contains copper, gold and silver. The second is a molybdenum concentrate. Access to the property is via Nevada State Highway 50, 6.5 miles west of Ely, Nevada, in White Pine County.
23
Please refer to “Recent Developments, Property Developments” within Item 7, MD&A, of this report for further discussion onof recent developments at Robinson.
The following aerial photo depicts the ground within the “permit boundary,” as labeled in the following map, isarea subject to our royalty interest at the Robinson mine:
We own a carried working interest, equal to a 1.8% NSR royalty, which covers the majority of the Leeville property, in Eureka County, Nevada. The Leeville propertyMining Complex is approximately 19 air miles northwest of Carlin, Nevada, and is operated by a subsidiary of Newmont. The property is accessed by driving north from Carlin on Nevada State Highway 766 for 19 miles and then on an improved gravel road for two miles.
At the Leeville, Mining Complex, proven and probable reserves, at a $725an $800 per ounce gold price, include 7.75.3 million tons of ore, at an average grade of 0.3280.338 ounces per ton, containing 2.5181.790 million ounces of gold as of
24
The following mapaerial photo depicts the area subject to our royalty interest at Leeville:
We own a result of the Barrick transaction, which is discussed further within Item 7, MD&A, of this report, our1.0% to 5.0% sliding-scale NSR royalty on the Mulatos open pit mine in southeastern Sonora, Mexico, increased to 1.0% to 5.0% from 0.30% to 1.5%.Mexico. The Mulatos mine is located approximately 137 miles east of the city of Hermosillo and 186 miles south of the border with the United States and is operated by Alamos. Access to the mine from the city of Hermosillo can be made via private chartered flight or paved and gravel road.
The Mulatos royalty is capped at 2.0 million gold ounces of production. As of June 30, 2009,2010, approximately 416,000581,000 cumulative ounces of gold have been produced.
As of December 31, 2008,2009, based upon a gold price of $700$800 per ounce, Alamos has reported proven and probable reserves of 52.567.9 million tons, at an average grade of 0.0390.035 ounces per ton, containing 2.0462.387 million ounces of gold. Additional mineralized material is reported as 58.0 million tons
Please refer to Item 7, MD&A, of orethis report for further discussion of recent developments at 0.029 ounces per ton as of December 31, 2008.
25
26
Table of the Barrick transaction, discussed within Item 7, MD&A, of this report, we own a sliding-scale NSR royalty currently paying 1.875% on the Siguiri gold mine, located in the Republic of Guinea, West Africa, and operated by AngloGold. The Siguiri gold mine is located within the Siguiri District in the northeast of the Republic of Guinea, West Africa, approximately 500 miles from the capital city of Conakry. Access to the Siguiri mine from Conakry, via Kankan province, is the Tamac road.
27
We own a production payment equivalent to a 2.0% NSR royalty on all metal production from the Peñasquito project, located in the State of Zacatecas, Mexico, and operated by Goldcorp. The Peñasquito project is located approximately 17 miles west of the town of Concepción del Oro, Zacatecas, Mexico. The project, composed of two main deposits called Peñasco and Chile Colorado, hosts large silver, gold, zinc and lead reserves. The deposits contain both oxide and sulfide material. Access to the site is via either paved or cobbled roads west out of Concepcion del Oro nine miles to the town of Mazapil and then further approximately seven miles west offrom Mazapil.
Goldcorp estimates that at a gold price of $725$825 per ounce and a silver price of $12$13 per ounce, proven and probable oxide reserves as of December 31, 2008 will2009 total 201.179.9 million tons of oxide ore, at an average gold grade of 0.0040.005 ounces per ton, containing 0.8000.400 million ounces of gold, and at an average silver grade of 0.360.43 ounces per ton containing 72.134.5 million ounces of silver. Estimates for the sulfide reserves use the same gold and silver prices as the oxide reserve and include lead and zinc reserve estimates at a reserve price of $0.50$0.60 per pound for lead and $0.80 per pound for zinc. Proven and probable sulfide reserves as of December 31, 20082009 include 1,112.21,261.9 million tons of sulfide ore, at an average gold grade of 0.0150.014 ounces per ton, a silver grade of 0.880.82 ounces per ton, a lead grade of 0.32%0.29% and a zinc grade of 0.69%
28
Please refer to Item 7, MD&A, of this report for further discussion onof recent developments at Peñasquito.
29
Dolores (Chihuahua, Mexico)
We own a 1.25% NSR royalty on gold and a 2.0% NSR royalty on both gold and silver from the Dolores project located in Chihuahua, Mexico, and operated by Minefinders. The Dolores project is located approximately 155 miles west of the city of Chihuahua, Mexico. The property can be accessed by approximately 56 miles of recently upgraded access road from Yepachi, Chihuahua, to the mine site. Access to the property can also be achieved by light aircraft landing on a dirt strip located about five miles from the mine site.
As of December 31, 2008, based upon a gold and silver price of $600 and $10 per ounce, respectively, Minefinders has reported proven and probable gold reserves of 109.5 million tons, at an average gold grade of 0.022 ounces per ton, and an average silver grade of 1.16 ounces per ton, containing 2.444 million ounces of gold. Additional mineralized material is reported as 7.7 million tons at 0.090 ounces of gold per ton. Based upon an average silver price of $10 per ounce, Minefinders reported
30
Please refer to Item 7, MD&A, of this report for further discussion onof recent developments at Dolores.
The following map depicts the area subject to our royalty interests at DoloresDolores:
:
Las Cruces (Andalucía, Spain)
As a result of the IRC Transaction, we own a 1.5% NSR royalty on the Las Cruces copper project located in Andalucía, Spain and operated by Inmet. The Las Cruces mine is located in the Sevilla Province of southern Spain, about 12 miles northwest of the Province capital city of Seville. Access to the site is by well-maintained paved roads.
As of December 31, 2009, Inmet reported copper reserves of 18.2 million tons, at an average grade of 6.3% copper, containing 2,304 million pounds of copper. Reserves were calculated at $2.00 per pound of copper.
Please refer to Item 7, MD&A, of this report for a further discussion of the IRC Transaction.
The following aerial photo depicts the area subject to our royalty interest at Las Cruces:
Gwalia Deeps (Western Australia, Australia)
As a result of the IRC Transaction, we own a 1.5% NSR royalty on gold produced from the Gwalia Deeps mine located near the town of Leonora, Western Australia and operated by St. Barbara. The Gwalia Deeps mine in an underground mine within St. Barbara's Leonora operations. The mine can be accessed by taking the Goldfields Highway north out of Kalgoorlie for approximately 245 miles to the town of Leonora.
As of June 30, 2009, St. Barbara Limited reported gold reserves of 8.7 million tons, at an average grade of 0.227 ounces per ton, containing 1.980 million ounces of gold. Reserves were calculated at
A$1,250 (Australian dollars) for the operator's fiscal 2010 and at A$850 (Australian dollars) per ounce of gold thereafter.
Please refer to Item 7, MD&A, of this report for a further discussion on the IRC Transaction.
The following aerial photo depicts the area subject to our royalty interest at Gwalia Deeps:
Principal Royalties on Development Stage Properties
The following is a description of our principal royalty interests on development stage properties. There are proven and probable reserves associated with these properties as indicated below. These development stage royalty interests are not currently in production. Reserves for all of our development stage properties are summarized below in this report in Item 2, Properties — Properties—Reserve Information.
31
As of June 30, 2010, we own a 0.16%0.67% to 1.08%4.48% sliding-scale NSR royalty on the Pascua-Lama project located on both sides of the border between Argentina and Chile, and operated by Barrick. The Pascua-Lama project is located within 7 miles of Barrick’s Veladero project. Access to the project is from the city of Vallenar, III Region, Chile, via secondary roads C-485 to Alto del Carmen, Chile, and C-489 from Alto del Carmen, Chile, to El Corral, Chile.
London PM Monthly Average | NSR | |||||||||||
Price of Gold Per Ounce ($U.S.) | Royalty Percentage | |||||||||||
Below | $ | 325.00 | 0.16 | % | ||||||||
$ | 325.01 | — | $ | 350.00 | 0.22 | % | ||||||
$ | 350.01 | — | $ | 375.00 | 0.27 | % | ||||||
$ | 375.01 | — | $ | 400.00 | 0.32 | % | ||||||
$ | 400.01 | — | $ | 500.00 | 0.56 | % | ||||||
$ | 500.01 | — | $ | 600.00 | 0.73 | % | ||||||
$ | 600.01 | — | $ | 800.00 | 0.91 | % | ||||||
$ | 800.01 | — | and above | 1.08 | % |
The Pascua-Lama project is located within 7 miles of Barrick's operating Veladero mine. Access to the project is from the city of Vallenar, Region III, Chile, via secondary roads C-485 to Alto del Carmen, Chile, and C-489 from Alto del Carmen to El Corral, Chile.
As of June 30, 2010, the sliding-scale NSR royalty is based upon the gold prices as shown in the following table.
London Bullion Market Association P.M. Monthly Average Price of Gold per Ounce (US$) | NSR Royalty Percentage | ||||
---|---|---|---|---|---|
less than $325 | 0.67 | % | |||
$400 | 1.34 | % | |||
$500 | 2.33 | % | |||
$600 | 3.05 | % | |||
$700 | 3.76 | % | |||
$800 or greater | 4.48 | % |
Note: Royalty rate is interpolated between the upper and lower endpoints.
Upon completion of the acquisition of the additional royalty interest, the sliding-scale NSR royalty is based upon the gold prices as shown in the following table:
London Bullion Market Association P.M. Monthly Average Price of Gold per Ounce (US$) | NSR Royalty Percentage | ||||
---|---|---|---|---|---|
less than $325 | 0.78 | % | |||
$400 | 1.57 | % | |||
$500 | 2.72 | % | |||
$600 | 3.56 | % | |||
$700 | 4.39 | % | |||
$800 or greater | 5.23 | % |
Note: Royalty rate is interpolated between the upper and lower endpoints.
The Company will own an additional royalty equivalent to 0.216%1.05% upon completion of acquisition of the additional royalty interest of proceeds from copper produced from the Chilean portion of the project, net of allowable deductions, sold on or after January 1, 2017.
The Pascua-Lama project is currently under construction. Barrick has estimated commissioning in late calendar 2012 and production in early calendar 2013.
As of December 31, 2008, Barrick estimated that at a $725 gold price, proven and probable reserves includeat a $750 per ounce gold price, totaled 324.7 million tons, at an average of 0.045 ounces per ton, containing 14.615 million ounces of gold. Additional mineralized material is reported as 78.9 million tons at 0.037 ounces of gold per ton, as of December 31, 2008.
Please refer to Item 7, MD&A, of this report for further discussion on recent developments at Pascua-Lama.
Canadian Malartic (Quebec, Canada)
We own a 2.0%-3.0% to 3.0% sliding-scale NSR royalty on the Canadian Malartic gold project located in Quebec, Canada, and owned by Osisko. The Canadian Malartic gold property is located in the Abitibi Gold Belt in Quebec, Canada, immediately south of the town of Malartic, Quebec, approximately 1216 miles west of the town of Val d’Or.d'Or. The northern extents of the Canadian Malartic property can be accessed directly from the Trans Canadian Highway 117. A paved road running north-south from the town
As of Malartic towards Lake Mourier cuts through the central area of the Canadian Malartic property.
The royalty is subject to a buy-down right for $1.0 to $1.5 million. If the buy down right is exercised by
32
Please refer to Item 7, MD&A, of this report wefor further discussion on recent developments at Canadian Malartic.
Holt (Ontario, Canada)
We own a sliding-scale NSR royalty on the Holt portion of the Holloway-Holt mining project located in Ontario, Canada and owned 100% by St Andrew. The Holloway-Holt project straddles Ontario Provincial Highway 101 for approximately 25 miles beginning east of Matheson, Ontario, Canada and extending to the Quebec, Canada border. The sliding-scale NSR royalty rate on gold produced from the Holt portion of the mining project is calculated by multiplying 0.00013 by the quarterly average gold price. For example, at a quarterly average gold price of $950 per ounce, the effective royalty rate payable would be 12.35%. The operator has disputed its obligation in respect of
the royalty is limited to only a portion of the total royalty payable. Please refer to Item 3, Legal Proceedings, for more information regarding the dispute.
St Andrew is currently redevelopinghas brought the Holloway mine under a staged investment planback into production and has announced that it expectsis performing the necessary work to begin production atmaintain the Holt mine in a condition that allows for an easy start-up of mining activities once the second half of calendar year 2010.Holt royalty litigation is satisfactorily resolved. According to St Andrew’sAndrew's public filings in Canada from June 2008, at a gold price of $775 per ounce, proven and probable reserves subject to Royal Gold’sGold's royalty equal 3.0 million tons at a grade of 0.165 ounces per ton, containing 0.486 million ounces of gold.
Please refer to Item 7, MD&A, of this report for further discussion on recent developments on our Holt royalty.
Wolverine (Yukon, Canada)
As a result of the IRC Transaction, we own a 0.00% to 9.445% sliding-scale NSR royalty on all gold and silver produced from the Wolverine project located in Yukon Territory, Canada, and operated by Yukon Zinc. The Wolverine property is located 106 miles north-northwest of Watson Lake in south central Yukon. Access to the property is provided by a 17 mile gravel road heading south and then northeast to the Robert Campbell Highway at a point approximately 120 miles north of Watson Lake.
The sliding-scale NSR royalty on all gold and silver is based on the silver price as show in the following table:
London Bullion Market Association P.M. Monthly Average Price of Silver per Ounce (US$) | NSR Royalty Percentage | ||||
---|---|---|---|---|---|
less than $5.00 | 0 | % | |||
$5.00—$7.50 | 3.778 | % | |||
$7.51 or greater | 9.445 | % |
33 As of October, 2007, Yukon Zinc reported reserves of 5.3 million tons, at an average grade of 0.039 ounces per ton gold and 8.13 ounces per ton silver, containing 0.205 thousand ounces of gold and 42.8 million ounces of silver. Reserves were calculated using an $80 per tonne NSR cut-off.
Table 1 below summarizes proven and probable reserves for gold, silver, copper, zinc and lead that have been reported to us by the operators of our royalty interests as of December 31, 2008.2009. Properties are currently in production unless noted as development (“DEV”("DEV") within the table. Properties for which we did not receive certain reserve breakdowns or information are noted as “DNR”"DNR" within the table. Please refer to pages 39–4139-41 for the footnotes to Table 1.
TABLE 1
Proven and Probable Gold Reserves(1)(2)(3) As of December 31, 2009(4) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
GOLD(5) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Gold Grade (oz/ton) | Gold Contained Ozs (millions)(6) | Tons of Ore (millions) | Ave. Gold Grade (oz/ton) | Gold Contained Ozs (millions)(6) | Tons of Ore (millions) | Ave. Gold Grade (oz/ton) | Gold Contained Ozs (millions)(6) | ||||||||||||||||||||
Bald Mountain(7) | Barrick | DNR | DNR | DNR | DNR | DNR | DNR | 65.04 | 0.025 | 1.614 | ||||||||||||||||||||
Cortez (Pipeline) GSR1 | Barrick | 5.18 | 0.090 | 0.469 | 22.96 | 0.046 | 1.058 | 28.14 | 0.054 | 1.527 | (8) | |||||||||||||||||||
Cortez (Pipeline) GSR2 | Barrick | 10.56 | 0.040 | 0.423 | 95.53 | 0.034 | 3.294 | 106.08 | 0.035 | 3.717 | (8) | |||||||||||||||||||
Cortez (Pipeline) GSR3 | Barrick | 7.87 | 0.068 | 0.532 | 50.32 | 0.032 | 1.610 | 58.19 | 0.037 | 2.142 | (8) | |||||||||||||||||||
Cortez (Pipeline) NVR1 | Barrick | 5.99 | 0.049 | 0.293 | 50.03 | 0.032 | 1.579 | 56.02 | 0.033 | 1.872 | (8) | |||||||||||||||||||
Gold Hill (DEV) | Kinross/Barrick | 0.28 | 0.013 | 0.004 | 31.08 | 0.015 | 0.459 | 31.37 | 0.015 | 0.463 | ||||||||||||||||||||
Goldstrike—SJ Claims(7) | Barrick | DNR | DNR | DNR | DNR | DNR | DNR | 47.20 | 0.113 | 5.354 | ||||||||||||||||||||
Leeville | Newmont | 3.00 | 0.360 | 1.078 | 2.31 | 0.309 | 0.712 | 5.30 | 0.338 | 1.790 | ||||||||||||||||||||
Marigold (DEV)(7)(9) | Goldcorp/Barrick | DNR | DNR | DNR | DNR | DNR | DNR | 45.57 | 0.015 | 0.681 | ||||||||||||||||||||
Robinson | Quadra FNX | 108.66 | 0.006 | 0.678 | 4.94 | 0.005 | 0.026 | 113.60 | 0.006 | 0.704 | ||||||||||||||||||||
Soledad Mountain (DEV) | Golden Queen | 30.48 | 0.024 | 0.729 | 20.75 | 0.016 | 0.324 | 51.22 | 0.021 | 1.052 | ||||||||||||||||||||
Twin Creeks—Section 13 | Newmont | 0.47 | 0.107 | 0.051 | 0.16 | 0.102 | 0.016 | 0.63 | 0.106 | 0.067 | ||||||||||||||||||||
Wharf | Goldcorp | 8.70 | 0.020 | 0.170 | 0.97 | 0.021 | 0.020 | 9.68 | 0.020 | 0.190 | ||||||||||||||||||||
Canadian Malartic (DEV)(7) | Osisko Mining | DNR | DNR | DNR | DNR | DNR | DNR | 150.56 | 0.031 | 4.727 | ||||||||||||||||||||
Holt (DEV)(10) | St Andrew Goldfields | 0.11 | 0.187 | 0.021 | 2.84 | 0.164 | 0.466 | 2.95 | 0.165 | 0.486 | ||||||||||||||||||||
Pine Cove (DEV) | New Island Resources/Anaconda Mining | 0.00 | 0.000 | 0.000 | 2.57 | 0.081 | 0.207 | 2.57 | 0.081 | 0.207 | ||||||||||||||||||||
Schaft Creek (DEV) | Copper Fox | 453.16 | 0.007 | 3.119 | 451.83 | 0.005 | 2.451 | 904.99 | 0.006 | 5.570 | ||||||||||||||||||||
Williams | Barrick | 9.06 | 0.068 | 0.614 | 2.93 | 0.084 | 0.247 | 11.99 | 0.072 | 0.861 | ||||||||||||||||||||
Wolverine (DEV) | Yukon Zinc | 0.64 | 0.036 | 0.023 | 4.63 | 0.039 | 0.182 | 5.27 | 0.039 | 0.205 | ||||||||||||||||||||
Dolores(7) | Minefinders | DNR | DNR | DNR | DNR | DNR | DNR | 109.46 | 0.022 | 2.444 | ||||||||||||||||||||
El Chanate | Capital Gold | 24.69 | 0.020 | 0.503 | 53.08 | 0.019 | 1.001 | 77.77 | 0.019 | 1.504 | ||||||||||||||||||||
Mulatos | Alamos | 11.38 | 0.047 | 0.540 | 56.47 | 0.033 | 1.847 | 67.86 | 0.035 | 2.387 | ||||||||||||||||||||
Peñasquito Oxide(11) | Goldcorp | 79.92 | 0.005 | 0.400 | 0.00 | 0.000 | 0.000 | 79.92 | 0.005 | 0.400 | ||||||||||||||||||||
Peñasquito Sulfide(11) | Goldcorp | 639.97 | 0.018 | 11.490 | 621.91 | 0.010 | 5.930 | 1261.87 | 0.014 | 17.420 | ||||||||||||||||||||
Andacollo (DEV) | Teck | 173.28 | 0.004 | 0.708 | 263.89 | 0.003 | 0.924 | 437.17 | 0.004 | 1.631 | ||||||||||||||||||||
El Limon(7) | B2Gold | DNR | DNR | DNR | DNR | DNR | DNR | 1.12 | 0.134 | 0.150 | ||||||||||||||||||||
El Toqui | Breakwater | 0.89 | 0.128 | 0.114 | 2.77 | 0.067 | 0.186 | 3.66 | 0.082 | 0.300 | ||||||||||||||||||||
Martha | Coeur d'Alene | 0.00 | 0.000 | 0.000 | 0.04 | 0.037 | 0.001 | 0.04 | 0.037 | 0.001 | ||||||||||||||||||||
Pascua-Lama (DEV)(12) | Barrick | 36.10 | 0.053 | 1.917 | 288.60 | 0.044 | 12.698 | 324.70 | 0.045 | 14.615 | (13) | |||||||||||||||||||
Balcooma(14) | Kagara Ltd. | 0.10 | 0.020 | 0.002 | 1.06 | 0.006 | 0.006 | 1.16 | 0.007 | 0.008 | ||||||||||||||||||||
Gwalia | St. Barbara | 0.00 | 0.000 | 0.000 | 8.71 | 0.227 | 1.980 | 8.71 | 0.227 | 1.980 | ||||||||||||||||||||
Meekatharra (Paddy's Flat) | Mercator Gold | 0.00 | 0.000 | 0.000 | 2.19 | 0.140 | 0.308 | 2.19 | 0.140 | 0.308 | ||||||||||||||||||||
Meekatharra (Yaloginda) | Mercator Gold | 0.00 | 0.000 | 0.000 | 2.79 | 0.070 | 0.196 | 2.79 | 0.070 | 0.196 | ||||||||||||||||||||
South Laverton | Saracen | 0.00 | 0.000 | 0.000 | 16.74 | 0.048 | 0.800 | 16.74 | 0.048 | 0.800 | ||||||||||||||||||||
Southern Cross | St. Barbara | 0.87 | 0.094 | 0.082 | 5.77 | 0.088 | 0.509 | 6.64 | 0.089 | 0.591 | ||||||||||||||||||||
Inata | Avocet | 4.93 | 0.067 | 0.329 | 12.07 | 0.051 | 0.615 | 17.00 | 0.056 | 0.944 | ||||||||||||||||||||
Siguiri | AngloGold Ashanti | 33.98 | 0.019 | 0.630 | 96.84 | 0.025 | 2.440 | 130.82 | 0.023 | 3.070 | ||||||||||||||||||||
Taparko TB-GSR-1 and TB-GSR-2(15)(16) | High River | DNR | DNR | DNR | DNR | DNR | DNR | 1.56 | 0.085 | 0.132 | (17)(18) | |||||||||||||||||||
Taparko TB-GSR3 | High River | DNR | DNR | DNR | DNR | DNR | DNR | 6.40 | 0.085 | 0.551 | (18) |
Proven and Probable Silver Reserves(1)(2)(3) As of December 31, 2009(4) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
SILVER(19) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Silver Grade (oz/ton) | Silver Contained Ozs (millions)(6) | Tons of Ore (millions) | Ave. Silver Grade (oz/ton) | Silver Contained Ozs (millions)(6) | Tons of Ore (millions) | Ave. Silver Grade (oz/ton) | Silver Contained Ozs (millions)(6) | ||||||||||||||||||||
Soledad Mountain (DEV) | Golden Queen | 30.48 | 0.40 | 12.283 | 20.75 | 0.34 | 7.076 | 51.22 | 0.38 | 19.359 | ||||||||||||||||||||
Troy | Revett | 3.08 | 1.41 | 4.337 | 6.01 | 1.13 | 6.805 | 9.10 | 1.22 | 11.142 | ||||||||||||||||||||
Schaft Creek (DEV) | Copper Fox | 453.16 | 0.05 | 22.760 | 451.83 | 0.05 | 23.695 | 904.99 | 0.05 | 46.454 | ||||||||||||||||||||
Wolverine (DEV) | Yukon Zinc | 0.64 | 7.06 | 4.534 | 4.63 | 8.28 | 38.286 | 5.27 | 8.13 | 42.820 | ||||||||||||||||||||
Dolores(7) | Minefinders | DNR | DNR | DNR | DNR | DNR | DNR | 109.46 | 1.16 | 126.645 | ||||||||||||||||||||
Peñasquito Oxide | Goldcorp | 79.92 | 0.43 | 34.500 | 0.00 | 0.00 | 0.000 | 79.92 | 0.43 | 34.500 | ||||||||||||||||||||
Peñasquito Sulfide | Goldcorp | 639.97 | 0.97 | 618.020 | 621.91 | 0.67 | 417.580 | 1261.87 | 0.82 | 1035.600 | ||||||||||||||||||||
El Toqui | Breakwater | 0.89 | 0.23 | 0.208 | 2.77 | 0.26 | 0.728 | 3.66 | 0.26 | 0.936 | ||||||||||||||||||||
Martha | Coeur d'Alene | 0.00 | 0.00 | 0.000 | 0.04 | 33.14 | 1.249 | 0.04 | 32.87 | 1.249 | ||||||||||||||||||||
Balcooma(14) | Kagara Ltd. | 0.10 | 2.22 | 0.225 | 1.06 | 0.35 | 0.373 | 1.16 | 0.51 | 0.598 | ||||||||||||||||||||
Proven and Probable Base Metal and Other Reserves(1)(2)(3) As of December 31, 2009(4) | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
COPPER(20) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Copper Grade (% Cu) | Copper Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Copper Grade (% Cu) | Copper Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Copper Grade (% Cu) | Copper Contained Lbs (millions)(6) | ||||||||||||||||||||
Johnson Camp | Nord Resources | 54.98 | 0.34 | 372 | 18.41 | 0.33 | 120 | 73.39 | 0.34 | 492 | ||||||||||||||||||||
Robinson | Quadra FNX | 108.66 | 0.53 | 1,161 | 4.94 | 0.42 | 41 | 113.60 | 0.53 | 1,203 | ||||||||||||||||||||
Troy | Revett | 3.08 | 0.72 | 45 | 6.01 | 0.49 | 59 | 9.10 | 0.57 | 104 | ||||||||||||||||||||
Caber (DEV) | Breakwater | 0.00 | 0.00 | 0 | 0.65 | 0.84 | 11 | 0.65 | 0.84 | 11 | ||||||||||||||||||||
Schaft Creek (DEV) | Copper Fox | 453.16 | 0.32 | 2,864 | 451.83 | 0.28 | 2,557 | 904.99 | 0.30 | 5,421 | ||||||||||||||||||||
Voisey's Bay | Vale | 24.03 | 1.76 | 846 | 3.53 | 0.38 | 27 | 27.56 | 1.58 | 873 | ||||||||||||||||||||
Balcooma(14) | Kagara Ltd. | 0.10 | 1.10 | 2 | 1.06 | 3.60 | 76 | 1.16 | 3.38 | 79 | ||||||||||||||||||||
Las Cruces | Inmet | 8.96 | 7.40 | 1,325 | 9.26 | 5.30 | 979 | 18.22 | 6.30 | 2,304 | ||||||||||||||||||||
LEAD(21) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Lead Grade (% Pb) | Lead Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Lead Grade (% Pb) | Lead Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Lead Grade (% Pb) | Lead Contained Lbs (millions)(6) | ||||||||||||||||||||
Peñasquito Sulfide | Goldcorp | 639.97 | 0.35 | 4,450 | 621.91 | 0.22 | 2,761 | 1261.87 | 0.29 | 7,211 | ||||||||||||||||||||
El Toqui | Breakwater | 0.89 | 0.30 | 5 | 2.77 | 0.30 | 17 | 3.66 | 0.30 | 22 | ||||||||||||||||||||
Balcooma(14) | Kagara Ltd. | 0.10 | 3.90 | 8 | 1.06 | 0.01 | 0 | 1.16 | 0.35 | 8 | ||||||||||||||||||||
ZINC(22) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Zinc Grade (% Zn) | Zinc Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Zinc Grade (% Zn) | Zinc Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Zinc Grade (% Zn) | Zinc Contained Lbs (millions)(6) | ||||||||||||||||||||
Caber (DEV) | Breakwater | 0.00 | 0.00 | 0 | 0.65 | 8.58 | 111 | 0.65 | 8.58 | 111 | ||||||||||||||||||||
Penasquito Sulfide | Goldcorp | 639.97 | 0.75 | 9,649 | 621.91 | 0.50 | 6,281 | 1261.87 | 0.63 | 15,930 | ||||||||||||||||||||
El Toqui | Breakwater | 0.89 | 6.50 | 116 | 2.77 | 7.20 | 400 | 3.66 | 7.03 | 515 | ||||||||||||||||||||
Balcooma(14) | Kagara Ltd. | 0.10 | 9.60 | 19 | 1.06 | 0.02 | 0 | 1.16 | 0.86 | 20 |
NICKEL(23) | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Nickel Grade (% Ni) | Nickel Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Nickel Grade (% Ni) | Nickel Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Nickel Grade (% Ni) | Nickel Contained Lbs (millions)(6) | ||||||||||||||||||||
Voisey's Bay | Vale | 24.03 | 3.01 | 1,447 | 3.53 | 0.66 | 47 | 27.56 | 2.71 | 1,493 | ||||||||||||||||||||
Avebury (DEV)(7) | Minerals and Metals Group | DNR | DNR | DNR | DNR | DNR | DNR | 6.50 | 0.96 | 123 | ||||||||||||||||||||
Mt. Goode Cosmos(7)(24) | Xstrata | DNR | DNR | DNR | DNR | DNR | DNR | 2.20 | 3.46 | 152 | ||||||||||||||||||||
COBALT(25) | ||||||||||||||||||||||||||||||
| | PROVEN RESERVES | PROBABLE RESERVES | PROVEN AND PROBABLE RESERVES | ||||||||||||||||||||||||||
PROPERTY | OPERATOR | Tons of Ore (millions) | Ave. Cobalt Grade (% Co) | Cobalt Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Cobalt Grade (% Co) | Cobalt Contained Lbs (millions)(6) | Tons of Ore (millions) | Ave. Cobalt Grade (% Co) | Cobalt Contained Lbs (millions)(6) | ||||||||||||||||||||
Voisey's Bay | Vale | 24.03 | 0.15 | 72 | 3.53 | 0.03 | 2 | 27.56 | 0.13 | 74 |
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Gold | Avg. | Gold | Avg. | Gold | |||||||||||||||||||||||||||||||||
Tons of | Gold | Contained | Tons of | Gold | Contained | Tons of | Gold | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Ozs6 | Ore | Grade | Ozs6 | Ore | Grade | Ozs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | ||||||||||||||||||||||||||||
Bald Mountain7 | Barrick | DNR | DNR | DNR | DNR | DNR | DNR | 27.45 | 0.026 | 0.720 | ||||||||||||||||||||||||||||
Cortez (Pipeline) GSR1 | Barrick | 3.80 | 0.095 | 0.360 | 24.14 | 0.051 | 1.227 | 27.94 | 0.057 | 1.587 | 8 | |||||||||||||||||||||||||||
Cortez (Pipeline) GSR2 | Barrick | 8.29 | 0.038 | 0.312 | 74.65 | 0.032 | 2.362 | 82.95 | 0.032 | 2.674 | 8 | |||||||||||||||||||||||||||
Cortez (Pipeline) GSR3 | Barrick | 5.48 | 0.076 | 0.414 | 41.32 | 0.039 | 1.619 | 46.79 | 0.043 | 2.033 | 8 | |||||||||||||||||||||||||||
Cortez (Pipeline) NVR1 | Barrick | 3.69 | 0.047 | 0.173 | 38.46 | 0.037 | 1.419 | 42.15 | 0.038 | 1.592 | 8 | |||||||||||||||||||||||||||
Gold Hill (DEV) | Kinross/Barrick | 0.28 | 0.013 | 0.004 | 31.08 | 0.015 | 0.459 | 31.37 | 0.015 | 0.463 | ||||||||||||||||||||||||||||
Goldstrike7 | Barrick | DNR | DNR | DNR | DNR | DNR | DNR | 47.82 | 0.121 | 5.768 | ||||||||||||||||||||||||||||
(SJ Claims) | ||||||||||||||||||||||||||||||||||||||
Leeville7 | Newmont | DNR | DNR | DNR | DNR | DNR | DNR | 7.68 | 0.328 | 2.518 | ||||||||||||||||||||||||||||
Marigold9 (DEV) | Goldcorp/Barrick | 11.75 | 0.021 | 0.251 | 23.89 | 0.018 | 0.433 | 35.63 | 0.019 | 0.683 | ||||||||||||||||||||||||||||
Robinson | Quadra | 130.04 | 0.007 | 0.884 | 4.10 | 0.005 | 0.021 | 134.14 | 0.007 | 0.905 | ||||||||||||||||||||||||||||
Twin Creeks7 | Newmont | DNR | DNR | DNR | DNR | DNR | DNR | DNR | DNR | 0.080 | ||||||||||||||||||||||||||||
Wharf10 | Goldcorp | 11.61 | 0.023 | 0.270 | 1.39 | 0.022 | 0.030 | 13.00 | 0.023 | 0.300 | ||||||||||||||||||||||||||||
Canadian Malartic7,11 (DEV) | Osisko Mining | DNR | DNR | DNR | DNR | DNR | DNR | 150.56 | 0.031 | 4.727 | ||||||||||||||||||||||||||||
Holt12 (DEV) | St Andrew Goldfields | 0.11 | 0.187 | 0.021 | 2.84 | 0.164 | 0.466 | 2.95 | 0.165 | 0.486 | ||||||||||||||||||||||||||||
Pine Cove (DEV) | New Island Resources/ Anaconda Mining | 0.00 | 0.000 | 0.000 | 2.57 | 0.081 | 0.207 | 2.57 | 0.081 | 0.207 | ||||||||||||||||||||||||||||
Williams | Barrick | 7.78 | 0.073 | 0.567 | 1.80 | 0.103 | 0.185 | 9.57 | 0.079 | 0.752 |
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||
Avg. | Gold | Avg. | Gold | Avg. | Gold | |||||||||||||||||||||||||||||||
Tons of | Gold | Contained | Tons of | Gold | Contained | Tons of | Gold | Contained | ||||||||||||||||||||||||||||
Ore | Grade | Ozs 6 | Ore | Grade | Ozs 6 | Ore | Grade | Ozs 6 | ||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | ||||||||||||||||||||||||||
Dolores13 | Minefinders | 62.42 | 0.023 | 1.454 | 47.04 | 0.021 | 0.990 | 109.46 | 0.022 | 2.444 | ||||||||||||||||||||||||||
El Chanate14 | Capital Gold | 23.03 | 0.023 | 0.519 | 24.52 | 0.020 | 0.395 | 47.55 | 0.022 | 0.913 | ||||||||||||||||||||||||||
Mulatos15 | Alamos | 13.01 | 0.050 | 0.649 | 39.52 | 0.035 | 1.397 | 52.53 | 0.039 | 2.046 | ||||||||||||||||||||||||||
Peñasquito16(Oxide) | Goldcorp | 63.71 | 0.006 | 0.360 | 137.40 | 0.003 | 0.430 | 201.11 | 0.004 | 0.800 | ||||||||||||||||||||||||||
Peñasquito16(Sulfide)(DEV) | Goldcorp | 618.62 | 0.018 | 11.390 | 493.53 | 0.011 | 5.250 | 1,112.15 | 0.015 | 16.630 | ||||||||||||||||||||||||||
Don Mario7,17(LMZ) | Orvana | DNR | DNR | DNR | DNR | DNR | DNR | 0.21 | 0.290 | 0.060 | ||||||||||||||||||||||||||
El Limon | B2Gold | 0.08 | 0.157 | 0.012 | 1.20 | 0.135 | 0.162 | 1.28 | 0.136 | 0.174 | ||||||||||||||||||||||||||
El Toqui18 | Breakwater | 0.73 | 0.105 | 0.077 | 2.95 | 0.070 | 0.207 | 3.68 | 0.077 | 0.284 | ||||||||||||||||||||||||||
Martha | Coeur d’Alene | 0.02 | 0.07 | 0.001 | 0.06 | 0.04 | 0.002 | 0.08 | 0.04 | 0.003 | ||||||||||||||||||||||||||
Pascua-Lama19(DEV) | Barrick | 36.10 | 0.053 | 1.917 | 288.60 | 0.044 | 12.698 | 324.70 | 0.045 | 14.615 | ||||||||||||||||||||||||||
Balcooma20 | Kagara | 0.35 | 0.020 | 0.007 | 2.44 | 0.008 | 0.019 | 2.79 | 0.009 | 0.026 | ||||||||||||||||||||||||||
Meekatharra21(Paddy’s Flat) (DEV) | Mercator Gold | 0.00 | 0.000 | 0.000 | 2.19 | 0.140 | 0.308 | 2.19 | 0.140 | 0.308 | ||||||||||||||||||||||||||
Siguiri22 | Anglogold Ashanti | 61.87 | 0.016 | 1.010 | 73.98 | 0.030 | 2.240 | 135.85 | 0.024 | 3.250 | ||||||||||||||||||||||||||
Taparko23 TB-GSR1 and TB-GSR2 | High River | DNR | DNR | DNR | DNR | DNR | DNR | 3.09 | 0.085 | 0.262 | 24,25 | |||||||||||||||||||||||||
Taparko23 TB-GSR3 | High River | DNR | DNR | DNR | DNR | DNR | DNR | 6.42 | 0.085 | 0.544 |
35
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Silver | Avg. | Silver | Avg. | Silver | |||||||||||||||||||||||||||||||||
Tons of | Silver | Contained | Tons of | Silver | Contained | Tons of | Silver | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Ozs6 | Ore | Grade | Ozs6 | Ore | Grade | Ozs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | (millions) | (oz/ton) | (millions) | ||||||||||||||||||||||||||||
Troy 7.0% GSR 23 | Revett | — | — | — | — | — | — | 0.48 | 1.19 | 0.569 | 27 | |||||||||||||||||||||||||||
6.1% GSR | 1.72 | 1.19 | 2.046 | |||||||||||||||||||||||||||||||||||
2.0% GSR | 0.98 | 1.19 | 1.164 | |||||||||||||||||||||||||||||||||||
Dolores13 | Minefinders | 62.42 | 1.18 | 73.415 | 47.04 | 1.13 | 53.230 | 109.46 | 1.16 | 126.645 | ||||||||||||||||||||||||||||
Peñasquito16(Oxide ) | Goldcorp | 63.71 | 0.54 | 34.300 | 137.40 | 0.28 | 37.800 | 201.11 | 0.36 | 72.100 | ||||||||||||||||||||||||||||
Peñasquito16(Sulfide) (DEV) | Goldcorp | 618.62 | 0.99 | 611.500 | 493.53 | 0.73 | 362.100 | 1,112.15 | 0.88 | 973.600 | ||||||||||||||||||||||||||||
El Toqui18 | Breakwater | 0.73 | 0.15 | 0.106 | 2.95 | 0.38 | 1.121 | 3.68 | 0.33 | 1.227 | ||||||||||||||||||||||||||||
Martha | Coeur d’Alene | 0.02 | 55.86 | 0.992 | 0.06 | 31.22 | 1.817 | 0.08 | 36.99 | 2.809 | ||||||||||||||||||||||||||||
Balcooma20 | Kagara | 0.35 | 1.87 | 0.654 | 2.44 | 0.41 | 1.003 | 2.79 | 0.59 | 1.657 |
36Contents
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Copper | Avg. | Copper | Avg. | Copper | |||||||||||||||||||||||||||||||||
Tons of | Copper | Contained | Tons of | Copper | Contained | Tons of | Copper | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (% Cu) | (millions) | (millions) | (% Cu) | (millions) | (millions) | (% Cu) | (millions) | ||||||||||||||||||||||||||||
Robinson | Quadra | 130.04 | 0.55 | 1,420 | 4.10 | 0.42 | 35 | 134.14 | 0.54 | 1,455 | ||||||||||||||||||||||||||||
Troy 7% GSR23 | Revett | DNR | DNR | DNR | DNR | DNR | DNR | 0.44 | 0.57 | 5 | 27 | |||||||||||||||||||||||||||
6.1% GSR | 1.50 | 0.57 | 17 | |||||||||||||||||||||||||||||||||||
2.0% GSR | 2.38 | 0.57 | 27 | |||||||||||||||||||||||||||||||||||
El Toqui18 | Breakwater | 0.00 | 0.00 | 0 | 2.95 | 0.10 | 6 | 2.95 | 0.10 | 6 | ||||||||||||||||||||||||||||
Balcooma20 | Kagara | 0.35 | 1.30 | 9 | 2.44 | 3.05 | 149 | 2.79 | 2.83 | 158 |
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Zinc | Avg. | Zinc | Avg. | Zinc | |||||||||||||||||||||||||||||||||
Tons of | Zinc | Contained | Tons of | Zinc | Contained | Tons of | Zinc | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (% Zn) | (millions) | (millions) | (% Zn) | (millions) | (millions) | (% Zn) | (millions) | ||||||||||||||||||||||||||||
Peñasquito16 (Sulfide) (DEV) | Goldcorp | 618.62 | 0.77 | 9,587 | 493.53 | 0.59 | 5,776 | 1,112.15 | 0.69 | 15,364 | ||||||||||||||||||||||||||||
El Toqui18 | Breakwater | 0.73 | 7.30 | 106 | 2.95 | 7.10 | 419 | 3.68 | 7.14 | 525 | ||||||||||||||||||||||||||||
Balcooma20 | Kagara | 0.35 | 7.20 | 50 | 2.44 | 0.43 | 21 | 2.79 | 1.28 | 71 |
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Lead | Avg. | Lead | Avg. | Lead | |||||||||||||||||||||||||||||||||
Tons of | Lead | Contained | Tons of | Lead | Contained | Tons of | Lead | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (% Pb) | (millions) | (millions) | (% Pb) | (millions) | (millions) | (% Pb) | (millions) | ||||||||||||||||||||||||||||
Peñasquito16 (Sulfide) (DEV) | Goldcorp | 618.62 | 0.36 | 4,437 | 493.53 | 0.27 | 2,633 | 1,112.15 | 0.32 | 7,070 | ||||||||||||||||||||||||||||
El Toqui18 | Breakwater | 0.73 | 0.20 | 3 | 2.95 | 0.50 | 30 | 3.68 | 0.44 | 33 | ||||||||||||||||||||||||||||
Balcooma20 | Kagara | 0.35 | 2.60 | 18 | 2.44 | 0.19 | 9 | 2.79 | 0.49 | 27 |
37
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Avg. | Nickel | Avg. | Nickel | Avg. | Nickel | |||||||||||||||||||||||||||||||||
Tons of | Nickel | Contained | Tons of | Nickel | Contained | Tons of | Nickel | Contained | ||||||||||||||||||||||||||||||
Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | Ore | Grade | Lbs6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | (% Ni) | (millions) | (millions) | (% Ni) | (millions) | (millions) | (% Ni) | (millions) | ||||||||||||||||||||||||||||
Mt. Goode7(Cosmos) | Xstrata | DNR | DNR | DNR | DNR | DNR | DNR | 1.21 | 4.12 | 101 |
PROVEN + PROBABLE | ||||||||||||||||||||||||||||||||||||||
PROVEN RESERVES | PROBABLE RESERVES | RESERVES | ||||||||||||||||||||||||||||||||||||
Finished | Finished | Finished | ||||||||||||||||||||||||||||||||||||
Product | Product | Product | ||||||||||||||||||||||||||||||||||||
Tons of | Avg. | Contained | Tons of | Avg. | Contained | Tons of | Avg. | Contained | ||||||||||||||||||||||||||||||
Ore | K20 | Tons6 | Ore | K20 | Tons6 | Ore | K20 | Tons6 | ||||||||||||||||||||||||||||||
PROPERTY | OPERATOR | (millions) | Grade | (millions) | (millions) | Grade | (millions) | (millions) | Grade | (millions) | ||||||||||||||||||||||||||||
Allan7,33,34 | Potash Corporation | DNR | DNR | DNR | DNR | DNR | DNR | 361.55 | 25.90 | DNR | ||||||||||||||||||||||||||||
of Saskatchewan |
38
39
40
41
Voisey's Bay
On February 22, 2010, as part of the IRC Transaction discussed in Item 7, MD&A, we acquired a royalty on the Voisey's Bay Mine in Newfoundland and Labrador owned by Vale Newfoundland & Labrador Limited ("VNL"). The royalty is owned by the Labrador Nickel Royalty Limited Partnership ("LNRLP"), in which the Company's wholly-owned indirect subsidiary Canadian Minerals Partnership is the general partner and 89.99% owner. The remaining interests in LNRLP are owned by Altius Resources Hazardous Waste Disposal Site
On October 16, 2009, LNRLP filed a claim in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited ("Vale Inco") and its wholly owned subsidiaries, Vale Inco Atlantic Sales Limited ("VIASL") and VNL, related to calculation of the NSR on the sale of concentrates, including nickel concentrates, from the Voisey's Bay Mine to Vale Inco. The claim asserts that Vale Inco is incorrectly calculating the NSR. The claim asserts that Vale Inco is incorrectly calculating the NSR and requests an order in respect of the correct calculation of future payments. The claim also requests specific damages for underpayment of past royalties to the date of the claim in an amount not less than $29 million, together with additional damages until the date of trial, interest, costs and other entities that they were considered potentially responsible parties (“PRPs”damages.
Holt
On October 1, 2008, as part of the Company's acquisition of a portfolio of royalties from Barrick, we acquired a royalty on the Holt portion of the development stage Holloway-Holt mining project in Ontario, Canada, owned by St Andrew Goldfields Ltd. ("St Andrew"). St Andrew succeeded Newmont Canada Corporation ("Newmont Canada") as owner of the Holloway-Holt mining project in November 2006. By virtue of the Company's acquisition of Barrick's royalty portfolio, RGLD Gold Canada, Inc. ("RGLD Gold") succeeded Barrick as the royalty payee under the Comprehensive Environmental Response, Compensation,royalty agreement.
On or about November 3, 2008, St Andrew filed an action in the Ontario Superior Court of Justice (the "Court") seeking, among other things, declarations by the Court that St Andrew's obligation in respect of the royalty is limited to only a portion of the total royalty payable, and Liability Actthat any additional royalty obligations under the royalty agreement remain the responsibility of 1980,Newmont Canada. Newmont Canada responded that St Andrew is responsible for all royalty obligations under the royalty agreement.
Royal Gold and RGLD Gold (collectively "Royal Gold") and Barrick were joined as amended (“Superfund”), atnecessary parties to the Casmalia Resources Hazardous Waste Disposal Site (the “Site”)litigation in Santa Barbara County, California. EPA’s allegationJanuary 2009. Trial concerning calculation of the royalty and the party or parties responsible for paying it was held from January 30, 2009 to February 12, 2009. On July 23, 2009, the Court held that Royal Gold wasis entitled to payment from Newmont Canada of the full amount of the sliding-scale NSR royalty on gold produced from the Holt mine. The Court also held that St Andrew's sole obligation is to reimburse Newmont Canada for payment of the royalty up to a PRP was basedflat rate of 0.013% of the net smelter returns for gold, silver and other metals. On August 21, 2009, Newmont Canada appealed the Court's decision to the Court of Appeal of Ontario and on the disposal of allegedly hazardous petroleum exploration wastes at the Site by Royal Gold’s predecessor, Royal Resources, Inc., during 1983 and 1984.
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Market Information and Current Stockholders
Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”("NASDAQ") under the symbol “RGLD”"RGLD" and on the Toronto Stock Exchange under the symbol “RGL.”"RGL." The following table sets forth, for each of the quarterly periods indicated, the range of high and low sales prices, in U.S. dollars, for theour common stock on NASDAQ for each quarter since July 1, 2006.2008.
Sales Prices | ||||||||||||
Fiscal Year: | High | Low | ||||||||||
2007 | First Quarter (July, Aug., Sept. — 2006) | $ | 31.82 | $ | 25.67 | |||||||
Second Quarter (Oct., Nov., Dec. — 2006) | $ | 37.50 | $ | 24.12 | ||||||||
Third Quarter (Jan., Feb., March — 2007) | $ | 36.50 | $ | 29.31 | ||||||||
Fourth Quarter (April, May, June — 2007) | $ | 30.87 | $ | 23.25 | ||||||||
2008 | First Quarter (July, Aug., Sept. — 2007) | $ | 34.36 | $ | 23.85 | |||||||
Second Quarter (Oct., Nov., Dec. — 2007) | $ | 35.39 | $ | 26.54 | ||||||||
Third Quarter (Jan., Feb., March — 2008) | $ | 35.42 | $ | 27.51 | ||||||||
Fourth Quarter (April, May, June — 2008) | $ | 32.93 | $ | 26.87 | ||||||||
2009 | First Quarter (July, Aug., Sept. — 2008) | $ | 39.50 | $ | 26.88 | |||||||
Second Quarter (Oct., Nov., Dec. — 2008) | $ | 49.45 | $ | 22.75 | ||||||||
Third Quarter (Jan., Feb., March — 2009) | $ | 49.81 | $ | 35.76 | ||||||||
Fourth Quarter (April, May, June — 2009) | $ | 48.69 | $ | 34.16 |
| | Sales Prices | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year: | | High | Low | |||||||
2009 | First Quarter (July, Aug., Sept.—2008) | $ | 39.50 | $ | 26.88 | |||||
Second Quarter (Oct., Nov., Dec.—2008) | $ | 49.45 | $ | 22.75 | ||||||
Third Quarter (Jan., Feb., March—2009) | $ | 49.81 | $ | 35.76 | ||||||
Fourth Quarter (April, May, June—2009) | $ | 48.69 | $ | 34.16 | ||||||
2010 | First Quarter (July, Aug., Sept.—2009) | $ | 49.35 | $ | 37.35 | |||||
Second Quarter (Oct., Nov., Dec.—2009) | $ | 55.96 | $ | 42.90 | ||||||
Third Quarter (Jan., Feb., March—2010) | $ | 50.98 | $ | 41.19 | ||||||
Fourth Quarter (April, May, June—2010) | $ | 54.85 | $ | 46.51 |
As of August 14, 2009,24, 2010, there were 1,068 shareholders929 stockholders of record of our common stock.
Dividends
We have paid a cash dividend on our common stock for each calendar year beginning in calendar year 2000. Our board of directors has discretion in determining whether to declare a dividend based on a number of factors including, prevailing gold prices, economic market conditions and funding requirements for future opportunities or operations.
For calendar year 2010, we paid an annual dividend of $0.36 per share of common stock, in four quarterly payments of $0.09 each. We paid the first payment of $0.09 per share on January 15, 2010, to stockholders of record at the close of business on January 4, 2010. We paid the second payment of $0.09 per share on April 16, 2010, to common stockholders and the holders of Exchangeable Shares of record at the close of business on April 1, 2010. We paid the third payment of $0.09 per share on July 16, 2010 to common stockholders and holders of Exchangeable Shares of record at the close of business on July 2, 2010. We anticipate paying the fourth payment of $0.09 per share on October 15, 2010, to common shareholders and holders of Exchangeable Shares of record at the close of business on October 1, 2010.
For calendar year 2009, we announced an annual dividend of $0.32 per share of common stock, payable in four quarterly payments of $0.08 each. The first payment of $0.08 per share was made on January 16, 2009, to shareholdersstockholders of record at the close of business on January 2, 2009. The second payment of $0.08 per share was made on April 17, 2009, to shareholdersstockholders of record at the close of business on April 3, 2009. The third payment of $0.08 per share was made on July 17, 2009, to shareholdersstockholders of record at the close of business on July 2, 2009. We anticipate payingpaid the fourth payment of $0.08 per share on October 16, 2009, to shareholdersstockholders of record at the close of business on October 2, 2009.
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ITEM 6. SELECTED FINANCIAL DATA
| Fiscal Years Ended June 30, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||
| (Amounts in thousands, except per share data) | |||||||||||||||
Royalty revenue(1) | $ | 136,565 | $ | 73,771 | $ | 66,297 | $ | 48,357 | $ | 28,380 | ||||||
Operating income | $ | 41,035 | $ | 27,292 | $ | 32,982 | $ | 28,506 | $ | 13,412 | ||||||
Net income | $ | 29,422 | $ | 41,357 | $ | 25,395 | $ | 21,242 | $ | 11,350 | ||||||
Net income attributable to Royal Gold stockholders | $ | 21,492 | $ | 38,348 | $ | 24,043 | $ | 19,720 | $ | 11,350 | ||||||
Net income available to Royal Gold common stockholders | $ | 21,492 | $ | 38,348 | $ | 19,255 | $ | 19,720 | $ | 11,350 | ||||||
Net income per share available to Royal Gold common stockholders: | ||||||||||||||||
Basic | $ | 0.49 | $ | 1.09 | $ | 0.62 | $ | 0.79 | $ | 0.50 | ||||||
Diluted | $ | 0.49 | $ | 1.07 | $ | 0.61 | $ | 0.79 | $ | 0.49 | ||||||
Dividends declared per common share(2) | $ | 0.34 | $ | 0.30 | $ | 0.28 | $ | 0.25 | $ | 0.22 |
| As of June 30, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||
| (Amounts in thousands) | |||||||||||||||
Total assets | $ | 1,861,333 | $ | 809,924 | $ | 545,850 | $ | 356,649 | $ | 171,765 | ||||||
Royalty interests in mineral properties, net | $ | 1,467,983 | $ | 455,966 | $ | 300,670 | $ | 215,839 | $ | 84,590 | ||||||
Long-term debt, including current portion | $ | 248,500 | $ | 19,250 | $ | 15,750 | $ | 15,750 | $ | — | ||||||
Royal Gold stockholders' equity | $ | 1,403,716 | $ | 749,441 | $ | 483,217 | $ | 319,081 | $ | 161,660 |
For The Fiscal Years Ended June 30, | ||||||||||||||||||||
Amounts in thousands, except per share data | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Royalty revenue | $ | 73,771 | $ | 66,297 | $ | 48,357 | $ | 28,380 | $ | 25,302 | ||||||||||
Costs of operations | 3,551 | 3,664 | 3,265 | 2,288 | 1,847 | |||||||||||||||
General and administrative expense | 7,352 | 7,208 | 5,824 | 5,022 | 3,695 | |||||||||||||||
Exploration and business development | 2,998 | 4,079 | 2,493 | 3,397 | 1,893 | |||||||||||||||
Depreciation, depletion and amortization | 32,578 | 18,364 | 8,269 | 4,261 | 3,205 | |||||||||||||||
Income tax expense | 21,857 | 12,050 | 9,549 | 5,101 | 4,102 | |||||||||||||||
Net income | 38,348 | 24,043 | 19,720 | 11,350 | 11,454 | |||||||||||||||
Net income available to common stockholders | 38,348 | 19,255 | 19,720 | 11,350 | 11,454 | |||||||||||||||
Basic earnings per share | 1.08 | 0.62 | 0.79 | 0.50 | 0.55 | |||||||||||||||
Diluted earnings per share | 1.07 | 0.61 | 0.79 | 0.49 | 0.54 | |||||||||||||||
Common dividends declared per share(1) | 0.30 | 0.28 | 0.25 | 0.22 | 0.19 |
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For The Fiscal Years Ended June 30, | ||||||||||||||||||||
Amounts in thousands | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Total assets | $ | 809,924 | $ | 545,850 | $ | 356,649 | $ | 171,765 | $ | 102,158 | ||||||||||
Working capital | 312,519 | 202,043 | 90,995 | 81,452 | 53,330 | |||||||||||||||
Royalty interests in mineral properties, net | 455,966 | 300,670 | 215,839 | 84,590 | 44,817 | |||||||||||||||
Note payable | 19,250 | 15,750 | 15,750 | — | — | |||||||||||||||
Other long-term liabilities | 703 | 504 | 98 | 98 | 97 | |||||||||||||||
Net deferred tax liabilities | 23,371 | 26,034 | 5,911 | 6,683 | 7,426 |
ITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs, if any. We seek to acquire existing royalties or to finance projects that are in production or in development stage in exchange for royaltyroyalties or similar interests. We are engaged in a continual review of opportunities to acquire existing royalties, to create new royalties or similar interests through the financing of mine development or exploration, or to acquire companies that hold royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial and other confidential information, submission of indications of interest, participation in preliminary discussions and involvement as a bidder in competitive auctions.
As of June 30, 2010, the Company owns royalties on 2533 producing properties, 823 development stage properties and over 80130 exploration stage properties, of which the Company considers 2537 to be
evaluation stage projects. The Company uses “evaluation stage”"evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. We do not conduct mining operations nor are we required to contribute to capital costs, exploration costs, environment costs or other operatingmining costs on the properties in which we hold royalty interests. During the fiscal year ended June 30, 2009,2010, we focused on the management of our existing royalty interests, the acquisition of royalty interests, the acquisition and integration of IRC and the creation of royalty interests through financing and strategic exploration alliances.
Our financial results are primarily tied to the price of gold, silver, copper and other metals, as well as production from our producing stage royalty interests. For the fiscal years ended June 30, 2009, 2008 and 2007, theThe price of gold, averaged $874, $821 and $638 per ounce, respectively, the price of silver, averaged $12.91, $15.40 and $12.74 per ounce, respectively, and the price of copper averaged $2.25, $3.53 and $3.22 per pound, respectively. The price of gold and other metals have fluctuated widely in recent years. The marketability and the price of gold, silver, copper and other metals are influenced by numerous factors beyond the control of the Company and may have a material and adverse effect on the Company’sCompany's results of operations and financial condition.
For the fiscal yearyears ended June 30, 2010, 2009 Royal Gold derived 84%and 2008, gold, silver and copper price averages and percentage of its total revenue from gold royalties, 3% of its total revenue from silver royalties, 11% of its total revenue from copper royalties and 2% of its total revenue from otherroyalty revenues by metal royalties.were as follows:
| Fiscal Year Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2010 | June 30, 2009 | June 30, 2008 | ||||||||||||||||
Metal | Average Price | Percentage of Royalty Revenue | Average Price | Percentage of Royalty Revenue | Average Price | Percentage of Royalty Revenue | |||||||||||||
Gold ($/ounce) | $ | 1,089 | 81 | % | $ | 874 | 84 | % | $ | 821 | 74 | % | |||||||
Silver ($/ounce) | $ | 16.85 | 3 | % | $ | 12.91 | 3 | % | $ | 15.40 | 3 | % | |||||||
Copper ($/pound) | $ | 3.03 | 9 | % | $ | 2.25 | 11 | % | $ | 3.53 | 23 | % | |||||||
Other | N/A | 7 | % | N/A | 2 | % | N/A | 0 | % |
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Recent Developments
Please also see the “Liquidity"Liquidity and Capital Resources”Resources" section below within this Item 7 for discussion of our equity offering, credit facility amendmentnew term loan and other recent liquidity and capital developments.
Business Developments
Proposed Acquisition of Andacollo Production InterestGold Stream on the Mt. Milligan Project
On April July 15, 2010, Royal Gold entered into a letter agreement (the "Letter Agreement") pursuant to which it agreed to acquire 25% of the payable gold produced from the Mt. Milligan copper-gold project in British Columbia from Thompson Creek Metals Company Inc. or its affiliate ("Thompson Creek") concurrent with the closing of Thompson Creek's proposed acquisition (the "Acquisition") of Terrane Metals Corp. ("Terrane"). The terms and conditions under which Royal Gold will acquire the payable gold are contained in a Purchase and Sale Agreement (the "Purchase and Sale Agreement") among Royal Gold, Thompson Creek and a subsidiary of each entity to be identified prior to the closing of the Acquisition. The obligation of Royal Gold and Thompson Creek to enter into the Purchase and Sale Agreement is subject to certain customary conditions set forth in the Letter Agreement. Under the Letter Agreement, Thompson Creek and Royal Gold have each agreed to an exclusivity arrangement with the other party in respect to certain alternative gold-related financing transactions in connection with the Mt. Milligan project until the closing of the Acquisition or earlier termination of the Letter Agreement in accordance with its terms. The Letter Agreement also contains representations and warranties and covenants in respect of Royal Gold and Thompson Creek.
Pursuant to the Purchase and Sale Agreement, at the closing of the Acquisition, Royal Gold will make a payment of $226.5 million to Thompson Creek, which will be used to pay a portion of the consideration to shareholders of Terrane in connection with the Acquisition. Thereafter, upon satisfaction of certain conditions set forth in the Purchase and Sale Agreement, Royal Gold will make additional payments (each, an "Additional Payment") to Thompson Creek in an amount not to exceed $85 million in the aggregate to fund a portion of the development costs of the Mt. Milligan project. Upon commencement of production at the Mt. Milligan project, Royal Gold will purchase 25% of the payable gold with a cash payment equal to the lesser of $400 or the prevailing market price for each payable ounce of gold until 550,000 ounces have been delivered to Royal Gold and the lesser of $450 or the prevailing market price for each additional ounce thereafter. The Purchase and Sale Agreement also contains representations and warranties, covenants, conditions and indemnification provisions in respect of each party. The Company anticipates funding this transaction with cash on hand.
The Acquisition has been unanimously approved by the boards of directors of both Thompson Creek and Terrane. Goldcorp, which owns 52% of Terrane's fully diluted shares (including preference shares), has agreed to convert its preference shares into common shares and vote in favor of the Acquisition. Completion of the Acquisition is subject to, among other things, the favorable vote of 662/3 2009, of the Terrane equity shareholders at a special meeting called to approve the Acquisition, which is expected to occur in September 2010. In addition, certain officers and directors holding approximately 1.0% of Terrane's common shares in the aggregate have entered into support agreements in favor of the transaction.
The Mt. Milligan project is in the early stage of construction, and Terrane has announced that production is expected to commence in calendar year 2013. Terrane has reported that proven and probable reserves total 482 million tonnes (0.20% copper; 0.39 g/t gold), containing 2.1 billion pounds of copper and 6.0 million ounces of gold. Terrane expects the reserves to support a mine life of at least 22 years and estimates Mt. Milligan will produce approximately 262,000 ounces of gold annually during the first six years of operation and 195,000 ounces of gold annually over the life of the mine. Mt. Milligan has received an Environmental Assessment Certificate and a Mines Act Permit from the Province of British Columbia and the Environmental Assessment approval from the Government of Canada. Terrane has also secured long lead-time equipment and has entered into an engineering, procurement and construction management contract with an AMEC-Fluor joint venture.
Acquisition of Additional Royalty Interests at Pascua-Lama
On July 1, 2010, the Company entered into two separate assignment of rights agreements with two private Chilean citizens whereby Royal Gold acquired the right to acquire an additional 0.75% NSR sliding-scale royalty on the Pascua-Lama project, which is owned and operated by Barrick and located on the border between Argentina and Chile, for a definitivepurchase price of $53 million. Of this amount, $25 million was paid to immediately acquire an additional 0.35% royalty interest. A deferred payment of $28 million is expected to be made on or before October 29, 2010, to acquire the remaining 0.40% royalty interest. In addition, on April 23, 2010, Royal Gold entered into an assignment of rights agreement (“Master Agreement”with another private Chilean citizen whereby Royal Gold acquired an additional 0.25% NSR on the project for a purchase price of $15 million. Once the deferred closing occurs, Royal Gold's total gold royalty interest in the Pascua-Lama project will increase to 5.23% NSR, at gold prices above $800 per ounce. Pursuant to the assignment of rights agreements, Royal Gold also acquired a 0.20% fixed-rate copper royalty that takes effect after January 1, 2017, increasing Royal Gold's copper royalty interest in the Pascua-Lama project to 1.05%.
In addition, Royal Gold has obtained certain contingent rights and reduced certain obligations with respect to the portion of the Pascua-Lama royalty acquired in the IRC Transaction. Upon completion of the deferred payment as mentioned above, we will have (i) reduced the contingent payments from $10.4 million to $8.4 million due from Royal Gold to certain individuals who held the royalty if gold prices exceed $600 per ounce for any six month period during the first 36 months of commercial production from the project, and (ii) decreased payments due from Royal Gold to these individuals from $6.4 million to $4.4 million that would be required to extend 24% of our royalty interest beyond 14 million ounces of production from the project. Royal Gold also increased its interest in two one-time payments from $0.5 million to $1.5 million which are payable by Barrick upon the achievement of certain production thresholds at Pascua-Lama.
Acquisition of International Royalty Corporation
On February 22, 2010, Royal Gold and IRC consummated their previously announced Plan of Arrangement (the "Plan of Arrangement"), whereby Royal Gold, through RG Exchangeco, acquired all of the issued and outstanding common shares of IRC. Pursuant to the Plan of Arrangement, IRC shareholders received, in the aggregate: (i) cash consideration of approximately $350 million, (ii) 5,234,086 common shares of Royal Gold, and (iii) 1,806,649 Exchangeable Shares, which are convertible at any time on a one-for-one basis for common shares of Royal Gold.
The IRC royalty portfolio included 11 producing royalties, 10 development stage royalties, 24 evaluation stage royalties and 35 exploration stage royalties as of February 22, 2010. The producing royalties acquired from IRC generated royalty revenue of approximately $9.0 million from February 22, 2010, the date we acquired IRC, through June 30, 2010. The key royalty assets acquired from IRC include the following:
Pascua-Lama—A 0.47% to 3.15% sliding-scale NSR gold royalty on the Chilean portion of the Pascua-Lama project, which is operated by Barrick. The Company also acquired a 0.63% fixed rate copper royalty on the Chilean portion of the Pascua-Lama project which is effective January 1, 2017. The Pascua-Lama project is currently under construction and is classified as a development stage royalty interest on the Company's consolidated balance sheets. Barrick has estimated commissioning in late calendar 2012 and production in early calendar 2013;
Voisey's Bay—An effective 2.7% NSR royalty on the Voisey's Bay nickel-copper-cobalt mine located in Newfoundland and Labrador, Canada and operated by Vale. The Company owns 90% of a 3.0% NSR (or 2.7%) withroyalty while a Chileannon-controlling interest owns the remainder. The Company recognized approximately $3.9 million (which includes approximately $0.4 million of non-controlling interests) in royalty revenue from the Voisey's Bay royalty for the period February 22, 2010 through June 30, 2010;
Inata—A 2.5% GSR royalty on the Inata gold mine located in northern Burkina Faso, West Africa and operated by a subsidiary of Teck Resources Limited (“Teck”), CDA,Avocet Mining PLC. Production at Inata began during the fourth quarter of calendar 2009, and the Company recognized approximately $1.3 million in royalty revenue from the Inata royalty for the period February 22, 2010 through June 30, 2010;
Las Cruces—A 1.5% NSR royalty on the Las Cruces copper project located in Andalusia, Spain and operated by Inmet Mining. The Company recognized approximately $0.9 million in royalty revenue from the Las Cruces royalty for the period February 22, 2010 through June 30, 2010;
Western Australia—A 1.5% NSR royalty on gold produced from approximately three million acres in Western Australia. The primary producing operations covered by the 1.5% NSR royalty are Southern Cross, Gwalia Deeps and South Laverton. The Company recognized approximately $2.3 million in royalty revenue from the producing Western Australian royalties for the period February 22, 2010 through June 30, 2010; and
Wolverine—A 0.00% to acquire9.45% sliding-scale NSR royalty on all gold and silver production from the Wolverine sulfide project located in Yukon Territory, Canada, and operated by Yukon Zinc.
Please refer to Note 3 of the notes to consolidated financial statements for further discussion on the IRC Transaction.
Acquisition of Andacollo Royalty
On January 25, 2010, the Company acquired an interest in the gold produced from the sulfide portion of the Andacollo project in Chile (the “Andacollo Production Interest”).from a Chilean subsidiary of Teck. The purchase price for the Andacollo Production Interest consistsRoyalty consisted of $217.9 million in cash and 1,204,136 of the Company’sCompany's common shares.
The Andacollo Production Interest will equalRoyalty equals 75% of the gold produced from the sulfide portion of the deposit at the Andacollo mine until 910,000 payable ounces of gold have been sold, and 50% of the gold produced in excess of 910,000 payable ounces of gold. The mine, located about 34 miles southeast of the city of La Serena, Chile, produces copper from the oxide portion of the deposit and Teck is currently constructing facilities to produce both copper and gold from the sulfide portion of the deposit. The Andacollo Production Interest will not cover copper production.
Once the mine is in full production, the operator expects the mill to have a capacity of 55,000 tonnes (60,630 tons) per day. The operator estimates that the mine will produce on average approximately 53,00055,000 ounces of gold and 76,00080,000 tonnes (83,775(88,185 tons) of copper in concentrate annually for the first 10ten years of commercial production, with an estimated mine life of 20 years. The mineOre has been introduced to the mill and shipments of copper concentrate commenced in early May 2010. Full commercial production is estimatedexpected to begin initial production of goldbe reached in the fourth quarter of calendar 2009, with commercial production at the mine to be achieved in the first half of calendar year 2010, unless this schedule is delayed by challenges to previously granted permits relating to CDA’s water supply, as recently announced by Teck.
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Taparko
The Taparko mine commenced gold production in August 2007 and has contributed approximately $17.9$50.0 million in royalty revenue (from TB-GSR1 and TB-GSR2)TB-GSR2, collectively) since production commenced. Reserve characteristics, mining activity, and gold recovery performance has been near feasibility study estimates. However, mill performance has suffered since start-up due to problems associated with the grinding mill drive-train and production ceased on June 11, 2008. A new gear box to correct the mill problems was installed on October 29, 2008, and operations at Taparko re-commenced on November 4, 2008. Although improved, elevated vibrations in certain elements of the mill drive train are still a concern for potential interruptions to sustained production. Despite the mill problems for much of the first half of fiscal year 2009, goldGold sales at Taparko for the fiscal yearyears ended June 30, 2010, and 2009 were approximately 118,000 ounces and 48,000 ounces, comparedrespectively. The increase in gold sales during the period was attributable to improved mill throughput, mill availability, grade and recoveries. As of June 30, 2010, we have recognized royalty revenue associated with the TB-GSR1 royalty totaling $30.6 million, which is attributable to cumulative production of approximately 36,000202,000 ounces of gold. Management estimates that, based on Taparko's last three quarters of production and its calendar 2010 production guidance, the $35 million cap associated with TB-GSR1 could be met during fiscal year 2008.
Somita SA (“Somita”("Somita"), a 90% owned subsidiary of High River and the operator of Taparko, is in breach of certain obligations under the Amended and Restated Funding Agreement dated February 22, 2006 (the “Funding Agreement”"Funding Agreement") between Royal Gold, Inc. and Somita. Royal Gold has invested $35 million for the development of the Taparko mine under the Funding Agreement. As security for the Company’sCompany's investment in Somita, two of High River’sRiver's subsidiaries have pledged their equity interests in Somita and High River (West Africa) Ltd., the corporate parent of Somita. TheThis pledge will remain in effect until certain production and performance standards have been attained at the Taparko mine.mine, sufficient to satisfy the Completion Test, as defined in the Funding Agreement. The Completion Test commenced on December 1, 2009, and continued for 90 days. The results of the Completion Test have been reported to the Company and are currently under review by management. If management determines that Somita has satisfied the requirements of the Completion Test, the pledge of the equity
interests in Somita and its corporate parent (High River (West Africa) Ltd.) will terminate and this security will be released.
In addition, Royal Gold obtained as collateral a pledge of shares of certain equity investments in public companies held by High River. The fair market value of the pledged shares, based on June 30, 2010 closing price, is approximately $32.1 million as of June 30, 2009.$72.9 million. The Company’sCompany's carrying value of its royalty interests at Taparko was approximately $24.3$5.8 million as of June 30, 2009.2010. The collateralpledge of High River's equity investments will remain in effect until project completion and attainmentthe satisfaction of certain production or performance standards atrequirements as provided in the Taparko mine.construction contract between Somita and its construction contractor, so long as there are no outstanding claims by the Company against the pledged securities.
Royal Gold has not agreed to forbear pursuing any of its remedies under the Funding Agreement or other agreements with High River and its affiliates.
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Higher royalty revenue at Cortez was primarily due to a decrease in production. While lower than expected grades were mined during much of our fiscal year 2009, decreased production was driven primarily by mine sequencing that reduced mining activity on the Company’s royalty ground at Cortez.
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Robinson
Production at Robinson was reduced during much of the first half of calendar 2010 as access to hyopgene ore in the Veteran Pit was restricted due to high-wall instability which adversely affected blending capabilities. Quadra expects mining of the hypogene ore to resumeoccurred in the thirdsecond quarter of calendar 2009 allowing continuation2009. Full access has been re-established as of August 2010. Quadra also reported that additional flotation cells are fully operational and concentrate contracts have been re-negotiated to allow for more flexibility with respect to concentrate grades. In August 2010, Quadra reduced its 2010 annual production guidance at Robinson to 115-125 million pounds of copper from 135 million pounds and approximately 75,000 ounces of gold from 80,000 ounces as Quadra has encountered larger than anticipated historical underground workings.
Siguiri
Our royalty at Siguiri is subject to a dollar cap of approximately $12.0 million. As of June 30, 2010, approximately $1.8 million remains under the cap. Based on historical production at Siguiri, the Company expects to reach the dollar cap during the second half of calendar 2010. Due to the expected achievement of the blending strategy.
Mulatos
In March 2010, Alamos reported an increase to their 2009 production guidance to between 160,000 and 170,000 ounces from between 145,000 and 160,000 ounces. Theannounced a 17% increase in reported productionproven and probable reserves at Mulatos and plans to increase crusher throughput by up to 20% by the fourth quarter of calendar 2010. A closed circuit crushing system was the result of higher than planned recoveries,installed recently which was dueis also expected to operational improvements.
Peñasquito
Royalty revenue at Peñasquito poured the first gold from the oxide circuit and the Company recognized approximately $1.5 million in royalty revenue from the oxide circuit during fiscal year 2009.2010 reflects combined oxide and sulfide production of gold, silver, lead and zinc. In June, Goldcorp reported that mechanical completion of the second sulfide processing line ("Line 2") had been achieved ahead of the previously expected third
calendar quarter completion date. Line 2 is now in the commissioning phase and ramping up toward designed 50,000 tonne-per-day (55,115 tons) capacity. The first sulfide processing line ("Line 1") is regularly operating at designed production levels of 50,000 tonnes (55,115 tons) per day and declaration of commercial production remains on schedule for the third calendar quarter of 2010. Construction of the 30,000 tonne-per-day (33,069 tons) high pressure grinding roll circuit is on track for completion in the fourth calendar quarter of 2010 with full production ramp-up to the planned 130,000 tonne per day capacity to be reached in early calendar 2011.
Voisey's Bay
As part of the IRC Transaction, the Company acquired an effective 2.7% NSR royalty on the Voisey's Bay property, which is operated by Vale and located in Newfoundland and Labrador, Canada. Monthly production capacity at Voisey's Bay is approximately 7.0 million pounds of nickel and 5.6 million pounds of copper. Since August 1, 2009, about 200 workers at Voisey's Bay have been on strike. On July 13, 2009, Goldcorp announcedMarch 12, 2010, Vale reported that it commenced commissioninghad resumed production from the Voisey's Bay Ovoid mine and mill, which supplies nickel concentrate to Vale's operations at Thompson and Sudbury and copper concentrates to clients in Europe. The Voisey's Bay site is reported to be operating two weeks on, two weeks off, producing approximately 3.5 million pounds of nickel and 2.8 million pounds of copper per month. As of early August 2010, the strike at Voisey's Bay has not been resolved. Vale is currently operating at about 40% of capacity and is working on ramping up to full production.
Dolores
Minefinders reported that production at Dolores was lower during the second calendar of 2010 due to lower grades. Minefinders expects production to increase through the second half of calendar 2010 due to increasing grades, completion of tertiary screen repairs and loading of ore onto the phase 2 leach pad beginning in late August 2010.
Las Cruces
Inmet's Las Cruces copper operation in Spain continues to experience difficulties as they start-up. Inmet has reported that a number of equipment failures and operational issues delayed the ramp-up of the first sulfide circuitplant and limited the ability to operate continuously. Beginning in July 2010, Inmet has been focused on increasing available plant capacity and reducing the causes of equipment failures. Inmet expects their 70% interest to reach commercialyield 20,000 to 30,000 tonnes of copper cathode this year.
Pascua-Lama
Barrick has reported that detailed engineering and procurement is nearing completion and the project is on track to enter production during the first quarter of calendar 2010. The sulfide portion2013. Barrick stated that major, long lead items have been ordered and the Barriales Camp in Chile is currently classifiedessentially complete. Roadwork is progressing well and about three million tons have been moved as a development stage royalty interest.
DoloresCanadian Malartic
Osisko reported that the Canadian Malartic gold project is advancing well and silver productionestimates that the project will be fully operational during the fourthsecond quarter of calendar 2008.2011, with average annual gold production of 630,000 ounces.
Wolverine
Yukon Zinc is completing the construction of its operating plan and facilities at the Wolverine mine. The Company’s 1.25% NSR royalty appliedprimary focus includes commissioning of all equipment and the ore processing circuits, as well as completing construction priorities to gold sales duringmove the period. The Company’s 2.0% NSR royalty at Dolores became effective once the facility reached 75% of commercialmine into production. Minefinders announced that it achieved commercial production at Dolores effective May 1, 2009, thus making the Company’s 2.0% NSR effective from May 1, 2009. The Company recognized approximately $0.9 million in royalty revenue on its Dolores royalties during fiscal year 2009. In July 2009, Minefinders stated that both gold and silver production are expectedYukon Zinc expects ore to continue to increase through the remainder of calendar year 2009 as the volume of ore under leach and time under leach continues to increase.
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We received production estimates from the operators of our producing mines during the first calendar quarter of 2009.2010. The following table shows such production estimates for our principal producing properties for calendar year 20092010 as well as the actual production reported to us by the various operators for the six months ended June 30, 2009.2010. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators’operators' estimates or production reports and have not independently assessed or verified the accuracy of such information.
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Calendar Year 2009 Operator’s | Reported Production through | |||||||||||||||||||||||
Production Estimate(1) | June 30, 2009(2) | |||||||||||||||||||||||
Gold | Silver | Copper | Gold | Silver | Copper | |||||||||||||||||||
Royalty | (oz.) | (oz.) | (lbs.) | (oz.) | (oz.) | (lbs.) | ||||||||||||||||||
Cortez GSR1 | 345,296 | — | — | 133,342 | — | — | ||||||||||||||||||
Cortez GSR2(3) | 614 | — | — | 8,884 | — | — | ||||||||||||||||||
Cortez GSR3(3) | 345,910 | — | — | 142,226 | — | — | ||||||||||||||||||
Cortez NVR1(3) | 72,863 | — | — | 73,252 | — | — | ||||||||||||||||||
Robinson(4) | 100,000 | — | 130 million | 53,409 | — | 58.7 million | ||||||||||||||||||
Leeville | 426,212 | — | — | 183,625 | — | — | ||||||||||||||||||
Goldstrike | 440,879 | — | — | 263,802 | — | — | ||||||||||||||||||
Peñasquito(5) | 70,000 | 2.3 million | — | 37,992 | 1.5 million | — | ||||||||||||||||||
Mulatos(6) | 170,000 | — | — | 88,045 | — | — | ||||||||||||||||||
Dolores | 100,000 | 2.0 million | — | 36,379 | 326,182 | — | ||||||||||||||||||
Taparko(7) | 76,000 | — | — | 40,483 | — | — | ||||||||||||||||||
Siguiri | 300,000 | — | — | 160,387 | — | — |
| Calendar 2010 Operator's Production Estimate(1) | Reported Production through June 30, 2010(2) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty | Gold (oz.) | Silver (oz.) | Base Metals (lbs.) | Gold (oz.) | Silver (oz.) | Base Metals (lbs.) | ||||||||||||||
Andacollo(3) | 30,000 | 4,145 | — | — | ||||||||||||||||
Cortez(4) GSR1 | 241,000 | — | — | 136,805 | — | — | ||||||||||||||
Cortez GSR2 | — | — | — | 952 | — | — | ||||||||||||||
Cortez GSR3 | 241,000 | — | — | 137,757 | — | — | ||||||||||||||
Cortez NVR1 | 188,000 | — | — | 110,519 | — | — | ||||||||||||||
Dolores(4,5) | 91,000 | 2.3 million | — | 34,853 | 0.5 million | — | ||||||||||||||
Gwalia Deeps | 102,000 | 47,626 | — | — | ||||||||||||||||
Las Cruces(4) | ||||||||||||||||||||
Copper | 161 million | 20.8 million | ||||||||||||||||||
Leeville | 429,000 | — | — | 220,459 | — | — | ||||||||||||||
Mulatos(4) | 160,000 | — | — | 74,586 | — | — | ||||||||||||||
Peñasquito(4) | 180,000 | 13.4 million | 66,944 | 5.3 million | ||||||||||||||||
Lead | 107 million | 34.1 million | ||||||||||||||||||
Zinc | 135 million | 47.3 million | ||||||||||||||||||
Robinson(4) | 75,000 | — | 43,775 | — | ||||||||||||||||
Copper | 115 million | 54.6 million | ||||||||||||||||||
Taparko(4) | 137,000 | — | — | 59,953 | — | — | ||||||||||||||
Voisey's Bay(4,6) | ||||||||||||||||||||
Copper | N/A | 8.6 million | ||||||||||||||||||
Nickel | N/A | 19.0 million |
The following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests, as reported to us by the operators of the mines:
Historical Production(1)Production(1) by RoyaltyPrincipal Producing Properties
For the Fiscal Years Ended June 30, 2010, 2009 and 2008
Principal Producing Properties
Royalty | Metal | 2009 | 2008 | 2007 | ||||||||||||
Cortez GSR1 | Gold | 200,578 oz. | 400,396 oz. | 502,626 oz. | ||||||||||||
Cortez GSR2 | Gold | 67,749 oz. | 35,752 oz. | 7,647 oz. | ||||||||||||
Cortez GSR3 | Gold | 268,327 oz. | 436,148 oz. | 510,273 oz. | ||||||||||||
Cortez NVR1 | Gold | 154,399 oz. | 127,198 oz. | 291,963 oz. | ||||||||||||
Robinson | Copper | 128.3 million lbs. | 139.0 million lbs. | 116.9 million lbs. | ||||||||||||
Robinson | Gold | 113,740 oz. | 120,873 oz. | 80,603 oz. | ||||||||||||
Leeville | Gold | 429,122 oz. | 360,811 oz. | 230,458 oz. | ||||||||||||
Goldstrike | Gold | 724,368 oz. | 698,488 oz. | 950,462 oz. | ||||||||||||
Peñasquito (oxide) | Gold | 52,932 oz. | N/A | N/A | ||||||||||||
Peñasquito (oxide) | Silver | 2.5 million oz. | N/A | N/A | ||||||||||||
Mulatos | Gold | 167,907 oz. | 120,933 oz. | 103,262 oz. | ||||||||||||
Dolores | Gold | 38,819 oz. | N/A | N/A | ||||||||||||
Dolores | Silver | 326,182 oz. | N/A | N/A | ||||||||||||
Taparko | Gold | 48,105 oz. | 36,078 oz. | N/A | ||||||||||||
Siguiri | Gold | 241,817 oz. | N/A | N/A |
Royalty | Metal | 2010 | 2009 | 2008 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Andacollo | 4,145 oz. | N/A | N/A | |||||||||
Cortez GSR1 | Gold | 355,513 oz. | 200,578 oz. | 400,396 oz. | ||||||||
Cortez GSR2 | Gold | 2,082 oz. | 67,749 oz. | 35,752 oz. | ||||||||
Cortez GSR3 | Gold | 357,595 oz. | 268,327 oz. | 436,148 oz. | ||||||||
Cortez NVR1 | Gold | 259,741 oz. | 154,399 oz. | 127,198 oz. | ||||||||
Dolores | Gold | 73,463 oz. | 38,819 oz. | N/A | ||||||||
Silver | 1.2 million oz. | 326,182 oz. | N/A | |||||||||
Gwalia Deeps | Gold | 47,626 oz. | N/A | N/A | ||||||||
Las Cruces | Copper | 20.8 million lbs. | N/A | N/A | ||||||||
Leeville | Gold | 454,148 oz. | 429,122 oz. | 360,811 oz. | ||||||||
Mulatos | Gold | 164,954 oz. | 167,907 oz. | 120,933 oz. | ||||||||
Peñasquito | Gold | 117,963 oz. | 52,932 oz. | N/A | ||||||||
Silver | 7.2 million oz. | 2.5 million oz. | N/A | |||||||||
Lead | 36.7 million lbs. | N/A | N/A | |||||||||
Zinc | 48.5 million lbs. | N/A | N/A | |||||||||
Robinson | Gold | 86,101 oz. | 113,740 oz. | 120,873 oz. | ||||||||
Copper | 107.4 million lbs. | 128.3 million lbs. | 139.0 million lbs. | |||||||||
Taparko | Gold | 117,505 oz. | 48,105 oz. | 36,078 oz. | ||||||||
Voisey's Bay | Nickel | 19.0 million lbs. | N/A | N/A | ||||||||
Copper | 8.6 million lbs. | N/A | N/A |
Critical Accounting Policies
Listed below are the accounting policies that the Company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the
magnitude of the asset, liability, revenue or expense being reported. Please refer to Note 12 of the Notes to Consolidated Financial Statements for a discussion on recently adopted and issued accounting pronouncements.
Use of Estimates
The preparation of our financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, at the date of the financial statements, as well as the reported amountamounts of revenues and expenses during the reporting period.
Our most critical accounting estimates relate to our assumptions regarding future gold, silver, copper and other metal prices and the estimates of reserves and recoveries of third-party mine operators. We rely on reserve estimates reported by the operators on the properties in which we have royalty interests. These estimates and the underlying assumptions affect the potential impairments of long-lived assets and the ability to realize income tax benefits associated with deferred tax assets. These estimates and assumptions also affect the rate at which we charge depreciation, depletion and amortization to earnings. On an ongoing
53
Royalty Interests in Mineral Properties
Royalty interests in mineral properties include acquired royalty interests in production, stage, development stage and exploration stage properties. The fair valuecosts of acquired royalty interests in mineral properties are capitalized as tangible assets whenas such interests do not meet the definition of a financial asset under the FASB Statement of Financial AccountAccounting Standards (“SFAS”Codification ("ASC") No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125, or a derivative instrument under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities.
Acquisition costs of production and development stage royalty interests are depleted using the units of production method over the life of the mineral property, which is estimated using proven and probable reserves. Acquisition costs of royalty interests on exploration stage mineral properties, where there are no proven and probable reserves, are not amortized. At such time as the associated exploration stage mineral interests are converted to proven and probable reserves, the cost basis is amortized over the remaining life of the mineral property, using proven and probable reserves. The carrying values of exploration stage mineral interests are evaluated for impairment at such time as information becomes available indicating that the production will not occur in the future. Exploration costs are expensed when incurred.
Asset Impairment:
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable. The recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operators. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold, silver, copper and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur in the future thus affecting the future recoverability of our royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Our estimates of gold, silver, copper and other metal prices, operator’soperator's estimates of proven and probable reserves related to our royalty properties, and operator’soperator's estimates of operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty interests in mineral properties. Although we have made our best assessment of these factors based on current conditions, it is possible that changes could occur, which could adversely affect the net cash flows expected to be generated from these royalty interests.
Royalty Revenue
Royalty revenue is recognized pursuant to guidance in Staff Accounting Bulletin No. 104,Revenue Recognition for Financial Statements. RevenueASC 605 and based upon amounts contractually due pursuant to the underlying royalty agreement. Specifically, revenue is recognized in accordance with the terms of the underlying royalty agreements subject to (i) the pervasive evidence of the existence of the arrangements; (ii) the risks and rewards having been transferred; (iii) the royalty being fixed or determinable; and (iv)
54
Revenue recognized pursuant to the Robinson royalty agreement royalty revenue from ouris based upon 3.0% NSR royalty is recognized based uponof revenue received by the operator of the mine, Quadra, for the sale of minerals from the Robinson mine, reduced by certain costs incurred by Quadra. Quadra’sQuadra's concentrate sales contracts with third-party smelters, in general, provide for a provisionalan initial sales price payment based upon provisional assays and quoted metal prices at the date of shipment. Final true uptrue-up sales price payments to Quadra are subsequently based upon final assaysassay and market metal prices set on a specified future date. Under current sales contracts between Quadra and its third party smelters, final pricing for copper sales is generally set at least fourdate, typically one to three months after the date the concentrate arrives at the third-party smelter (which generally occurs four to five months after the shipment date from the Robinson mine). We do not have all the key information regarding the terms of shipment.
Each monthly payment from Quadra is typically a combination of revenue received by Quadra for provisional payments during the month and any upward or downward adjustments for final assays and commodity prices for earlier shipments. Whether the payment to Royal Gold recognizesis based on Quadra's revenue in the form of provisional or final payments, Royal Gold records royalty revenue and the corresponding receivable based on the monthly amounts contractually dueit receives from Quadra, as determined pursuant to the calculations aboveroyalty agreement. The royalty contract does not provide Royal Gold with rights or obligations to settle any final assay and commodity price adjustments with Quadra. Therefore, once a given monthly payment is received by Royal Gold it is not subject to later adjustment based on adjustments for assays or commodity prices. Under the underlying sale. In the event there are significant pricing variations between the provisional androyalty agreement, Quadra may include such final settlement periods in copper, and toadjustments as a lesser extent, gold and silver,component of future royalty revenue recognized by the Company on the Robinson royalty will be positively or negatively impacted.
Liquidity and Capital Resources
Overview
At June 30, 2009,2010, we had current assets of $318.7$371.3 million compared to current liabilities of $6.2$35.8 million for a current ratio of 5110 to 1. This compares to current assets of $211.0$318.7 million and current liabilities of $8.9$6.2 million at June 30, 2008,2009, resulting in a current ratio of approximately 2451 to 1. OurThe decrease in the Company's current ratio increased during the period primarilywas due to an increase in cash and equivalents,the Company's current portion of long-term debt, which was largely due to net proceeds received from the issuance of common stock related to our April 2009 equity offering, discussed below, of approximately $235.0 million as well as cash received during the fiscal year 2009 from royalty revenue of approximately $73.8 million. This increase in cash and equivalents was partially offset by net cash paid as part of the acquisition of the Barrick royalty portfolio of approximately $150.0 million, cash paid for common stock dividends of approximately $10.2 million and cash paid during the period for income taxes of approximately $23.3 million.
As further discussed earlier within this MD&A under “Recent"Recent Developments, -BusinessBusiness Developments,”" on January 25, 2010, the Company entered into a Master Agreement with a Chilean subsidiarycompleted the purchase of Teck, CDA, to acquire the Andacollo Production Interest.Royalty. The purchase price for the Andacollo Production Interest, as adjusted based on our equity offering completed on April 14, 2009, consistsRoyalty consisted of $217.9 million in cash and 1,204,136 shares
of the Company’s Common Stock.
Also as discussed earlier within this MD&A under "Recent Developments, Business Developments," on February 22, 2010, the Company completed the IRC Transaction. The purchase price for the IRC Transaction consisted of approximately $350.0 million in cash, 5,234,086 shares of Royal Gold common stock and 1,806,649 Exchangeable Shares, which are convertible on a one-for-one basis for Royal Gold common stock. The cash portion of the total purchase price was sourced from cash on hand, cash acquired in the acquisition and from committed credit facilities, pursuant to which we borrowed $225 million.
During the fiscal year ended June 30, 2009,2010, liquidity needs were met from $73.8$136.6 million in royalty revenues (including $1.1$2.4 million of minority interest), net proceeds from issuance of common stock related to our April 2009 equity offering of approximately $235.0 millionnon-controlling interests) and our available cash resources.resources, including our credit facilities. Also during the fiscal year ended June 30, 2009,2010, our total assets increased to $809.9 million$1.9 billion compared to $545.9$809.9 million at June 30, 2008.2009. The increase was primarily attributable to net cash proceeds received fromthe increase in our April 2009 equity offering of approximately $235.0 million and the preliminary allocation of approximately $181.3 million in royalty interests in mineral properties as partdue the IRC Transaction and the acquisition of the Barrick royalty portfolio acquisition.
55
Please refer to our risk factors included in Part 1, Item 1A of this report for a discussion of certain risks that may impact the Company’sCompany's liquidity and capital resources in lightresources.
Recent Liquidity and Capital Resource Developments
Equity Offering
In June 2010, we sold 5,980,000 shares of our common stock. The offering was priced at $48.50, and proceeds from the offering, net of commission and expenses, was approximately $276.2 million. The Company intends to use the net proceeds from the offering for general corporate purposes and to fund acquisitions of additional royalty interests, including the acquisition of the recent economic downturn.
Credit Facility
In connection with the IRC Transaction described earlier in this MD&A, the Company andborrowed $125 million under its credit facility. As of June 30, 2010, the Company had $125 million outstanding under the credit facility, the maximum amount available. Refer to Note 6 of the notes to consolidated financial statements for further discussion of the credit facility.
Term Loan
In connection with the IRC Transaction described earlier in this MD&A, on January 20, 2010, we entered into an agreement to obtain a new $100 million term loan from HSBC Bank USA, National Association ("HSBC Bank") (the "Term Loan") to partially fund the IRC Transaction. The Term Loan
was funded on February 17, 2010 in conjunction with the closing of the IRC Transaction. HSBC Securities (USA) Inc. acted as sole lead arranger for the Term Loan. The Term Loan is guaranteed by three wholly-owned subsidiaries High Desert Mineral Resources, Inc. (“High Desert”) and RG Mexico, Inc. (“RG Mexico”), entered into a Third Amended and Restated Credit Agreementof Royal Gold (the “Credit Agreement”"Guarantors"). The obligations under the Term Loan were secured by certain Canadian assets of Royal Gold were replaced with certain Chilean assets of Royal Gold as of July 19, 2010.
On March 26, 2010, the Company amended the Term Loan with HSBC Bank, Scotiabanc and the Bank of Nova Scotia joined the Term Loan as lenders.a lender. The Credit Agreement replacedmodifications to the Company’s $80Term Loan included, among other things: (1) an increase in the principal balance available under the Term Loan from $100 million revolving credit facility with HSBC Bank.
The Term Loan contains covenants limiting the ability of Royal Gold and NVR1 royalties at Cortezits subsidiaries to, among other things, incur certain debt or liens, dispose of assets, enter into certain transactions with affiliates, make certain investments or consummate certain mergers, as well as a cross default provision to certain other permitted debt and the royalties at Goldstrike — SJ Claims, Leeville, Robinson, Dolores, Peñasquito and Mulatos (the “Collateral Royalties”).royalty contracts. In addition, to the Collateral Royalties, the credit facility is secured by 100% of Royal Gold’s equity interests in High Desert and RG Mexico and substantially all of the present and future personal property and assets of the Company, High Desert and RG Mexico. The Credit AgreementTerm Loan contains financial covenants requiring the Companyrelating to, maintainamong other things: (1) maintaining a leverage ratio (as defined in the Credit Agreement)defined) of 3.0 to 1.0 or less,less; (2) maintaining a minimum consolidated net worth (as defined in the Credit Agreement)defined) of not less than a base amount that increases according to cumulative positive quarterly net income,income; (3) maintaining an interest coverage ratio (as defined in the Credit Agreement)defined) of at leastgreater than 3.0 to 1.0 and (4) maintaining a current ratio (as defined indefined) for the Credit Agreement)periods ending March 31, 2010 and June 30, 2010 of at least 1.0 to 1.0, and for all times thereafter, of at least 1.5 to 1.01.0.
Prepayment and Termination of Chilean Term Loan Facility
Royal Gold Chile Limitada ("RGCL"), a facility coverage ratio (as defined inwholly-owned subsidiary of Royal Gold, had a $19.25 million term loan outstanding bearing interest at LIBOR plus 0.25% pursuant to an Amended and Restated Term Loan Agreement ("Amended and Restated Agreement") between RGCL and HSBC Bank. On September 23, 2009, RGCL prepaid the Credit Agreement)full $19.25 million outstanding, plus interest, under the Amended and Restated Agreement. In addition to prepaying all outstanding amounts, RGCL notified HSBC Bank of at least 1.25its intention to 1.0.
To secure RGCL's obligations under the Amended and Restated Agreement, the Company did not have any amounts outstanding undermaintained $19.25 million in a Collateral Account at HSBC Bank. The Collateral Account balance was recorded asRestricted cash—compensating balance on the credit facility.Company's consolidated balance sheets. Upon the full prepayment and termination of the Amended and Restated Agreement, the Collateral Account was closed and the $19.25 million was reclassified toCash and equivalents on the Company's consolidated balance sheets.
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Our contractual obligations as of June 30, 2009,2010, are as follows:
Payments Due by Period (in thousands) | ||||||||||||||||||||||||||||||||||||
Less than | More than | Payments Due by Period (in thousands) | ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||||||||||||
Note payable(1) | $ | 19,546 | $ | 108 | $ | 19,438 | $ | — | $ | — | ||||||||||||||||||||||||||
Debt(1) | $ | 266,271 | $ | 32,087 | $ | 108,343 | $ | 125,841 | $ | — | ||||||||||||||||||||||||||
Operating leases | 718 | 193 | 525 | — | — | 525 | 203 | 322 | — | — | ||||||||||||||||||||||||||
Other long-term obligations | 89 | 26 | 53 | 10 | — | 83 | 26 | 53 | 4 | — | ||||||||||||||||||||||||||
Total | $ | 20,353 | $ | 327 | $ | 20,016 | $ | 10 | $ | — | $ | 266,879 | $ | 32,316 | $ | 108,718 | $ | 125,845 | $ | — | ||||||||||||||||
For information on our contractual obligations, see Notes 6 and 15 of the Notes to Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data" of this report. Royal Gold believes it will be able to fund all existing obligations from net cash provided by operating activities.
Results of Operations
Fiscal Year Ended June 30, 2010, Compared with Fiscal Year Ended June 30, 2009
For the fiscal year ended June 30, 2010, we recorded net income available to Royal Gold common stockholders of $21.5 million, or $0.49 per basic and diluted share, compared to net income of $38.3 million, or $1.09 per basic share and $1.07 per diluted share, for the fiscal year ended June 30, 2009. The decrease in our earnings per share during the fiscal year ended June 30, 2010 was due to (1) the IRC one-time severance and acquisition related costs of approximately $19.4 million, and (2) the one-time royalty restructuring gain of $31.5 million during the fiscal year ended June 30, 2009, as part of the Barrick royalty portfolio acquisition. The after tax effect of the one-time IRC related costs during the fiscal year ended, was $0.33 per basic share. The after tax effect of the one-time royalty restructuring gain during the fiscal year ended June 30, 2009, was $0.60 per basic share.
For fiscal year 2010, we recognized total royalty revenue of $136.6 million (including $2.4 million of non-controlling interest), at an average gold price of $1,089 per ounce, compared to royalty revenue of $73.8 million (including $1.1 million of minority interest), at an average gold price of $874 per ounce
for fiscal year 2009. Royalty revenue and the corresponding production, attributable to our royalty interests, for fiscal year 2010 compared to fiscal year 2009 is as follows:
Royalty Revenue and Production Subject to our Royalty Interests
Fiscal Years Ended June 30, 2010 and 2009
(In thousands, except reported production in ozs. and lbs.)
| | Fiscal Year Ended June 30, 2010 | Fiscal Year Ended June 30, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty | Metal(s) | Royalty Revenue | Reported Production(1) | Royalty Revenue | Reported Production(1) | ||||||||||
Taparko(2) | Gold | $ | 32,157 | 117,505 oz. | $ | 10,431 | 48,105 oz. | ||||||||
Cortez | Gold | $ | 25,059 | 357,595 oz. | $ | 16,343 | 268,327 oz. | ||||||||
Robinson | $ | 12,148 | $ | 7,695 | |||||||||||
Gold | 86,101 oz. | 113,740 oz. | |||||||||||||
Copper | 107.4 million lbs. | 128.3 million lbs. | |||||||||||||
Leeville | Gold | $ | 9,912 | 454,148 oz. | $ | 6,659 | 429,122 oz. | ||||||||
Mulatos | Gold | $ | 8,990 | 164,954 oz. | $ | 6,110 | 167,907 oz. | ||||||||
Siguiri(3) | Gold | $ | 6,037 | 296,223 oz. | $ | 3,966 | 241,817 oz. | ||||||||
Peñasquito(4) | $ | 6,032 | $ | 1,541 | |||||||||||
Gold | 117,963 oz. | 52,932 oz. | |||||||||||||
Silver | 7.2 million oz. | 2.5 million oz. | |||||||||||||
Lead | 36.7 million lbs. | N/A | |||||||||||||
Zinc | 48.5 million lbs. | N/A | |||||||||||||
Goldstrike(3) | Gold | $ | 3,939 | 348,802 oz. | $ | 5,585 | 724,368 oz. | ||||||||
Voisey's Bay(4,5) | $ | 3,907 | N/A | ||||||||||||
Nickel | 19.0 million lbs. | N/A | |||||||||||||
Copper | 8.6 million lbs. | N/A | |||||||||||||
Andacollo(6) | Gold | $ | 3,762 | 4,145 oz. | N/A | N/A | |||||||||
Dolores | $ | 2,987 | $ | 900 | |||||||||||
Gold | 73,463 oz. | 38,819 oz. | |||||||||||||
Silver | 1.2 million oz. | 326,182 oz. | |||||||||||||
Las Cruces(5) | Copper | $ | 903 | 20.8 million lbs. | N/A | N/A | |||||||||
Gwalia Deeps(5) | Gold | $ | 854 | 47,626 oz. | N/A | N/A | |||||||||
Other(7) | Various | $ | 19,878 | N/A | $ | 14,541 | N/A | ||||||||
Total Royalty Revenue | $ | 136,565 | $ | 73,771 |
The increase in royalty revenue for the fiscal year ended June 30, 2010, compared with the fiscal year ended June 30, 2009, resulted primarily from an increase in the average gold and copper prices, additional revenue from the recently acquired IRC producing royalties and the Andacollo Royalty, and an increase in production at Taparko, Peñasquito and Cortez. These increases were partially offset during the period by a decrease in production at Robinson. Please refer to "Recent Developments, Property Developments" earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our royalty interests.
Cost of operations expenses increased to $6.2 million for the fiscal year ended June 30, 2010, from $3.6 million for the fiscal year ended June 30, 2009. The increase was primarily due to an increase in non-cash stock-based compensation allocated to cost of operations of approximately $1.2 million and an increase in the Nevada Net Proceeds Tax ("NNPT") expense of approximately $0.8 million, which resulted from an increase in royalty revenue from Cortez, Robinson and Leeville.
General and administrative expenses increased to $12.6 million for the fiscal year ended June 30, 2010, from $7.4 million for the fiscal year ended June 30, 2009. The increase was primarily due to an increase in non-cash stock-based compensation expense allocated to general and administrative expense during the period of approximately $2.2 million, an increase in general corporate costs of approximately $1.5 million and an increase in accounting and tax related expenses of approximately $1.0 million.
Exploration and business development expenses increased to $3.5 million for the fiscal year ended June 30, 2010, from $3.0 million for the fiscal year ended June 30, 2009. The increase was primarily due to an increase in non-cash stock-based compensation allocated to exploration and business development of approximately $1.0 million. This increase was partially offset by a decrease in consulting and legal related expenses for exploration and business development activities.
The Company recorded total non-cash stock-based compensation expense related to our equity compensation plans of $7.3 million for the fiscal year ended June 30, 2010, compared to $2.9 million for the fiscal year ended June 30, 2009. The increase is primarily due to an increase in the number of performance share awards the Company has estimated will vest. Our non-cash stock-based compensation is allocated amongst costs of operations, general and administrative and exploration and business development in our consolidated statements of operations and comprehensive income. Please refer to Note 7 of the notes to consolidated financial statements for further discussion of the allocation of non-cash stock-based compensation for the fiscal years ended June 30, 2010 and 2009.
Depreciation, depletion and amortization expense increased to $53.8 million for the fiscal year ended June 30, 2010, from $32.6 million for the fiscal year ended June 30, 2009. Increased production at Taparko, Peñasquito, Dolores and Leeville resulted in additional depletion expense of approximately $14.7 million during the period. Also, the producing royalties acquired as part of the IRC Transaction
resulted in additional depletion expense of approximately $5.5 million from the acquisition date through June 30, 2010.
As discussed in Note 3 to the notes to consolidated financial statements, the Company incurred approximately $19.4 million in severance and acquisition related costs associated with the IRC Transaction. These one-time, non-recurring costs were related to financial advisory, legal, accounting, tax and consulting services associated with the IRC Transaction as well as severance related payments as part of the termination of IRC's officers and certain employees upon acquisition of IRC.
Interest and other income increased to $6.4 million for the fiscal year ended June 30, 2010, from $3.2 million for the fiscal year ended June 30, 2009. The increase was primarily due to a $5.9 million gain on distributions of gold inventory attributable to non-controlling interests. The increase was partially off by (i) a decrease in our average invested cash during fiscal year 2010 when compared to fiscal year 2009, and (ii) a decrease in the interest rates associated with our invested cash.
Interest and other expense increased to $3.8 million for the fiscal year ended June 30, 2010, from $1.0 million for the fiscal year ended June 30, 2009. The increase was primarily due to an increase in interest expense associated with the outstanding balances on the Company's debt facilities, as discussed in Note 6 of the notes to consolidated financial statements.
During the fiscal year ended June 30, 2010, we recognized income tax expense totaling $14.2 million compared with $21.9 million during the fiscal year ended June 30, 2009. This resulted in an effective tax rate of 32.5% during the current period, compared with 34.6% in the prior period. The decrease in the effective tax rate for June 30, 2010 is primarily related to (i) less pre-tax income as a result of the one-time royalty portfolio gain in June 30, 2009, (ii) an increase in the depletion allowance, and (iii) an increase in the income attributable to non-controlling interests. The tax rate for June 30, 2010 also included non-deductible acquisition related costs and increases in reserves for income tax contingencies as a result of uncertain tax positions acquired during the year. Without the costs incurred as a result of the IRC Transaction, the effective tax rate would have been 29.5% for the year.
Fiscal Year Ended June 30, 2009, Compared with Fiscal Year Ended June 30, 2008
For the fiscal year ended June 30, 2009, we recorded net income of $38.3 million, or $1.09 per basic share and $1.07 per diluted share, compared to net income attributable to Royal Gold stockholders of $24.0 million, or $0.62 per basic share and $0.61 per diluted share (after adjustments for preferred stock dividends and deemed dividends), for the fiscal year ended June 30, 2008. The increase in our earnings per share during the period was primarily due to the royalty portfolio restructuring gains of approximately $33.7 million as part of the Barrick royalty portfolio acquisition and the Benso royalty buy-back exercise by Golden Star both as discussed earlier in this MD&A.during our fiscal year 2009. The effect of the restructuring gains was $0.62 per basic share, after taxes.
For fiscal year 2009, we recognized total royalty revenue of $73.8 million (including $1.1 million of minoritynon-controlling interest), at an average gold price of $874 per ounce, compared to royalty revenue of $66.3 million (including $1.4 million of minoritynon-controlling interest), at an average gold price of $821 per
ounce for fiscal year 2008. Royalty revenue and the corresponding production, attributable to our royalty interests, for fiscal year 2009 compared to fiscal year 2008 is as follows:
57
Fiscal Year Ended | Fiscal Year Ended | ||||||||||||||||||||||||||||||||||
June 30, 2009 | June 30, 2008 | ||||||||||||||||||||||||||||||||||
Royalty | Reported | Royalty | Reported | | Fiscal Year Ended June 30, 2009 | Fiscal Year Ended June 30, 2008 | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty | Metal | Revenue | Production(1) | Revenue | Production(1) | Metal(s) | Royalty Revenue | Reported Production(1) | Royalty Revenue | Reported Production(1) | |||||||||||||||||||||||||
Cortez | Gold | $ | 16,343 | 268,327 oz. | $ | 21,989 | 436,148 oz. | Gold | $ | 16,343 | 268,327 oz. | $ | 21,989 | 436,148 oz. | |||||||||||||||||||||
Taparko(2) | Gold | $ | 10,431 | 48,105 oz. | $ | 7,435 | 36,078 oz. | ||||||||||||||||||||||||||||
Robinson(3) | $ | 7,695 | $ | 16,576 | |||||||||||||||||||||||||||||||
Taparko(2) | Gold | $ | 10,431 | 48,105 oz. | $ | 7,435 | 36,078 oz. | ||||||||||||||||||||||||||||
Robinson | $ | 7,695 | $ | 16,576 | |||||||||||||||||||||||||||||||
Gold | 113,740 oz. | 120,873 oz. | Gold | 113,740 oz. | 120,873 oz. | ||||||||||||||||||||||||||||||
Copper | 128.3 million lbs. | 139.0 million lbs. | Copper | 128.3 million lbs. | 139.0 million lbs. | ||||||||||||||||||||||||||||||
Leeville | Gold | $ | 6,659 | 429,122 oz. | $ | 5,570 | 360,811 oz. | Gold | $ | 6,659 | 429,122 oz. | $ | 5,570 | 360,811 oz. | |||||||||||||||||||||
Mulatos(4) | Gold | $ | 6,110 | 167,907 oz. | $ | 1,521 | 120,933 oz. | ||||||||||||||||||||||||||||
Mulatos | Gold | $ | 6,110 | 167,907 oz. | $ | 1,521 | 120,933 oz. | ||||||||||||||||||||||||||||
Goldstrike | Gold | $ | 5,585 | 724,368 oz. | $ | 5,086 | 698,488 oz. | Gold | $ | 5,585 | 724,368 oz. | $ | 5,086 | 698,488 oz. | |||||||||||||||||||||
Siguiri(5) | Gold | $ | 3,966 | 241,817 oz. | N/A | N/A | |||||||||||||||||||||||||||||
Siguiri(3) | Gold | $ | 3,966 | 241,817 oz. | N/A | N/A | |||||||||||||||||||||||||||||
Peñasquito (oxide) | $ | 1,541 | $ | 59 | $ | 1,541 | $ | 59 | |||||||||||||||||||||||||||
Gold | 52,932 oz. | 1,618 oz. | Gold | 52,932 oz. | 1,618 oz. | ||||||||||||||||||||||||||||||
Silver | 2.5 million oz. | 91,601 oz. | Silver | 2.5 million oz. | 91,601 oz. | ||||||||||||||||||||||||||||||
Dolores(6) | $ | 900 | N/A | ||||||||||||||||||||||||||||||||
Dolores | $ | 900 | N/A | ||||||||||||||||||||||||||||||||
Gold | 38,819 oz. | N/A | Gold | 38,819 oz. | N/A | ||||||||||||||||||||||||||||||
Silver | 326,182 oz. | N/A | Silver | 326,182 oz. | N/A | ||||||||||||||||||||||||||||||
Other(7) | Various | $ | 14,541 | N/A | $ | 8,061 | N/A | ||||||||||||||||||||||||||||
Other(4) | Various | $ | 14,541 | N/A | $ | 8,061 | N/A | ||||||||||||||||||||||||||||
Total Royalty Revenue | $ | 73,771 | $ | 66,297 | $ | 73,771 | $ | 66,297 |
58
our GSR2 royalty rate at Cortez and a decrease in royalty revenue at Robinson due to the negative provisional pricing adjustments, which resulted from the sharp decrease in copper prices during our second and third fiscal quarters of 2009.
Cost of operations expenses decreased to $3.6 million for the fiscal year ended June 30, 2009, from $3.7 million for the fiscal year ended June 30, 2008. The decrease was primarily due to a decrease in the Nevada Net Proceeds Tax (“NNPT”)NNPT expense, which resulted primarily from a decrease in royalty revenue from Robinson and Cortez. This decrease was partially offset by an increase in legal fees associated with the Holt litigation as discussed further under “Recent"Recent Developments, - Property Developments”Developments" within this MD&A.
General and administrative expenses increased to $7.4 million for the fiscal year ended June 30, 2009, from $7.2 million for the fiscal year ended June 30, 2008. The increase was primarily due to an increase in non-cash stock-based compensation expense allocated to general and administrative expense during the period and an increase in corporate legal fees.
Exploration and business development expenses decreased to $3.0 million for the fiscal year ended June 30, 2009, from $4.1 million for the fiscal year ended June 30, 2008. The decrease iswas due to a decrease in legal, tax and consulting services for business development activities during the period.
The Company recorded total non-cash stockstock-based compensation expense related to our equity compensation plan of $2.9 million for each of the fiscal years ended June 30, 2009 and 2008. Our non-cash stock compensation is allocated among cost of operations, general and administrative, and exploration and business development in our consolidated statements of operations and comprehensive income. Please refer to Note 67 of the Notes to Consolidated Financial Statementsconsolidated financial statements for further discussion of our stock-based compensation and the allocation of non-cash stockstock-based compensation for the fiscal year ended June 30, 2009 and 2008.
Depreciation, depletion and amortization expense increased to $32.6 million for the fiscal year ended June 30, 2009, from $18.4 million for the fiscal year ended June 30, 2008. Depletion from the Barrick royalties acquired in October 2008 contributed approximately $8.6 million in additional depletion expense during the period.fiscal year 2009. Increased production at Taparko, Leeville, Goldstrike and El Chanate resulted in additional depletion expense of approximately $2.4 million during the period.fiscal year 2009. Properties that recently began production, which included Peñasquito and Dolores, contributed approximately $1.2 million in additional depletion expense during the period.
Interest and other income decreased to $3.2 million for the fiscal year ended June 30, 2009, from $6.7 million for the fiscal year ended June 30, 2008. The decrease iswas primarily due to a significant decrease in interest rates associated with our invested cash. The decrease was partially offset by a $1.9 million gain on a distribution ofInventory — restrictedto a minoritynon-controlling interest holder.
During the fiscal year ended June 30, 2009, we recognized income tax expense totaling $21.9 million compared with $12.1 million during the fiscal year ended June 30, 2008. This resulted in an effective tax rate of 36.3%34.6% in the current period,fiscal year 2009, compared with 33.4%31.7% in the prior period. The increase in our effective tax rate iswas the result of the royalty restructuring gain as part of the Barrick royalty portfolio
59
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | |||||||||||||||||||
Royalty | Reported | Royalty | Reported | |||||||||||||||||
Royalty | Metal | Revenue | Production(2) | Revenue | Production(1) | |||||||||||||||
Cortez | Gold | $ | 21,989 | 436,148 oz. | $ | 21,486 | 510,273 oz. | |||||||||||||
Robinson | $ | 16,576 | $ | 12,573 | ||||||||||||||||
Gold | 120,873 oz. | 80,603 oz. | ||||||||||||||||||
Copper | 139.0 million lbs. | 116.9 million lbs. | ||||||||||||||||||
Taparko(2) | Gold | $ | 7,435 | 36,078 oz. | N/A | N/A | ||||||||||||||
Leeville | Gold | $ | 5,570 | 360,811 oz. | $ | 2,661 | 230,458 oz. | |||||||||||||
Goldstrike | Gold | $ | 5,086 | 698,488 oz. | $ | 5,463 | 950,462 oz. | |||||||||||||
Mulatos | Gold | $ | 1,521 | 120,933 oz. | $ | 1,012 | 103,262 oz. | |||||||||||||
Peñasquito (oxide) | $ | 59 | N/A | N/A | ||||||||||||||||
Gold | 1,618 oz. | N/A | N/A | |||||||||||||||||
Silver | 91,601 oz. | N/A | N/A | |||||||||||||||||
Other(3) | Various | $ | 8,061 | N/A | $ | 5,162 | N/A | |||||||||||||
Total Royalty Revenue | $ | 66,297 | $ | 48,357 |
60
61
Cautionary “Safe Harbor”"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995.1995: With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements regarding projected production estimates and estimates pertaining to timing and commencement of production from the operators of our royalty properties; the adequacy of financial resources and funds to cover anticipated expenditures for general and administrative expenses as well as costs associated with exploration and business development and capital expenditures, and our expectation that substantially all our revenues will be derived from royalty interests. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
62
Our earnings and cash flowflows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies. Please see “Volatility"Volatility in gold, silver, copper and other metal prices may have an adverse impact on the value of our royalty interests and reduce our royalty revenues,”" under Part I, Item 1A, Risk Factors, of this report for more information on factors that can affect gold, silver, copper and other metal prices as well as historical gold, silver, and copper prices.
During the fiscal year ended June 30, 2009,2010, we reported royalty revenues of $73.8$136.6 million, with an average gold price for the period of $874$1,089 per ounce and an average copper price of $2.25$3.03 per pound. Approximately 84%81% of our total recognized revenues for the fiscal year ended June 30, 2009,2010, were attributable to gold sales from our gold producing royalty interests, as shown within Item 7, MD&A, of this report. For the fiscal year ended June 30, 2009,2010, if the price of gold had averaged higher or lower by $50$100 per ounce, we would have recorded a correspondingan increase in revenue of approximately $11.3 million or a decrease in revenuesrevenue of approximately $3.8$10.6 million. Approximately 11%9% of our total recognized revenues for the fiscal year ended June 30, 2009,2010, were attributable to copper sales.sales from our copper producing royalty interests. For the fiscal year ended June 30, 2009,2010, if the price of copper had averaged higher or lower by $0.50 per pound, we would have recorded an increase or decrease in revenues of approximately $2.3$2.1 million, respectively.
63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
64
To the Shareholders and Board of Directors Royal Gold, Inc.:
In our opinion, the accompanying consolidated financial statements listed in the accompanying appendixindex present fairly, in all material respects, the financial position of Royal Gold, Inc. and its subsidiaries at June 30, 20092010 and 2008,2009, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 20092010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2009,2010, based on criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting appearing under Partpart II, Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for non-controlling interests effective July 1, 2009, which required retrospective application for all periods presented.
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Denver, Colorado
August 20, 200926, 2010
65
2009 | 2008 | |||||||
Current assets | ||||||||
Cash and equivalents | $ | 294,566 | $ | 192,035 | ||||
Royalty receivables | 20,597 | 16,317 | ||||||
Income tax receivable | 2,372 | 2,186 | ||||||
Deferred tax assets | 166 | 131 | ||||||
Prepaid expenses and other | 1,007 | 308 | ||||||
Total current assets | 318,708 | 210,977 | ||||||
Royalty interests in mineral properties, net | 455,966 | 300,670 | ||||||
Restricted cash — compensating balance | 19,250 | 15,750 | ||||||
Inventory — restricted | 10,622 | 11,170 | ||||||
Other assets | 5,378 | 7,283 | ||||||
Total assets | $ | 809,924 | $ | 545,850 | ||||
Current liabilities | ||||||||
Accounts payable | $ | 2,403 | $ | 4,753 | ||||
Dividends payable | 3,259 | 2,384 | ||||||
Other | 527 | 1,797 | ||||||
Total current liabilities | 6,189 | 8,934 | ||||||
Net deferred tax liabilities | 23,371 | 26,034 | ||||||
Term loan facility | 19,250 | 15,750 | ||||||
Other long-term liabilities | 703 | 504 | ||||||
Total liabilities | 49,513 | 51,222 | ||||||
Commitments and contingencies (Note 14) | ||||||||
Minority interest in subsidiary | 10,970 | 11,411 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, authorized 100,000,000 shares; and issued 40,480,311 and 33,926,495 shares, respectively | 405 | 339 | ||||||
Additional paid-in capital | 702,407 | 463,335 | ||||||
Accumulated other comprehensive (loss) income | (80 | ) | 65 | |||||
Accumulated earnings | 46,709 | 19,478 | ||||||
Total stockholders’ equity | 749,441 | 483,217 | ||||||
Total liabilities and stockholders’ equity | $ | 809,924 | $ | 545,850 | ||||
| 2010 | 2009 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and equivalents | $ | 324,846 | $ | 294,566 | ||||
Royalty receivables | 40,363 | 20,597 | ||||||
Income tax receivable | 3,432 | 2,372 | ||||||
Prepaid expenses and other current assets | 2,627 | 1,173 | ||||||
Total current assets | 371,268 | 318,708 | ||||||
Royalty interests in mineral properties, net (Note 5) | 1,467,983 | 455,966 | ||||||
Restricted cash—compensating balance | — | 19,250 | ||||||
Other assets | 22,082 | 16,000 | ||||||
Total assets | $ | 1,861,333 | $ | 809,924 | ||||
LIABILITIES | ||||||||
Current portion of long-term debt (Note 6) | $ | 26,000 | $ | — | ||||
Accounts payable | 2,367 | 2,403 | ||||||
Dividends payable | 4,970 | 3,259 | ||||||
Other current liabilities | 2,437 | 527 | ||||||
Total current liabilities | 35,774 | 6,189 | ||||||
Long-term debt (Note 6) | 222,500 | — | ||||||
Net deferred tax liabilities | 152,583 | 23,371 | ||||||
Chilean loan facility | — | 19,250 | ||||||
Other long-term liabilities | 16,928 | 703 | ||||||
Total liabilities | 427,785 | 49,513 | ||||||
Commitments and contingencies (Note 15) | ||||||||
EQUITY | ||||||||
Preferred stock, $.01 par value, authorized 10,000,000 shares authorized; and 0 shares issued | — | — | ||||||
Common stock, $.01 par value, 100,000,000 shares authorized; and 53,324,171 and 40,480,311 shares outstanding, respectively | 534 | 405 | ||||||
Exchangeable shares, no par value, 1,806,649 and 0 shares issued, less 176,540 and 0 redeemed shares, respectively | 71,741 | — | ||||||
Additional paid-in capital | 1,284,087 | 702,407 | ||||||
Accumulated other comprehensive (loss) | (34 | ) | (80 | ) | ||||
Accumulated earnings | 51,862 | 46,709 | ||||||
Treasury stock, at cost (96,675 and 0 shares, respectively) | (4,474 | ) | — | |||||
Total Royal Gold stockholders' equity | 1,403,716 | 749,441 | ||||||
Non-controlling interests | 29,832 | 10,970 | ||||||
Total equity | 1,433,548 | 760,411 | ||||||
Total liabilities and equity | $ | 1,861,333 | $ | 809,924 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
66
2009 | 2008 | 2007 | | 2010 | 2009 | 2008 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty revenues | $ | 73,771 | $ | 66,297 | $ | 48,357 | Royalty revenues | $ | 136,565 | $ | 73,771 | $ | 66,297 | ||||||||||
Costs and expenses | Costs and expenses | ||||||||||||||||||||||
Costs of operations (exclusive of depreciation, depletion and amortization shown separately below) | 6,235 | 3,551 | 3,664 | ||||||||||||||||||||
Costs of operations (exclusive of depreciation, depletion and amortization shown separately below) | 3,551 | 3,664 | 3,265 | ||||||||||||||||||||
General and administrative | 7,352 | 7,208 | 5,824 | ||||||||||||||||||||
Exploration and business development | 2,998 | 4,079 | 2,493 | ||||||||||||||||||||
Depreciation, depletion and amortization | 32,578 | 18,364 | 8,269 | ||||||||||||||||||||
General and administrative | 12,595 | 7,352 | 7,208 | ||||||||||||||||||||
Exploration and business development | 3,503 | 2,998 | 4,079 | ||||||||||||||||||||
Depreciation, depletion and amortization | 53,793 | 32,578 | 18,364 | ||||||||||||||||||||
Severance and acquisition related costs | 19,404 | — | — | ||||||||||||||||||||
Total costs and expenses | 46,479 | 33,315 | 19,851 | Total costs and expenses | 95,530 | 46,479 | 33,315 | ||||||||||||||||
Operating income | 27,292 | 32,982 | 28,506 | Operating income | 41,035 | 27,292 | 32,982 | ||||||||||||||||
Royalty portfolio restructuring gain | 33,714 | — | — | Royalty portfolio restructuring gain | — | 33,714 | — | ||||||||||||||||
Interest and other income | 3,192 | 6,742 | 4,258 | Interest and other income | 6,360 | 3,192 | 6,742 | ||||||||||||||||
Interest and other expense | (984 | ) | (1,729 | ) | (1,973 | ) | Interest and other expense | (3,809 | ) | (984 | ) | (1,729 | ) | ||||||||||
Income before income taxes | 63,214 | 37,995 | 30,791 | Income before income taxes | 43,586 | 63,214 | 37,995 | ||||||||||||||||
Income tax expense | (21,857 | ) | (12,050 | ) | (9,549 | ) | Income tax expense | (14,164 | ) | (21,857 | ) | (12,050 | ) | ||||||||||
Minority interest in income of consolidated subsidiary | (3,009 | ) | (1,352 | ) | (1,522 | ) | |||||||||||||||||
Loss from equity investment | — | (550 | ) | — | Loss from equity investment | — | — | (550 | ) | ||||||||||||||
Net income | $ | 38,348 | $ | 24,043 | $ | 19,720 | Net income | 29,422 | 41,357 | 25,395 | |||||||||||||
Net income attributable to non-controlling interests | Net income attributable to non-controlling interests | (7,930 | ) | (3,009 | ) | (1,352 | ) | ||||||||||||||||
Net income attributable to Royal Gold stockholders | Net income attributable to Royal Gold stockholders | 21,492 | 38,348 | 24,043 | |||||||||||||||||||
Preferred dividends | Preferred dividends | — | — | (4,788 | ) | ||||||||||||||||||
Net income available to Royal Gold common stockholders | Net income available to Royal Gold common stockholders | $ | 21,492 | $ | 38,348 | $ | 19,255 | ||||||||||||||||
Net income | Net income | $ | 29,422 | $ | 41,357 | $ | 25,395 | ||||||||||||||||
Adjustments to comprehensive income, net of tax | Adjustments to comprehensive income, net of tax | ||||||||||||||||||||||
Unrealized change in market value of available for sale securities | 45 | (145 | ) | (393 | ) | ||||||||||||||||||
Adjustments to other comprehensive income | |||||||||||||||||||||||
Unrealized change in market value of available for sale securities, net of tax | (145 | ) | (393 | ) | (40 | ) | |||||||||||||||||
Comprehensive income | Comprehensive income | 29,467 | 41,212 | 25,002 | |||||||||||||||||||
Comprehensive income attributable to non-controlling interests | Comprehensive income attributable to non-controlling interests | (7,930 | ) | (3,009 | ) | (1,352 | ) | ||||||||||||||||
Comprehensive income | $ | 38,203 | $ | 23,650 | $ | 19,680 | |||||||||||||||||
Comprehensive income attributable to Royal Gold stockholders | Comprehensive income attributable to Royal Gold stockholders | $ | 21,537 | $ | 38,203 | $ | 23,650 | ||||||||||||||||
Net income | $ | 38,348 | $ | 24,043 | $ | 19,720 | |||||||||||||||||
Preferred dividends | — | (4,788 | ) | — | |||||||||||||||||||
Net income available to common stockholders | $ | 38,348 | $ | 19,255 | $ | 19,720 | |||||||||||||||||
Net income per share available to Royal Gold common stockholders: | Net income per share available to Royal Gold common stockholders: | ||||||||||||||||||||||
Basic earnings per share | $ | 1.09 | $ | 0.62 | $ | 0.79 | Basic earnings per share | $ | 0.49 | $ | 1.09 | $ | 0.62 | ||||||||||
Basic weighted average shares outstanding | 35,337,133 | 31,054,725 | 24,827,319 | Basic weighted average shares outstanding | 43,640,414 | 35,337,133 | 31,054,725 | ||||||||||||||||
Diluted earnings per share | $ | 1.07 | $ | 0.61 | $ | 0.79 | Diluted earnings per share | $ | 0.49 | $ | 1.07 | $ | 0.61 | ||||||||||
Diluted weighted average shares outstanding | 35,789,076 | 31,390,293 | 25,075,086 | Diluted weighted average shares outstanding | 43,980,817 | 35,789,076 | 31,390,293 | ||||||||||||||||
Cash dividends declared per common share | Cash dividends declared per common share | $ | 0.34 | $ | 0.30 | $ | 0.30 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
67
Consolidated Statements of Stockholders’Changes in Equity
For the Years Ended June 30, 2010, 2009 2008 and 2007
(In thousands except share data)
Additional | Accumulated Other | Accumulated | Total | |||||||||||||||||||||||||||||||||||||
Preferred Shares | Common Shares | Paid-In | Comprehensive | (Deficit) | Treasury Stock | Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (Loss) | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||||||||
Balance at June 30, 2006 | 23,816,640 | $ | 238 | $ | 166,460 | $ | 498 | $ | (4,440 | ) | 229,224 | $ | (1,097 | ) | $ | 161,659 | ||||||||||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||||||||||||||||||
Equity offering | 4,400,064 | 44 | 121,894 | 121,938 | ||||||||||||||||||||||||||||||||||||
Peñasquito royalty acquisition | 577,434 | 6 | 18,495 | 18,501 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 46,467 | — | 582 | 582 | ||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | 52,375 | 1 | (1 | ) | — | |||||||||||||||||||||||||||||||||||
Tax benefit of stock-based compensation exercises | 346 | 346 | ||||||||||||||||||||||||||||||||||||||
Recognition of non-cash compensation expense for stock- based compensation | 2,663 | 2,663 | ||||||||||||||||||||||||||||||||||||||
Net income and comprehensive income for the year ended June 30, 2007 | (40 | ) | 19,721 | 19,681 | ||||||||||||||||||||||||||||||||||||
Dividends declared | (6,289 | ) | (6,289 | ) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2007 | — | — | 28,892,980 | �� | $ | 289 | $ | 310,439 | $ | 458 | $ | 8,992 | 229,224 | $ | (1,097 | ) | $ | 319,081 | ||||||||||||||||||||||
Issuance of preferred stock for: | ||||||||||||||||||||||||||||||||||||||||
7.25% Mandatory Convertible offering | 1,150,000 | 115,000 | (3,902 | ) | 111,098 | |||||||||||||||||||||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||||||||||||||||||
Conversion of 7.25% Mandatory Convertible Preferred Stock | (1,150,000 | ) | (115,000 | ) | 3,977,683 | 40 | 116,946 | 1,986 | ||||||||||||||||||||||||||||||||
Battle Mountain acquisition | 1,144,025 | 11 | 35,832 | 35,843 | ||||||||||||||||||||||||||||||||||||
Equity offering costs (April 2007) | (29 | ) | (29 | ) | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 101,750 | 1 | 724 | 725 | ||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | 19,625 | — | 0 | |||||||||||||||||||||||||||||||||||||
IAMGOLD Corporation and Repadre International Corporation | 216,642 | 2 | 6,343 | 6,345 | ||||||||||||||||||||||||||||||||||||
Retire treasury stock | (426,210 | ) | (4 | ) | (6,609 | ) | (426,210 | ) | 6,613 | — | ||||||||||||||||||||||||||||||
Repurchase of common stock | 196,986 | (5,516 | ) | (5,516 | ) | |||||||||||||||||||||||||||||||||||
Tax benefit of stock-based compensation exercises | 722 | 722 | ||||||||||||||||||||||||||||||||||||||
Recognition of non-cash compensation expense for stock-based compensation | 2,869 | 2,869 | ||||||||||||||||||||||||||||||||||||||
Net income and comprehensive income for the year income for the year ended June 30, 2008 | (393 | ) | 24,043 | 23,650 | ||||||||||||||||||||||||||||||||||||
Preferred stock deemed dividend upon conversion of 7.25% Mandatory Convertible | (1,986 | ) | (1,986 | ) | ||||||||||||||||||||||||||||||||||||
Preferred stock dividends declared | (2,803 | ) | (2,803 | ) | ||||||||||||||||||||||||||||||||||||
Common stock dividends declared | (8,768 | ) | (8,768 | ) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2008 | — | — | 33,926,495 | $ | 339 | $ | 463,335 | $ | 65 | $ | 19,478 | — | $ | — | $ | 483,217 | ||||||||||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||||||||||||||||||
Equity offering | 6,500,000 | 65 | 234,867 | 234,932 | ||||||||||||||||||||||||||||||||||||
Exercise of stock options | 50,190 | 1 | 772 | 773 | ||||||||||||||||||||||||||||||||||||
Other | 3,626 | 178 | 178 | |||||||||||||||||||||||||||||||||||||
Tax benefit of stock-based compensation exercises | 334 | 334 | ||||||||||||||||||||||||||||||||||||||
Recognition of non-cash compensation expense for stock- based compensation | 2,921 | 2,921 | ||||||||||||||||||||||||||||||||||||||
Net income and comprehensive income (loss) for the year ended June 30, 2009 | (145 | ) | 38,348 | 38,203 | ||||||||||||||||||||||||||||||||||||
Dividends declared | (11,117 | ) | (11,117 | ) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2009 | — | — | 40,480,311 | $ | 405 | $ | 702,407 | $ | (80 | ) | $ | 46,709 | — | $ | — | $ | 749,441 | |||||||||||||||||||||||
| Royal Gold Stockholders | | | ||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Exchangeable Shares | | | | | | | | |||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | | |||||||||||||||||||||||||||||||||
| Additional Paid-In Capital | Accumulated Earnings | Non-controlling interests | Total Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
Balance at June 30, 2007 | — | $ | — | 28,892,980 | $ | 289 | — | $ | — | $ | 310,439 | $ | 458 | $ | 8,992 | 229,224 | $ | (1,097 | ) | $ | 11,121 | $ | 330,202 | ||||||||||||||||||
Issuance of preferred stock for: | |||||||||||||||||||||||||||||||||||||||||
7.25% Mandatory Convertible | 1,150,000 | $ | 115,000 | — | — | (3,902 | ) | — | — | — | — | — | 111,098 | ||||||||||||||||||||||||||||
Issuance of common stock for: | |||||||||||||||||||||||||||||||||||||||||
Conversion of 7.25% Mandatory Convertible Preferred Stock | (1,150,000 | ) | (115,000 | ) | 3,977,683 | 40 | 116,946 | — | — | — | — | — | 1,986 | ||||||||||||||||||||||||||||
Battle Mountain acquisition | — | — | 1,144,025 | 11 | 35,832 | — | — | — | — | — | 35,843 | ||||||||||||||||||||||||||||||
Equity offering costs | — | — | — | — | (29 | ) | — | — | — | — | — | (29 | ) | ||||||||||||||||||||||||||||
Stock-based compensation and related share issuances | — | — | 121,375 | 1 | 4,315 | — | — | — | — | — | 4,316 | ||||||||||||||||||||||||||||||
IAMGOLD Corporation and Repadre International Corporation | — | — | 216,642 | 2 | 6,343 | — | — | — | — | — | 6,345 | ||||||||||||||||||||||||||||||
Retire treasury stock | — | — | (426,210 | ) | (4 | ) | (6,609 | ) | — | — | (426,210 | ) | 6,613 | — | — | ||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | 196,986 | (5,516 | ) | — | (5,516 | ) | ||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 24,043 | — | — | 1,352 | 25,395 | ||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | (393 | ) | — | — | — | — | (393 | ) | ||||||||||||||||||||||||||||
Distribution to non-controlling interests | — | — | — | — | — | — | — | — | — | (1,062 | ) | (1,062 | ) | ||||||||||||||||||||||||||||
Preferred stock deemed dividend upon conversion | — | — | — | — | — | — | (1,986 | ) | — | — | — | (1,986 | ) | ||||||||||||||||||||||||||||
Preferred stock dividends declared | — | — | — | — | — | — | (2,803 | ) | — | — | — | (2,803 | ) | ||||||||||||||||||||||||||||
Common stock dividends declared | — | — | — | — | — | — | (8,768 | ) | — | — | — | (8,768 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2008 | — | $ | — | 33,926,495 | $ | 339 | — | $ | — | $ | 463,335 | $ | 65 | $ | 19,478 | — | $ | — | $ | 11,411 | $ | 494,628 | |||||||||||||||||||
Issuance of common stock for: | |||||||||||||||||||||||||||||||||||||||||
Equity offering | — | — | 6,500,000 | 65 | 234,867 | — | — | — | — | — | 234,932 | ||||||||||||||||||||||||||||||
Other | — | — | 5,335 | — | 178 | — | — | — | — | — | 178 | ||||||||||||||||||||||||||||||
Stock-based compensation and related share issuances | — | — | 48,481 | 1 | 4,027 | — | — | — | — | — | 4,028 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 38,348 | — | — | 3,009 | 41,357 | ||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | (145 | ) | — | — | — | — | (145 | ) | ||||||||||||||||||||||||||||
Distribution to non-controlling interests | — | — | — | — | — | — | — | — | — | (3,450 | ) | (3,450 | ) | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | (11,117 | ) | — | — | — | (11,117 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2009 | — | $ | — | 40,480,311 | $ | 405 | — | $ | — | $ | 702,407 | $ | (80 | ) | $ | 46,709 | — | $ | — | $ | 10,970 | $ | 760,411 | ||||||||||||||||||
Issuance of common stock for: | — | ||||||||||||||||||||||||||||||||||||||||
Equity offering | — | — | 5,980,000 | 60 | 276,158 | — | — | — | — | — | 276,218 | ||||||||||||||||||||||||||||||
Acquisition of International Royalty Corporation | — | — | 5,234,086 | 52 | 1,806,649 | 79,511 | 230,236 | — | — | 22,245 | (917 | ) | 20,704 | 329,586 | |||||||||||||||||||||||||||
Andacollo Royalty acquisition | — | — | 1,204,136 | 12 | 53,416 | — | — | — | — | — | 53,428 | ||||||||||||||||||||||||||||||
Exchange of exchangeable shares | — | — | 176,540 | 2 | (176,540 | ) | (7,770 | ) | 7,768 | — | — | — | — | — | — | ||||||||||||||||||||||||||
Stock-based compensation and related share issuances | — | — | 249,098 | 3 | 14,102 | — | — | 74,430 | (3,557 | ) | — | 10,548 | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 21,492 | — | — | 7,930 | 29,422 | ||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | 46 | — | — | — | — | 46 | ||||||||||||||||||||||||||||||
Distribution to non-controlling interests | — | — | — | — | — | — | — | — | — | (9,772 | ) | (9,772 | ) | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | (16,339 | ) | — | — | — | (16,339 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2010 | — | $ | — | 53,324,171 | $ | 534 | 1,630,109 | $ | 71,741 | $ | 1,284,087 | $ | (34 | ) | $ | 51,862 | 96,675 | $ | (4,474 | ) | $ | 29,832 | $ | 1,433,548 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
68
Consolidated Statements of Cash Flows
For the Years Ended June 30,
(In thousands)
2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 38,348 | $ | 24,043 | $ | 19,720 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation, depletion and amortization | 32,578 | 18,364 | 8,269 | |||||||||
Deferred tax expense (benefit) | (2,170 | ) | 115 | (761 | ) | |||||||
Non-cash employee stock compensation expense | 2,921 | 2,869 | 2,663 | |||||||||
Royalty portfolio restructuring gain | (33,714 | ) | — | — | ||||||||
Loss on available for sale securities | — | 49 | — | |||||||||
Note receivable — Battle Mountain Gold Exploration | — | (713 | ) | — | ||||||||
Tax benefit of stock-based compensation exercises | (334 | ) | (722 | ) | (346 | ) | ||||||
Changes in assets and liabilities: | ||||||||||||
Royalty receivables | (4,280 | ) | (3,120 | ) | (6,508 | ) | ||||||
Prepaid expenses and other assets | (389 | ) | (232 | ) | 414 | |||||||
Accounts payable | (1,842 | ) | 2,211 | 1,020 | ||||||||
Income taxes (receivable) payable | (147 | ) | (1,846 | ) | 16 | |||||||
Other | (924 | ) | (1,891 | ) | (140 | ) | ||||||
Net cash provided by operating activities | $ | 30,047 | $ | 39,127 | $ | 24,347 | ||||||
Cash flows from investing activities | ||||||||||||
Acquisition of royalty interests in mineral properties | $ | (186,110 | ) | $ | (16,246 | ) | $ | (120,808 | ) | |||
Proceeds from royalty portfolio restructuring | 34,897 | — | — | |||||||||
Note receivable — Battle Mountain Gold Exploration | — | — | (14,494 | ) | ||||||||
Restricted cash — compensating balance | (3,500 | ) | — | (15,750 | ) | |||||||
Deferred acquisition costs | (1,021 | ) | (157 | ) | (973 | ) | ||||||
Battle Mountain acquisition, net of cash acquired of $1,398 | — | (2,933 | ) | — | ||||||||
Proceeds on sale of Inventory — restricted | 1,924 | — | — | |||||||||
Other | (284 | ) | (42 | ) | (366 | ) | ||||||
Net cash used in investing activities | $ | (154,094 | ) | $ | (19,378 | ) | $ | (152,391 | ) | |||
Cash flows from financing activities | ||||||||||||
Common stock dividends | $ | (10,242 | ) | $ | (8,253 | ) | $ | (5,721 | ) | |||
Preferred stock dividends | — | (2,802 | ) | — | ||||||||
Debt issuance costs | (797 | ) | (27 | ) | (464 | ) | ||||||
Borrowings under term loan facility | 3,500 | — | 15,750 | |||||||||
Tax benefit from stock-based compensation exercises | 334 | 722 | 346 | |||||||||
Gold loan payoff — Battle Mountain | — | (6,476 | ) | — | ||||||||
Net proceeds from issuance of common stock | 235,707 | 698 | 122,526 | |||||||||
Net proceeds from issuance of preferred stock | — | 111,098 | — | |||||||||
Distribution to minority interest holder | (1,924 | ) | ||||||||||
Stock repurchase program | — | (5,516 | ) | — | ||||||||
Net cash provided by financing activities | $ | 226,578 | $ | 89,444 | $ | 132,437 | ||||||
Net increase in cash and equivalents | 102,531 | 109,193 | 4,393 | |||||||||
Cash and equivalents at beginning of year | 192,035 | 82,842 | 78,449 | |||||||||
Cash and equivalents at end of year | $ | 294,566 | $ | 192,035 | $ | 82,842 | ||||||
| 2010 | 2009 | 2008 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||||
Net income | $ | 29,422 | $ | 41,357 | $ | 25,395 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation, depletion and amortization | 53,793 | 32,578 | 18,364 | ||||||||
Gain on distribution to non-controlling interest | (5,891 | ) | (1,924 | ) | (543 | ) | |||||
Deferred tax expense (benefit) | (7,536 | ) | (2,170 | ) | 115 | ||||||
Non-cash employee stock compensation expense | 7,279 | 2,921 | 2,869 | ||||||||
Gain on royalty restructuring | — | (33,714 | ) | — | |||||||
Tax benefit of stock-based compensation exercises | (1,638 | ) | (334 | ) | (722 | ) | |||||
Other | 371 | — | (665 | ) | |||||||
Changes in assets and liabilities: | |||||||||||
Royalty receivables | (19,055 | ) | (4,280 | ) | (3,120 | ) | |||||
Prepaid expenses and other assets | 4,035 | (477 | ) | 36 | |||||||
Accounts payable | (10,742 | ) | (1,834 | ) | 2,244 | ||||||
Income taxes (receivable) payable | (2,697 | ) | (147 | ) | (1,846 | ) | |||||
Other | 1,030 | (1,929 | ) | (3,000 | ) | ||||||
Net cash provided by operating activities | $ | 48,371 | $ | 30,047 | $ | 39,127 | |||||
Cash flows from investing activities: | |||||||||||
Acquisition of royalty interests in mineral properties | (232,996 | ) | (186,110 | ) | (19,179 | ) | |||||
Acquisition of International Royalty Corporation, net of cash acquired | (270,233 | ) | — | — | |||||||
Proceeds from royalty restructuring | — | 34,897 | — | ||||||||
Change in restricted cash—compensating balance | 19,250 | (3,500 | ) | — | |||||||
Proceeds on sale of Inventory—restricted | 3,647 | 3,477 | 1,077 | ||||||||
Deferred acquisition costs | (120 | ) | (1,021 | ) | (157 | ) | |||||
Other | (86 | ) | (284 | ) | (42 | ) | |||||
Net cash used in investing activities | $ | (480,538 | ) | $ | (152,541 | ) | $ | (18,301 | ) | ||
Cash flows from financing activities: | |||||||||||
Borrowings from credit facilities | 255,000 | — | — | ||||||||
Tax benefit of stock-based compensation exercises | 1,638 | 334 | 722 | ||||||||
(Prepayment of) borrowings under Chilean loan facility | (19,250 | ) | 3,500 | — | |||||||
Common stock dividends | (14,628 | ) | (10,242 | ) | (8,253 | ) | |||||
Preferred stock dividends | — | — | (2,802 | ) | |||||||
Repayment of debt | (36,013 | ) | — | — | |||||||
Proceeds from foreign exchange contract | 4,101 | — | — | ||||||||
Distribution to non-controlling interests | (3,647 | ) | (3,477 | ) | (1,077 | ) | |||||
Net proceeds from issuance of common stock | 276,839 | 235,707 | 698 | ||||||||
Net proceeds from issuance of preferred stock | — | — | 111,098 | ||||||||
Stock repurchase program | — | — | (5,516 | ) | |||||||
Gold loan payoff—Battle Mountain | — | — | (6,476 | ) | |||||||
Debt issuance costs | (1,593 | ) | (797 | ) | (27 | ) | |||||
Net cash provided by financing activities | $ | 462,447 | $ | 225,025 | $ | 88,367 | |||||
Net increase in cash and equivalents | 30,280 | 102,531 | 109,193 | ||||||||
Cash and equivalents at beginning of period | 294,566 | 192,035 | 82,842 | ||||||||
Cash and equivalents at end of period | $ | 324,846 | $ | 294,566 | $ | 192,035 | |||||
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial statements.
69
1. THE COMPANY
Royal Gold, Inc. (“("Royal Gold”Gold", the “Company”"Company", “we”"we", “us”,"us" or “our”"our"), together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties.royalties and similar interests. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs, if any.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS, AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Summary of Significant Accounting Policies
Use of Estimates:
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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 significantly from those estimates.
Basis of Consolidation:
The consolidated financial statements include the accounts of Royal Gold, Inc., its wholly-owned subsidiaries and an entity over which control is achieved through means other than voting rights (see Note 15).rights. The Company follows Financialthe Accounting Standards Board (“FASB”Codification ("ASC") Interpretation No. 46(R),Consolidation of Variable Interest Entities, which provides guidance on thefor identification and reporting for entities over which control is achieved through means other than voting rights. The guidance defines such entities as Variable Interest Entities ("VIEs"). As discussed further in Note 16, the Company identified Crescent Valley Partners, L.P. ("CVP") as a VIE due to the legal structure and certain related factors. Also refer to Note 3 for further discussion of a VIE identified as part of the acquisition of International Royalty Corporation ("IRC"). The identified VIEs are not material to the Company's overall operations or consolidated balance sheets either individually or in the aggregate. Intercompany transactions and account balances have been eliminated in consolidation.
Cash and Equivalents:
Cash and equivalents consist of all cash balances and highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At June 30, 2009, cashless. Cash and equivalents wereare primarily held in cash deposit accounts or money market accounts which are invested in United States treasury bills or United States treasury backed securities. As of June 30, 2009, approximately $284.8 million of our total cash and equivalents was held in money market funds through accounts at one financial institution.
Royalty Interests in Mineral Properties:
Royalty interests in mineral properties include acquired royalty interests in production, stage, development stage and exploration stage properties. The fair valuecost of acquired royalty interests in mineral properties are capitalized as tangible assets as such interests do not meet the definition of a financial asset under the FASB Statement of Financial Account Standards (“SFAS”) No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125, or a derivative instrument under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities. Also, in accordance with FASB Emerging Issues Task Force (“EITF”) Issue No., or EITF, 04- 02, Working Group Report No.1,Whether Mineral Rights are Tangible or Intangible Assets and Related Issues.
70
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
properties, thatwhich are not yet in production, are not amortized until the property begins production. Acquisition costs of royalty interests on exploration stage mineral properties, where there are no proven and probable reserves, are not amortized. At such time as the associated exploration stage mineral interests are converted to proven and probable reserves, the cost basis is amortized over the remaining life of the mineral property, using proven and probable reserves. Exploration costs are charged to operations when incurred.
Asset Impairment:
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts of an asset or group of assets may not be recoverable. The recoverability of the carrying value of royalty interests in production and development stage mineral properties is evaluated based upon estimated future undiscounted net cash flows from each royalty interest property using estimates of proven and probable reserves and other relevant information received from the operator. We evaluate the recoverability of the carrying value of royalty interests in exploration stage mineral properties in the event of significant decreases in the price of gold and other metals, and whenever new information regarding the mineral properties is obtained from the operator indicating that production will not likely occur in the future, thus affecting the future recoverability of our royalty interests. Impairments in the carrying value of each property are measured and recorded to the extent that the carrying value in each property exceeds its estimated fair value, which is generally calculated using estimated future discounted cash flows.
Our estimates of gold, silver, copper and other metal prices, operator’soperator's estimates of proven and probable reserves related to our royalty properties, and operator’soperator's estimates of operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of our investment in these royalty interests in mineral properties. Although we have made our best assessment of these factors based on current conditions, it is possible that changes could occur, which could adversely affect the net cash flows expected to be generated from these royalty interests.
Royalty Revenue:
Royalty revenue is recognized in accordance with the guidance of ASC 605 and based upon amounts contractually due pursuant to guidance in Staff Accounting Bulletin (“SAB”) No. 104,Revenue Recognition for Financial Statements. Revenuethe underlying royalty agreement. Specifically, revenue is recognized in accordance with the terms of the underlying royalty agreements subject to (i) the persuasivepervasive evidence of the existence of the arrangements; (ii) the risks and rewards having been transferred; (iii) the royalty being fixed or determinable; and (iv) the collectability of the royalty being reasonably assured. For royalty payments received in gold, royalty revenue is recorded at the average spot price of gold for the period in which the royalty was earned.
Revenue recognized pursuant to the Robinson royalty agreement is based upon 3.0% of revenue received by the operator of the mine, QuadraQuadraFNX Mining, Ltd. (“Quadra”("Quadra"), for the sale of minerals from the Robinson mine, reduced by certain costs incurred by Quadra. Quadra’sQuadra's concentrate sales contracts with third-party smelters, in general, provide for an initial sales price payment based upon provisional assays and quoted metal prices at the date of shipment. Final true uptrue-up sales price payments to Quadra are subsequently based upon final assaysassay and market metal prices set on a specified future date, typically one to three months after the date the concentrate arrives at the third-party smelter (which generally occurs four to five months after the shipment date from the Robinson mine).
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each monthly payment from Quadra is typically a combination of revenue received by Quadra for provisional payments during the month and copper overany upward or downward adjustments for final assays and commodity prices for earlier shipments. Whether the respective settlement period,payment to Royal Gold is based on Quadra's revenue in the form of provisional or final payments, Royal Gold records royalty revenue recognizedand the corresponding receivable based on the Robinsonmonthly amounts it receives from Quadra, as determined pursuant to the royalty could be positivelyagreement. The royalty contract does not provide Royal Gold with rights or negatively impactedobligations to settle any final assay and commodity price adjustments with Quadra. Therefore, once a given monthly payment is received by any changes in metal prices betweenRoyal Gold it is not subject to later adjustment based on adjustments for assays or commodity prices. Under the provisional androyalty agreement, Quadra may include such final settlement periods.
Income Taxes:
The Company accounts for income taxes under SFAS No. 109,Accounting for Income Taxes,and FASB Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes—An interpretationaccordance with the guidance of FASB Statement No. 109. FIN 48 clarifies the accounting and reporting for uncertainties in the application of the income tax laws to the Company’s operations.ASC 740. The Company adopted FIN 48 on July 1, 2007. Please refer to Note 10 for a discussion regarding the effect of adopting FIN 48.
The Company's operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. If the Company's estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to income tax expense would result. If the estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Stock-Based Compensation:
We account for our stock-based compensation in accordance with SFAS No. 123 (revised 2004),Share-Based Payment, (“SFAS 123(R)”). SFAS 123(R) requiresthe guidance of ASC 718. The Company recognizes all share-based payments to employees, including grants of employee stock options, stock appreciation rights ("SARs") and restricted stock, to be recognized in theits financial statements based onupon their fair values. See Note 67 for further discussion on the Company’sCompany's stock-based compensation.
Operating Segments and Geographical Information:
We manage our business under one operating segment, consisting of royalty acquisition and management activities. All of our assets and revenues are attributable to the royalty operating segment.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
properties, net) are geographically distributed as shown in the following table. Please refer to Note 35 for a further breakdown of our royalty interests on producing mineral properties.
Royalty Interests in | Royalty Revenue | Royalty Interests in Mineral Property, net | |||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Royalty Revenue | Mineral Properties, net | Fiscal Year Ended June 30, | Fiscal Year Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||
United States | 56 | % | 79 | % | 97 | % | 13 | % | 18 | % | 25 | % | 40 | % | 56 | % | 79 | % | 5 | % | 13 | % | 18 | % | |||||||||||||||||||
Africa(1) | 29 | % | 21 | % | 11 | % | 2 | % | 8 | % | 12 | % | |||||||||||||||||||||||||||||||
Mexico | 15 | % | 4 | % | 2 | % | 45 | % | 55 | % | 49 | % | 15 | % | 15 | % | 4 | % | 13 | % | 45 | % | 55 | % | |||||||||||||||||||
Australia | 5 | % | 2 | % | — | 6 | % | 6 | % | — | |||||||||||||||||||||||||||||||||
Canada | 2 | % | 1 | % | — | 19 | % | 1 | % | — | 4 | % | 2 | % | 1 | % | 27 | % | 19 | % | 1 | % | |||||||||||||||||||||
Africa(1) | 21 | % | 11 | % | — | 8 | % | 12 | % | 16 | % | ||||||||||||||||||||||||||||||||
Chile | 1 | % | — | — | 6 | % | 7 | % | 10 | % | 4 | % | 1 | % | — | 42 | % | 6 | % | 7 | % | ||||||||||||||||||||||
Other(2) | 5 | % | 5 | % | 1 | % | 9 | % | 7 | % | — | ||||||||||||||||||||||||||||||||
Other | 3 | % | 3 | % | 5 | % | 5 | % | 3 | % | 7 | % |
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In addition to net income, comprehensive income includes changes in equity during a period associated with cumulative unrealized changes in the fair value of marketable securities held for sale, net of tax effects.
Earnings Perper Share:
Basic earnings per share is computed by dividing the net income or lossavailable to common stockholders by the basic weighted average number of outstanding common shares for the period, including the outstanding during each fiscal year.exchangeable shares (see Note 10). Diluted earnings per share reflectsreflect the effectpotential dilution that could occur if securities or other contracts that may require issuance of all potentially dilutive stock-based compensation awards andcommon shares were converted. Diluted earnings per share is computed by dividing net income or lossavailable to common stockholders by the diluted weighted average number of common shares outstanding, including outstanding exchangeable shares, during each fiscal year.
Recently Adopted Accounting Pronouncements
The Accounting Standards Codification
In MayJune 2009, the FASB issued Statement No. 165,Subsequent Events, (“SFAS 165”Financial Accounting Standards Board ("FASB"). SFAS 165 is intended to establish general standards established the ASC as the single source of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets for the period after the balance sheet during which management of a reporting entity should evaluate events or transactions that my occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for fiscal years and interim periods after June 15, 2009. We adopted SFAS 165 effective June15, 2009, and have evaluated all events or transactions that occurred after June 30, 2009, through August 21, 2009, the date the Company issued these financial statements.
73
Fair Value at June 30, 2009 (In thousands) | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Money market investments(1) | $ | 283,545 | $ | 283,545 | $ | — | $ | — | ||||||||
Restricted cash | 19,250 | 19,250 | — | — | ||||||||||||
Marketable equity securities(2) | 117 | 117 | — | — | ||||||||||||
$ | 302,912 | $ | 302,912 | $ | — | $ | — | |||||||||
74
75
Business Combinations
On July 1, 2009, the FASB issued Statement No. 141 (revised 2007),“Business Combinations”(“SFAS 141R”), which significantlyCompany adopted a new accounting standard included in ASC 805. The new accounting standard changes the waysway companies account for business combinations and will generally
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
require more assets acquired and liabilities assumed to be measured at their acquisition date fair value. Under SFAS 141R,The new accounting standard also requires legal fees and other transaction-related costs areto be expensed as incurred and are no longer included in goodwill as a costincurred. The adoption of acquiring the business. SFAS 141R also requires, among other things, acquirers to estimate the acquisition date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings. In addition, restructuring costs the acquirer expected, but was not obligated to incur, will be recognized separately from the business acquisition. SFAS 141R is effective for the Company’s fiscal year beginning July 1, 2009, andnew accounting standard is to be applied prospectively for any business combinationcombinations which would close after the effective date of SFAS 141R.
Non-controlling Interests in Consolidated Financial Statements
On July 1, 2009, the Company adopted a new accounting standard included in December 2007,ASC 810. The adoption of the FASB issued Statement No. 160,“Non-controlling Interests in Consolidated Financial Statements, an amendmentnew accounting standard changed the presentation of ARB No. 51”(“SFAS 160”). SFAS 160 requires all entities to reportits non-controlling interests in subsidiaries as a separate component(minority) interests. Except for presentation changes, the adoption of equity in the new accounting standard had no impact on the Company's consolidated financial statements. SFAS 160 establishesposition, results of operations or cash flows.
Fair Value Measurements
On July 1, 2009, the Company adopted a single method ofnew accounting standard in ASC 820, which delayed the effective date for changes in a parent’s ownership interest in a subsidiarydisclosing all non-financial assets and non-financial liabilities, except for items that do not result in deconsolidation. Companies will no longer recognize a gainare recognized or loss on partial disposals of a subsidiary where control is retained. In addition, in partial acquisitions, where control is obtained, the acquiring company will recognize and measuredisclosed at fair value 100 percenton a recurring basis (at least annually). This standard did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Refer to Note 13 for a discussion regarding the assetsCompany's fair value measurements as of June 30, 2010.
Recently Issued Accounting Standards
Variable Interest Entities
In June 2009, new accounting guidance was issued that is included in ASC 810. This guidance amends the consolidation guidance applicable to VIEs and liabilities, including goodwill, as if the entire target company had been acquired. SFAS 160 is effective for the Company’sour fiscal year beginning July 1, 2009,2010. We are evaluating the potential impact, if any, this new accounting guidance will have on our consolidated financial statements.
Fair Value Measurements
In January 2010, ASC 820 was updated to require additional disclosures related to: (1) transfers in and out of Level 1 and 2 fair value measurements, and (2) enhanced detail in the Level 3 reconciliation. The new guidance was amended to provide clarity about the level of disaggregation required for assets and liabilities and the disclosures required for inputs and valuation techniques used to measure fair value for both recurring and non-recurring measurements that fall in either Level 2 or Level 3. The updated guidance is to be applied prospectively.effective for the Company's fiscal year beginning July 1, 2010, with the exception of the Level 3 disaggregation, which is effective for the Company's fiscal year beginning July 1, 2011. We are evaluating the potential impact, if any, this new accounting guidance will have on our consolidated financial statements.
3. ACQUISITION OF INTERNATIONAL ROYALTY CORPORATION
On February 22, 2010, Royal Gold, through RG Exchangeco Inc. (formerly known as 7296355 Canada Ltd.), a wholly-owned Canadian subsidiary of Royal Gold ("RG Exchangeco"), acquired all of the issued and outstanding common shares of IRC, a company incorporated in Canada (the "IRC Transaction"). IRC's royalty portfolio as of February 22, 2010, included 11 producing royalties, 10 development stage royalties, 24 evaluation stage royalties and 35 exploration stage royalties. The IRC Transaction further complemented and expanded our royalty portfolio.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The purchase price for the IRC Transaction consisted of approximately $350.0 million in cash, 5,234,086 shares of Royal Gold common stock (valued at $230.4 million on February 22, 2010) and 1,806,649 exchangeable shares of RG Exchangeco (valued at $79.5 million on February 22, 2010), which shares are convertible at any time on a one-for-one basis for Royal Gold common stock. As discussed in Note 6, the Company funded $225 million of the cash consideration portion of the purchase price from its existing debt facilities. For the twelve months ended June 30, 2010, the Company incurred approximately $8.6 million of transaction costs for financial advisory, legal, accounting, tax and consulting services as part of the IRC Transaction. The Company does not expectalso incurred approximately $10.8 million in severance related payments as part of the adoptiontermination of SFAS 162IRC's officers and certain employees upon acquisition of IRC. The transaction and severance payment costs are included inSeverance and acquisition-related costs on our consolidated statements of operations and comprehensive income and were recognized separately from the purchase price for the IRC Transaction.
The Company followed the acquisition method of accounting in accordance with the new accounting standard related to havebusiness combinations, which the Company adopted on July 1, 2009 (see Note 2). The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed from IRC on February 22, 2010, based on the current best estimates and information received by management. The Company is in the process of finalizing its assessment of the fair value of the assets acquired and liabilities assumed. Royalty interests in mineral properties, deferred income taxes, and certain other tax matters were based on preliminary valuation data and estimates. Accordingly, the fair values of these assets and liabilities are subject to change. During the fourth quarter of fiscal 2010, the Company made certain changes to the purchase price allocation. These changes, when compared to our purchase price allocation as of March 31, 2010, were immaterial.
| (in thousands) | |||
---|---|---|---|---|
Purchase price | $ | 659,871 | ||
Current assets | $ | 83,720 | ||
Royalty interests in mineral properties | 774,291 | |||
Other assets | 14,304 | |||
Current liabilities | (10,839 | ) | ||
Senior secured debentures | (28,769 | ) | ||
Net deferred tax liabilities | (140,891 | ) | ||
Uncertain tax positions | (8,362 | ) | ||
Other liabilities | (2,878 | ) | ||
Non-controlling interest | (20,705 | ) | ||
Total allocated purchase price | $ | 659,871 | ||
The non-controlling interest arising from the IRC Transaction is the result of IRC's indirect ownership of a financial impact90% interest in the Labrador Nickel Royalty Limited Partnership ("LNRLP"), which owns 100% of the Voisey's Bay Net Smelter Return ("NSR") royalty. The owner of the remaining 10% interest in LNRLP is Altius Resources Inc. ("Altius"), a company unrelated to Royal Gold and IRC. Due to the legal structure of LNRLP and certain related factors, the Company determined that LNRLP should be fully consolidated. The fair value of the non-controlling interest was determined based on its proportionate share to the underlying assets and liabilities of the partnership.
The Company's consolidated financial statements.statements include the results of the IRC Transaction from the date of acquisition. The following unaudited pro forma information is presented as if the IRC Transaction had been completed as of the beginning of the periods presented. The pro forma results
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are not necessarily indicative of what would have been achieved had the IRC Transaction been in effect for the periods presented.
| Fiscal Years Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||
| (in thousands) | ||||||
Royalty revenues | $ | 152,716 | $ | 113,259 | |||
Net income (loss) available to Royal Gold common stockholders | $ | (434 | ) | $ | 29,248 |
For the period February 22, 2010, through June 30, 2010, approximately $9.0 million of royalty revenue was recorded on the Company's consolidated statements of operations and comprehensive income related to royalties acquired in the IRC Transaction. Net income attributable to Royal Gold common stockholders included approximately $19.4 million in transaction costs and severance related payments related to the IRC Transaction.
4. ROYALTY ACQUISITIONS
Andacollo Production Interest
On April 3, 2009,January 25, 2010, the Company entered into a definitive agreement (“Master Agreement”) with a Chilean subsidiary of Teck Resources Limited (“Teck”), Compañía Minera Teck Carmen de Andacollo (“CDA”), to acquireacquired an interest in the gold produced from the sulfide portion of the Andacollo project in Chile (the “Andacollo Production Interest”from a Chilean subsidiary of Teck Resources Limited ("Teck"). We refer to this transaction throughout this report as the “Teck Transaction.”, Compañía Minera Teck Carmen de Andacollo. The purchase price for the Andacollo Production Interest consistsRoyalty consisted of $217.9 million in cash and 1,204,136 of the Company’sCompany's common shares.
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The Andacollo mine until 910,000 payable ouncesRoyalty acquisition has been accounted for as an asset acquisition. As such, the total purchase price of gold have been sold and 50%$273.0 million, which consisted of $217.9 million in cash, 1,204,136 shares of the gold producedCompany's common stock (valued at $53.4 million on January 25, 2010) and approximately $1.7 million of transaction costs, is recorded as a development stage royalty, which is a component ofRoyalty interests in excess of 910,000 payable ounces of gold. The mine, located about 34 miles southeast of the city of La Serena, Chile, produces copper from the oxide portion of the deposit and Teck is currently constructing facilities to produce both copper and gold from the sulfide portion of the deposit. The Andacollo Production Interest will not cover copper production.
Barrick Royalty Portfolio
Effective October 1, 2008, the Company completed an acquisition of royalties from Barrick Gold Corporation (“Barrick”("Barrick") for cash of approximately $181.3 million, including a restructuring of its GSR2, GSR3 and NVR1 royalties at Cortez, valued at $31.5 million, for net cash of approximately $150.0 million. The transactions were completed pursuant toAs part of the Royalty Purchase and Sale Agreement dated July 30,royalty restructuring, the Company recognized a gain of $31.5 million during the fiscal quarter ended December 31, 2008. The cash portion of the purchase price was paid from the Company’sCompany's cash on hand.
The acquisition of Barrick’sBarrick's royalty portfolio has been accounted for as a purchase of assets using the purchase method of accounting.an asset acquisition. The total purchase price of $181.3 million, plus direct transaction costs of approximately $3.2$3.1 million, has been allocated to the acquired royalty interests according to their relative fair values and is recorded as separate components ofRoyalty Interestsinterests in Mineral Propertiesmineral properties, neton our consolidated balance sheets.
The amounts allocated tooperating impacts of the acquired royalty interests in mineral properties acquired from Barrick are preliminary and are subject to change upon completionhave been reflected in the financial results of final valuations based upon receiptRoyal Gold from October 1, 2008.
Table of updated reserve information expected to be received from certain operators.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marigold and El Chanate
On February 20, 2008, we acquired three royalties from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold’("AngloGold'), a wholly-owned subsidiary of AngloGold Ashanti North America Inc., for $13.75$13.8 million. The first royalty is a 2.0% net smelter return (“NSR”("NSR") royalty on the Marigold mine, located on the Battle Mountain-Eureka trend in Nevada, and operated by Goldcorp, Inc. (“Goldcorp”("Goldcorp"). The second royalty is a 2.0-4.0%2.0% to 4.0% sliding-scale NSR royalty on the El Chanate mine, located in Sonora, Mexico, and operated by Capital Gold, Inc. (“("Capital Gold”Gold"). The sliding-scale NSR royalty is capped once payments of approximately $17.0 million have been received. The third royalty is a 10.0% net profits interest (“NPI”("NPI") royalty, also on the El Chanate mine. The 10.0% NPI royalty at El Chanate is capped at $1.0 million.
As of June 30, 2009,2010, approximately $14.7$12.4 million remains under the $17.0 million sliding-scale NSR royalty cap. In March 2009, the Company received $1.0 million from Capital Gold as payment for the NPI royalty, and, as such, the cap has been reached and the royalty is no longer effective.
The AngloGold transaction has been accounted for as a purchase of assets. The total purchase price of $13.75$13.8 million, less royalty amounts received for production prior to the purchase date of $0.15$0.2 million, plus direct transaction costs, has been allocated to the three acquired royalties according to their relative fair values, as separate components ofRoyalty Interests in Mineral Propertieson our consolidated balance sheets. Accordingly, $7.5 million has beenwas allocated to the sliding-scale NSR royalty at El Chanate, $0.8 million has beenwas allocated to the NPI royalty at El Chanate, and $5.3 million has beenwas allocated to the Marigold royalty.
Battle Mountain Gold Exploration Corp.
On July 30, 2007, we entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”"Merger Agreement") with Battle Mountain Gold Exploration Corp. (“("Battle Mountain”Mountain") and Royal Battle Mountain, Inc. (“("Merger Sub”Sub"), a newly-formed and wholly-owned subsidiary of Royal Gold, pursuant to which the Merger Sub was merged into Battle Mountain with Battle Mountain surviving as a wholly-owned subsidiary of Royal Gold.
On October 24, 2007, we completed the merger pursuant to the Merger Agreement and acquired 100% of the issued and outstanding capital stock of Battle Mountain in a transaction whereby the Merger Sub was merged with and into Battle Mountain for aggregate consideration consisting of 1.14 million shares of our common stock and approximately $3.4 million in cash. As part of the acquisition of Battle Mountain, we acquired thirteen royalty interests in various stages of production, development or exploration.
Immediately prior to the merger, Royal Gold owned approximately 18% of Battle Mountain’sMountain's outstanding common stock and accounted for this ownership under the equity method, which resulted in the Company recognizing a loss from equity investment of approximately $0.5 million for the fiscal year ended June 30, 2008.
78
During the fiscal year 2009, we finalized our purchase accounting for the Battle Mountain acquisition. As such, we have allocated the purchase price of approximately $65.8 million to the fair market values of the
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assets acquired and liabilities assumed, including $85.3 million to royalty interests in mineral properties, $2.2 million to current assets, $5.8 million to intangible assets (included withinOther assetson theour consolidated balance sheets)sheets), $3.9 million to deferred tax assets, $6.5 million to a gold loan payable, $24.4 million to deferred tax liabilities resulting from the acquisition and $0.5 million of other liabilities. The operating impact of the assets acquired from Battle Mountain have been reflected in the results of Royal Gold from October 24, 2007.
The intangible asset included as part of the purchase price is associated with non-compete agreements with the two former employees of Battle Mountain. For fiscal years 20092010 and 2008,2009, the total amortization expense associated with the intangible asset was approximately $1.9 million and $1.3 million, respectively.million. The remaining carrying value associated with the intangible asset is approximately $2.5$0.6 million as of June 30, 2009,2010, which will be amortized over the first two quarters of our next one and a half fiscal years.
79
The following summarizes the Company’sCompany's principal royalty interests in mineral properties as of June 30, 20092010 and June 30, 2008.2009.
Accumulated | ||||||||||||
As of June 30, 2009 (Amounts in thousands): | Cost | Depletion | Net | |||||||||
Production stage royalty interests: | ||||||||||||
Cortez | $ | 10,630 | $ | (9,192 | ) | $ | 1,438 | |||||
Robinson | 17,825 | (6,238 | ) | 11,587 | ||||||||
Taparko | 33,570 | (10,709 | ) | 22,861 | ||||||||
Leeville | 18,322 | (8,246 | ) | 10,076 | ||||||||
Goldstrike | 20,788 | (10,247 | ) | 10,541 | ||||||||
Mulatos | 34,214 | (5,618 | ) | 28,596 | ||||||||
Peñasquito (oxide circuit) | 4,026 | (591 | ) | 3,435 | ||||||||
Dolores | 44,878 | (607 | ) | 44,271 | ||||||||
Siguiri | 10,946 | (3,659 | ) | 7,287 | ||||||||
Allan | 22,020 | (100 | ) | 21,920 | ||||||||
Other | 44,658 | (18,337 | ) | 26,321 | ||||||||
261,877 | (73,544 | ) | 188,333 | |||||||||
Development stage royalty interests: | ||||||||||||
Peñasquito (sulfide circuit) | 95,146 | — | 95,146 | |||||||||
Canadian Malartic | 34,031 | — | 34,031 | |||||||||
Pascua-Lama | 20,446 | — | 20,446 | |||||||||
Holt | 9,453 | — | 9,453 | |||||||||
Other | 18,290 | — | 18,290 | |||||||||
177,366 | — | 177,366 | ||||||||||
Exploration stage royalty interests | 90,267 | — | 90,267 | |||||||||
Total royalty interests in mineral properties | $ | 529,510 | $ | (73,544 | ) | $ | 455,966 | |||||
As of June 30, 2010 (Amounts in thousands): | Cost | Accumulated Depletion | Net | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Production stage royalty interests: | |||||||||||
Andacollo | $ | 272,998 | $ | (1,143 | ) | $ | 271,855 | ||||
Voisey's Bay | 150,138 | (2,052 | ) | 148,086 | |||||||
Peñasquito(1) | 99,172 | (2,162 | ) | 97,010 | |||||||
Las Cruces | 57,230 | (490 | ) | 56,740 | |||||||
Mulatos | 48,092 | (10,177 | ) | 37,915 | |||||||
Dolores | 44,878 | (2,278 | ) | 42,600 | |||||||
Taparko | 33,570 | (29,242 | ) | 4,328 | |||||||
Leeville | 18,322 | (10,764 | ) | 7,558 | |||||||
Robinson | 17,825 | (7,678 | ) | 10,147 | |||||||
Gwalia Deeps | 15,970 | (416 | ) | 15,554 | |||||||
Cortez | 10,630 | (9,499 | ) | 1,131 | |||||||
Other | 149,085 | (49,285 | ) | 99,800 | |||||||
917,910 | (125,186 | ) | 792,724 | ||||||||
Development stage royalty interests: | |||||||||||
Pascua-Lama | 315,610 | — | 315,610 | ||||||||
Canadian Malartic | 35,500 | — | 35,500 | ||||||||
Wolverine | 39,794 | — | 39,794 | ||||||||
Other | 50,733 | — | 50,733 | ||||||||
441,637 | — | 441,637 | |||||||||
Exploration stage royalty interests | 233,622 | — | 233,622 | ||||||||
Total royalty interests in mineral properties | $ | 1,593,169 | $ | (125,186 | ) | $ | 1,467,983 | ||||
Accumulated | ||||||||||||
As of June 30, 2008 (Amounts in thousands): | Cost | Depletion | Net | |||||||||
Production stage royalty interests: | ||||||||||||
Cortez | $ | 10,630 | $ | (8,901 | ) | $ | 1,729 | |||||
Robinson | 17,825 | (4,271 | ) | 13,554 | ||||||||
Taparko | 33,570 | (4,514 | ) | 29,056 | ||||||||
Leeville | 17,495 | (5,567 | ) | 11,928 | ||||||||
Goldstrike | 20,788 | (8,641 | ) | 12,147 | ||||||||
Mulatos | 7,442 | (1,439 | ) | 6,003 | ||||||||
Peñasquito (oxide circuit) | 4,026 | (22 | ) | 4,004 | ||||||||
Other | 29,314 | (10,137 | ) | 19,177 | ||||||||
141,090 | (43,492 | ) | 97,598 | |||||||||
Development stage royalty interests: | ||||||||||||
Peñasquito (sulfide circuit) | 95,146 | — | 95,146 | |||||||||
Dolores | 40,989 | — | 40,989 | |||||||||
Pascua-Lama | 20,446 | — | 20,446 | |||||||||
Other | 18,110 | — | 18,110 | |||||||||
174,691 | — | 174,691 | ||||||||||
Exploration stage royalty interests | 28,652 | (271 | ) | 28,381 | ||||||||
Total royalty interests in mineral properties | $ | 344,433 | $ | (43,763 | ) | $ | 300,670 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June 30, 2009 (Amounts in thousands): | Cost | Accumulated Depletion | Net | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Production stage royalty interests: | |||||||||||
Dolores | $ | 44,878 | $ | (607 | ) | $ | 44,271 | ||||
Mulatos | 34,214 | (5,618 | ) | 28,596 | |||||||
Taparko | 33,570 | (10,709 | ) | 22,861 | |||||||
Goldstrike | 20,788 | (10,247 | ) | 10,541 | |||||||
Leeville | 18,322 | (8,246 | ) | 10,076 | |||||||
Robinson | 17,825 | (6,238 | ) | 11,587 | |||||||
Siguiri | 10,946 | (3,659 | ) | 7,287 | |||||||
Cortez | 10,630 | (9,192 | ) | 1,438 | |||||||
Peñasquito (oxide circuit) | 4,026 | (591 | ) | 3,435 | |||||||
Other | 66,678 | (18,437 | ) | 48,241 | |||||||
261,877 | (73,544 | ) | 188,333 | ||||||||
Development stage royalty interests: | |||||||||||
Peñasquito (sulfide circuit) | 95,146 | — | 95,146 | ||||||||
Canadian Malartic | 34,031 | — | 34,031 | ||||||||
Pascua-Lama | 20,446 | — | 20,446 | ||||||||
Other | 27,743 | — | 27,743 | ||||||||
177,366 | — | 177,366 | |||||||||
Exploration stage royalty interests | 90,267 | — | 90,267 | ||||||||
Total royalty interests in mineral properties | $ | 529,510 | $ | (73,544 | ) | $ | 455,966 | ||||
6. DEBT
The Company's current and non-current long-term debt as of 72 properties in various stages of production, development, evaluation or exploration.
| As of June 30, 2010 (Amounts in thousands) | As of June 30, 2009 (Amounts in thousands) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current | Non-current | Current | Non-current | |||||||||
Credit facility | $ | — | $ | 125,000 | $ | — | $ | — | |||||
Term loan | 26,000 | 97,500 | — | — | |||||||||
Chilean loan facility | — | — | — | 19,250 | |||||||||
Total debt | $ | 26,000 | $ | 222,500 | $ | — | $ | 19,250 | |||||
Scheduled minimum debt repayments are $26.0 million in fiscal years 2011 and increased our royalty interest to2012, $71.5 million in fiscal year 2013 and $125.0 million in fiscal year 2014.
Credit Facility
The Company maintains a 1.0% to 5.0% sliding-scale NSR royalty. The royalty rate is 5.0% at a gold price of $400 per ounce or higher.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.70%. As of June 30, 2010, the Company had $125 million outstanding under the credit facility, which was due to the partial funding of the presentIRC Transaction as discussed in Note 3. The Company has financial covenants associated with its revolving credit facility, which are similar to the financial covenants of our Term Loan as discussed below. At June 30, 2010, the Company was in compliance with each financial covenant.
Term Loan
In connection with the IRC Transaction described in Note 3, on January 20, 2010, we entered into an agreement to obtain a new $100 million term loan from HSBC Bank (the "Term Loan") to partially fund the IRC Transaction. The Term Loan was funded on February 17, 2010 in conjunction with the closing of the IRC Transaction. HSBC Securities (USA) Inc. acted as sole lead arranger for the Term Loan. The Term Loan was scheduled to mature 18 months from the funding date with principal repayments equal to 10% of the funded amount scheduled to occur every three months, beginning three months after funding, and future personal property andwith interest to accrue at LIBOR plus 2.25%. The Term Loan is guaranteed by three wholly-owned subsidiaries of Royal Gold (the "Guarantors"). The obligations under the Term Loan were secured by certain Canadian assets of Royal Gold that have been replaced with certain Chilean assets of Royal Gold as of July 19, 2010.
On March 26, 2010, the Company High Desertamended the Term Loan with HSBC Bank and RG Mexico.the Bank of Nova Scotia joined the Term Loan as a lender. The Credit Agreementmodifications to the Term Loan included, among other things: (1) an increase in the principal balance available under the Term Loan from $100 million to $130 million; (2) an extension of the final maturity date from 18 to 36 months from the initial funding date of February 17, 2010; 3) increases in the applicable LIBOR margin (currently set at 2.25%) by 0.50% every six months, commencing 18 months after the initial funding date until maturity; and (4) a reduction in the amortization rate from 10% of the initial funded amount per quarter to 5% of the fully funded principal amount per quarter. The additional Term Loan proceeds were used to redeem the 5.5% senior secured debentures assumed by the Company as part of the IRC Transaction.
The Term Loan contains covenants limiting the ability of Royal Gold and its subsidiaries to, among other things, incur certain debt or liens, dispose of assets, enter into certain transactions with affiliates, make certain investments or consummate certain mergers, as well as a cross default provision to certain other permitted debt and royalty contracts. In addition, the Term Loan contains financial covenants requiring the Companyrelating to, maintainamong other things: (1) maintaining a leverage ratio (as defined in the Credit Agreement)defined) of 3.0 to 1.0 or less,less; (2) maintaining a minimum consolidated net worth (as defined in the Credit Agreement)defined) of not less than a base amount that increases according to cumulative positive quarterly net income available to Royal Gold common stockholders; (3) maintaining an interest coverage ratio (as defined in the Credit Agreement)defined) of at leastgreater than 3.0 to 1.0,1.0; and (4) maintaining a current ratio (as defined indefined) for the Credit Agreement)periods ending March 31, 2010 and June 30, 2010 of at least 1.0 to 1.0, and for all times thereafter, of at least 1.5 to 1.0 and a facility coverage ratio (as defined1.0. At June 30, 2010, the Company was in the Credit Agreement) of at least 1.25 to 1.0.
Chilean Loan Facility
Royal Gold Chile Limitada (“RGCL”("RGCL"), a wholly-owned subsidiary of Royal Gold, had a $15.75$19.25 million term loan outstanding as of June 30, 2008, bearing interest at LIBOR plus 0.25% pursuant to a Term Loan Agreement between RGCL and HSBC Bank. On August 27, 2008, RGCL entered into an Amended and Restated Term Loan Agreement (“(the "Amended and Restated Agreement") between RGCL and HSBC Bank. On September 23, 2009, RGCL prepaid the full $19.25 million outstanding, plus interest, under the Amended and Restated Agreement”) withAgreement. In addition to prepaying all outstanding amounts, RGCL
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
notified HSBC Bank of its intention to amendterminate the existing term loan facility. The Amended and Restated Agreement increased the maximum term loan principal amount from $15.75 million to $21.75 million, with such additional amounts available to be drawn at any time prior to October 1, 2008. Pursuant to the termsAgreement. Termination of the Amended and Restated Agreement Royal Gold must maintain a restricted interest-bearing securities account (the “Collateral Account”) on deposit at HSBC Securities with a balance equal to or in excess of the outstanding amounts on the term loan. Royal Gold entered into a Guarantee (the “Guarantee”) for the life of the term loan, for the benefit of HSBC Bank to guaranty RGCL’swas effective September 24, 2009.
To secure RGCL's obligations under the Amended and Restated Agreement, andthe Company maintained $19.25 million in a security agreement granting HSBC Bank a security interest in the Collateral Account to secure RGCL’s obligations underat HSBC Bank. The Collateral Account balance was recorded asRestricted cash—compensating balance on the Term Loan AgreementCompany's consolidated balance sheets. Upon the full prepayment and its obligations under the Guarantee. The term loan will mature on March 1, 2012.
7. STOCK-BASED COMPENSATION
In November 2004, the Company adopted the Omnibus Long-Term Incentive Plan (“("2004 Plan”Plan"). Under the 2004 Plan, 1,300,000 shares of Commoncommon stock are availablehave been authorized for future grants to officers, directors, key employees and other persons. The 2004 Plan provides for the grant of stock options, unrestricted stock, restricted stock, dividend equivalent rights, stock appreciation rights,SARs 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.
The Company recognized stock-based compensation expense related to our equity compensation plans of $2.9 million, $2.9 million and $2.7 million,as follows:
| For the Fiscal Years Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | |||||||
| (Amounts in thousands) | |||||||||
Stock options | $ | 733 | $ | 782 | $ | 1,252 | ||||
Stock appreciation rights | 520 | 200 | — | |||||||
Restricted stock | 2,155 | 1,810 | 1,086 | |||||||
Performance stock | 3,871 | 129 | 531 | |||||||
Total stock-based compensation expense | $ | 7,279 | $ | 2,921 | $ | 2,869 | ||||
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For The Fiscal Years Ended June 30, | For the Fiscal Years Ended June 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in thousands) | 2010 | 2009 | 2008 | |||||||||||||||||||
2009 | 2008 | 2007 | (Amounts in thousands) | |||||||||||||||||||
Stock-based compensation expense allocation: | ||||||||||||||||||||||
Cost of operations | $ | 420 | $ | 356 | $ | 401 | ||||||||||||||||
Costs of operations | $ | 1,614 | $ | 420 | $ | 356 | ||||||||||||||||
General and administrative | 1,598 | 1,509 | 1,510 | 3,793 | 1,598 | 1,509 | ||||||||||||||||
Exploration and business development | 903 | 1,004 | 752 | 1,872 | 903 | 1,004 | ||||||||||||||||
Total stock-based compensation expense | $ | 2,921 | $ | 2,869 | $ | 2,663 | $ | 7,279 | $ | 2,921 | $ | 2,869 | ||||||||||
As of June 30, 2009,2010, there are 263,150were 77,450 shares of common stock reserved for future issuance under our 2004 Plan.
Stock Options and Stock Appreciation Rights
Stock option and SARs awards are granted with an exercise price equal to the closing market price of the Company’sCompany's stock at the date of grant. Stock option and SARs awards granted to officers, key
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
employees and other persons vest based on one to three years of continuous service. Stock option and SARs awards have 10 year contractual terms.
To determine stock-based compensation expense for stock options and SARs, the fair value of each stock option and SAR is estimated on the date of grant using the Black-Scholes-Merton (“Black-Scholes”("Black-Scholes") option pricing model for all periods presented. The Black-Scholes model requires key assumptions in order to determine fair value. Those key assumptions during our fiscal year 2010, 2009 2008 and 20072008 grants are noted in the following table:
2009 | 2008 | 2007 | ||||||||||
Weighted average expected volatility | 44.5 | % | 47.8 | % | 52.9 | % | ||||||
Weighted average expected option term in years | 5.3 | 5.0 | 5.1 | |||||||||
Weighted average dividend yield | 0.92 | % | 0.91 | % | 0.93 | % | ||||||
Weighted average risk free interest rate | 2.5 | % | 3.9 | % | 4.6 | % |
| 2010 | 2009 | 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Weighted-average expected volatility | 47.5 | % | 44.5 | % | 47.8 | % | ||||
Weighted-average expected life in years | 5.6 | 5.3 | 5.0 | |||||||
Weighted-average dividend yield | 0.68 | % | 0.92 | % | 0.91 | % | ||||
Weighted-average risk free interest rate | 2.4 | % | 2.5 | % | 3.9 | % |
The Company’sCompany's expected volatility is based on the historical volatility of the Company’sCompany's stock over the expected option term. The Company’sCompany's expected option term is determined by historical exercise patterns along with other known employee or company information at the time of grant. The risk free interest rate
83
Stock Options
A summary of stock option activity under our equity compensation plansthe 2004 Plan for the fiscal year ended June 30, 2009,2010, is presented below (amounts in thousands except share data).
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Term | Intrinsic | ||||||||||||||
Stock Options | Shares | Price | (Years) | Value | ||||||||||||
Outstanding at July 1, 2008 | 586,713 | $ | 21.65 | |||||||||||||
Granted | 24,000 | 30.96 | ||||||||||||||
Exercised | (50,190 | ) | 15.38 | |||||||||||||
Forfeited and Expired | (1,833 | ) | 29.49 | |||||||||||||
Outstanding at June 30, 2009 | 558,690 | $ | 22.59 | 6.0 | $ | 10,673 | ||||||||||
Exercisable at June 30, 2009 | 484,857 | $ | 21.47 | 4.8 | $ | 9,803 | ||||||||||
| Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at July 1, 2009 | 558,690 | $ | 22.59 | ||||||||||
Granted | 21,060 | $ | 53.00 | ||||||||||
Exercised | (242,820 | ) | $ | 21.37 | |||||||||
Outstanding at June 30, 2010 | 336,930 | $ | 25.36 | 5.6 | $ | 7,732 | |||||||
Exercisable at June 30, 2010 | 283,204 | $ | 22.74 | 5.1 | $ | 7,153 | |||||||
The weighted-average grant date fair value of options granted during the fiscal years ended June 30, 2010, 2009 and 2008, was $23.21, $12.28 and 2007, was $12.28, $12.82, and $13.79, respectively. The total intrinsic value of options exercised during the fiscal years ended June 30, 2010, 2009 and 2008, and 2007, were $6.2 million, $1.2 million, and $2.5 million, and $0.8 million, respectively.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of the Company’sCompany's non-vested stock options for the fiscal year ended June 30, 2009,2010, is presented below:
Weighted-Average | ||||||||
Shares | Grant Date Fair Value | |||||||
Non-vested at July 1, 2008 | 148,167 | $ | 13.23 | |||||
Granted | 24,000 | $ | 12.28 | |||||
Vested | (96,500 | ) | $ | 12.83 | ||||
Forfeited | (1,833 | ) | $ | 13.07 | ||||
Non-vested at June 30, 2009 | 73,834 | $ | 13.44 | |||||
| Number of Shares | Weighted- Average Grant Date Fair Value | |||||
---|---|---|---|---|---|---|---|
Non-vested at July 1, 2009 | 73,834 | $ | 12.81 | ||||
Granted | 21,060 | $ | 23.21 | ||||
Vested | (41,168 | ) | $ | 12.97 | |||
Non-vested at June 30, 2010 | 53,726 | $ | 16.76 | ||||
As of June 30, 2009,2010, there was approximately $0.6 million of total unrecognized stock-based compensation expense related to non-vested stock options granted under our equity compensation plans,the 2004 Plan, which is expected to be recognized over a weighted-average period of 1.8 years.
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Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Term | Intrinsic | ||||||||||||||
SARs | Shares | Price | (Years) | Value | ||||||||||||
Outstanding at July 1, 2008 | — | $ | — | |||||||||||||
Granted | 50,500 | 30.96 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited and Expired | — | — | ||||||||||||||
Outstanding at June 30, 2009 | 50,500 | $ | 30.96 | 9.3 | $ | 542 | ||||||||||
Exercisable at June 30, 2009 | — | $ | — | — | $ | — | ||||||||||
| Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at July 1, 2009 | 50,500 | $ | 30.96 | ||||||||||
Granted | 51,640 | $ | 53.00 | ||||||||||
Outstanding at June 30, 2010 | 102,140 | $ | 42.10 | 8.9 | $ | 861 | |||||||
Exercisable at June 30, 2010 | 24,833 | $ | 30.96 | 8.4 | $ | 423 | |||||||
The weighted-average grant date fair value of SARs granted during the fiscal yearyears ended June 30, 2010 and 2009 was $12.28.
A summary of the status of the Company’sCompany's non-vested SARs for the fiscal year ended June 30, 2009,2010, is presented below:
Weighted-Average | ||||||||
Shares | Grant Date Fair Value | |||||||
Non-vested at July 1, 2008 | — | $ | — | |||||
Granted | 50,500 | $ | 12.28 | |||||
Vested | — | $ | — | |||||
Forfeited | — | $ | — | |||||
Non-vested at June 30, 2009 | 50,500 | $ | 12.28 | |||||
| Number of Shares | Weighted- Average Grant Date Fair Value | |||||
---|---|---|---|---|---|---|---|
Non-vested at July 1, 2009 | 50,500 | $ | 12.31 | ||||
Granted | 51,640 | $ | 22.94 | ||||
Vested | (24,833 | ) | $ | 30.96 | |||
Non-vested at June 30, 2010 | 77,307 | $ | 19.41 | ||||
As of June 30, 2009,2010, there was approximately $0.4$1.1 million of total unrecognized stock-based compensation expense related to non-vested SARs granted under our equity compensation plans,the 2004 Plan, which is expected to be recognized over a weighted-average period of 1.52.1 years.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Stock-based Compensation
Performance Shares
On November 5, 2008,18, 2009, officers and certain employees were granted 46,50053,000 shares of restricted common stock that can be earned only if either one of two defined multi-year performance goals is met within five years of the date of grant (“("Performance Shares”Shares"). 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 two different performance measures: (1) growth of free cash flow per share on a trailing twelve month basis; and (2) growth of royalty ounces in reserve per share on an annual basis.
85
A summary of the status of the Company’sCompany's non-vested Performance Shares for the fiscal year ended June 30, 2009,2010, is presented below:
Weighted-Average | ||||||||
Shares | Grant Date Fair Value | |||||||
Non-vested at July 1, 2008 | 66,000 | $ | 29.49 | |||||
Granted | 46,500 | $ | 30.96 | |||||
Vested | (9,000 | ) | $ | 28.78 | ||||
Forfeited | (2,250 | ) | $ | 29.64 | ||||
Non-vested at June 30, 2009 | 101,250 | $ | 30.22 | |||||
| Number of Shares | Weighted- Average Grant Date Fair Value | |||||
---|---|---|---|---|---|---|---|
Non-vested at July 1, 2009 | 101,250 | $ | 30.22 | ||||
Granted | 53,000 | $ | 53.00 | ||||
Vested | (31,875 | ) | $ | 29.88 | |||
Non-vested at June 30, 2010 | 122,375 | $ | 41.24 | ||||
As of June 30, 2009,2010, total unrecognized stock-based compensation expense related to Performance Shares was approximately $0.8$1.5 million, which is expected to be recognized over the average remaining vesting period of 1.52.7 years.
Restricted Stock
As defined in the 2004 Plan, officers, non-executive directors and certain employees may be granted shares of restricted stock that vest on continued service alone (“("Restricted Stock”Stock"). On November 5, 2008,18, 2009, officers and certain employees were granted 79,00048,000 shares of Restricted Stock. Restricted Stock awards granted to officers and certain employees vest over three years beginning 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. Also on November 5, 2008,18, 2009, our non-executive directors were granted 17,50012,000 shares of Restricted Stock. The non-executive directors’directors' shares of Restricted Stock vest as to 50% immediately and 50% one year after the date of grant.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Shares of Restricted Stock represent issued and outstanding shares of common stock, with dividend and voting rights. We measure the fair value of the Restricted Stock based upon the market price of our common stock as of the date of grant. Restricted Stock is amortized over the applicable vesting period using the straight-line method. Unvested shares of Restricted Stock are subject to forfeiture upon termination of employment with the Company.
86
Weighted-Average | ||||||||
Shares | Grant Date Fair Value | |||||||
Non-vested at July 1, 2008 | 193,250 | $ | 26.72 | |||||
Granted | 96,500 | $ | 30.96 | |||||
Vested | (23,166 | ) | $ | 26.51 | ||||
Forfeited | (6,000 | ) | $ | 29.35 | ||||
Non-vested at June 30, 2009 | 260,584 | $ | 28.25 | |||||
| Number of Shares | Weighted- Average Grant Date Fair Value | |||||
---|---|---|---|---|---|---|---|
Non-vested at July 1, 2009 | 260,584 | $ | 28.25 | ||||
Granted | 60,000 | $ | 53.00 | ||||
Vested | (48,835 | ) | $ | 29.57 | |||
Non-vested at June 30, 2010 | 271,749 | $ | 33.48 | ||||
As of June 30, 2009,2010, total unrecognized stock-based compensation expense related to Restricted Stock was approximately $4.8$5.8 million, which is expected to be recognized over the remaining averageweighted-average vesting period of 3.254.2 years.
8. ROYALTY PORTFOLIO RESTRUCTURING GAIN
As part of the royalty restructuring as part of the Barrick acquisition, which is discussed in Note 2,4, the Company recognized a gain of $31.5 million during the fiscal quarter ended December 31, 2008. The restructured royalties were a nonmonetary exchange and the fair value of the restructured royalties was determined based on expected future cash flows. The Company’sCompany's basis in the restructured royalties was zero thus giving rise to the $31.5 million gain.
In May 2009, Golden Star Resources Ltd. (“("Golden Star”Star") exercised its right of repurchase on the Benso 1.5% NSR royalty held by the Company for $3.4 million. The Company acquired the Benso royalty in December 2007 for approximately $1.9 million. The Company’sCompany's net book value for the Benso royalty on the date of exercise by Golden Star was approximately $1.2 million. As such, the Company recognized a gain of approximately $2.2 million upon exercise.
9. STOCKHOLDERS' EQUITY
Preferred Stock
We have 10,000,000 authorized and unissued shares of $.01 par value Preferred Stock as of June 30, 20092010 and 2008.
Mandatory Convertible Preferred Stock
On November 9, 2007, the Company completed an offering of 1.15 million shares of 7.25% mandatory convertible preferred stock (“("Mandatory Preferred Stock”Stock") at a price to the public of $100.00 per share, less underwriter discounts and other related expenses, resulting in net proceeds of $111.1 million. Dividends on the Mandatory Preferred Stock were payable on a cumulative basis when, as and if declared by our board of directors at an annual rate of 7.25% per share on the liquidation preference of $100 per share. Dividends were payable, at the Company’sCompany's discretion, in cash, common
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stock or a combination thereof, on February 15, May 15, August 15 and November 15 of each year to and including November 15, 2010, commencing on February 15, 2008. On January 10, 2008, the Company’sCompany's board of directors declared the regular quarterly dividend for the first dividend period of $1.9333 per share of the
87
On January 25, 2008, the Company announced that it exercised its provisional conversion right for all of the issued and outstanding shares of its Mandatory Preferred Stock. As part of the provisional conversion right, each share of the Mandatory Preferred Stock was converted into shares of our common stock on March 10, 2008 (the “Conversion Date”"Conversion Date"), based on the average closing price per common share on the Nasdaq Global Select Market (“NASDAQ”("NASDAQ") over a 20 consecutive trading day period, which ended on March 5, 2008, as provided in the Certificate of Designations of the Mandatory Preferred Stock. The average closing price over the 20 consecutive trading day period was $29.78 and each outstanding share of Mandatory Preferred Stock was automatically converted into 3.4589 shares of the Company's common stock on the Conversion Date. The Company issued 3,977,683 shares of its common stock upon conversion of the Mandatory Preferred Stock on the Conversion Date.
In connection with the conversion, all accrued and unpaid dividends on the Mandatory Preferred Stock up to the Conversion Date were payable at $0.5035 per share of Mandatory Preferred Stock and were paid in cash to holders of record on the Conversion Date. Trading of the Mandatory Preferred Stock on the NASDAQ was suspended at the close of business on March 5, 2008, and the Mandatory Preferred Stock was de-listeddelisted on March 24, 2008. The Company applied a contingent beneficial conversion feature model to account for the provisional conversion of the Mandatory Preferred Stock during its third fiscal quarter of 2008, which resulted in the Company recognizing a deemed dividend of $2.0 million for the three and nine months ended March 31, 2008. There were no tax consequences to the Company upon conversion of the Mandatory Preferred Stock.
Common Stock Issuances
Fiscal Year 2010
During the fiscal year ended June 30, 2010, options to purchase 242,820 shares were exercised, resulting in proceeds of approximately $1.6 million.
In June 2010, we sold 5,980,000 shares of our common stock in an underwritten public offering that closed on June 28, 2010. The offering was priced at $48.50, and proceeds from the offering, net of commission and expenses, was approximately $276.2 million. The Company intends to use the net proceeds from the offering for general corporate purposes and to fund acquisitions of additional royalty interests, including the acquisition of the gold stream on the Mt. Milligan Project as discussed in Note 18.
Fiscal Year 2009
In April 2009, we sold 6,500,000 shares of our common stock in an underwritten public offering that closed on April 14, 2009. The offering was priced at $38.00 per share, and proceeds from the offering, net of commission and expenses, was approximately $235.0 million. The net proceeds from the offering were primarily used for general corporate purposes and to pay the cash component of the Andacollo Royalty acquisition, as discussed in Note 4.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Exchangeable Shares
In connection with the IRC Transaction discussed in Note 3, certain holders of IRC common stock received exchangeable shares of RG Exchangeco for each share of IRC common stock held. The exchangeable shares are convertible at any time, at the option of the holder, into shares of Royal Gold common stock on a one-for-one basis, and entitle holders to dividends and other rights economically equivalent to holders of Royal Gold common stock.
Treasury Stock
On January 25, 2008, the Company announced that its board of directors authorized the repurchase of up to $30.0 million of its common stock in the open market through March 31, 2008. The timing and number of shares repurchased through March 31, 2008, depended on market conditions and other corporate considerations. As of March 31, 2008, the Company repurchased 196,986 common shares, at an average price of $28.00 per common share, for a total cost of approximately $5.5 million. The common share repurchases were funded through cash and cash equivalents. The total cost to reacquire the 196,986 common shares was included inTreasury Stockon the Company’sCompany's consolidated balance sheets as of March 31, 2008. The repurchase program, pursuant to the January 25, 2008 announcement, ended on March 31, 2008.
On April 2, 2008, the Company retired the 196,986 common shares repurchased pursuant to the January 25, 2008 repurchase announcement. The 196,986 common shares retired have been returned to the Company’sCompany's authorized but unissued amount of common stock. Also, on June 20, 2008, the Company retired the remaining 229,224 common shares included in treasury stock. The 229,224 common shares
88
Stockholders' Rights Plan
On September 10, 2007, the Company amended and restated its Rights Agreement, dated September 10, 1997 (the “Existing Agreement”"Existing Agreement") pursuant to the First Amended and Restated Rights Agreement, dated September 10, 2007 (the “Amended Agreement”"Amended Agreement"). The Amended Agreement extends the Final Expiration Date from September 10, 2007 to September 10, 2017. The Amended Agreement was approved by the Company’sCompany's board of directors (the “Board”"Board").
The Amended Agreement, like the Existing Agreement, is intended to deter coercive or abusive tender offers and market accumulations. The Amended Agreement is designed to encourage an acquirer to negotiate with the Board and to enhance the Board’sBoard's ability to act in the best interests of all the Company’s shareholders.
Under the Amended Agreement, each shareholderstockholder of the Company holds one preferred stock purchase right (a “Right”"Right") for each share of Company common stock held. The Rights generally become exercisable only in the event that an acquiring party accumulates 15 percent or more of the Company’sCompany's outstanding shares of common stock. If this were to occur, subject to certain exceptions, each Right (except for the Rights held by the acquiring party) would allow its holders to purchase one one-thousandth of a newly issued share of Series A junior participating preferred stock of Royal Gold or the Company’sCompany's common stock with a value equal to twice the exercise price of the Right, initially set at $175 under the terms and conditions set forth in the Amended Agreement.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. EARNINGS PER SHARE ("EPS")
Basic earnings per common share were computed using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include the additional dilutive effect of our potentially dilutive securities, which include stock options, SARs, restricted stock and performance stock. The dilutive effects of our potentially dilutive securities are calculated using the treasury stock method.
| Fiscal Years Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | |||||||
| (in thousands, except share data) | |||||||||
Net income available to Royal Gold common stockholders | $ | 21,492 | $ | 38,348 | $ | 19,255 | ||||
Weighted-average shares for basic EPS | 43,640,414 | 35,337,133 | 31,054,725 | |||||||
Effect of other dilutive securities | 340,403 | 451,943 | 335,568 | |||||||
Weighted-average shares for diluted EPS | 43,980,817 | 35,789,076 | 31,390,293 | |||||||
Basic earnings per share | $ | 0.49 | $ | 1.09 | $ | 0.62 | ||||
Diluted earnings per share | $ | 0.49 | $ | 1.07 | $ | 0.61 | ||||
For the fiscal yearyears ended June 30, 2010, 2009 options to purchase 50,190and 2008, 72,700, nil and 1,600 stock-based compensation awards were excluded from the computation of diluted EPS as the result would be anti-dilutive.
Our calculation of weighted average shares were exercised, resultingincludes all of our outstanding stock: common stock and exchangeable shares. Exchangeable shares are the equivalent of common shares in proceeds of approximately $0.8 million.
11. INCOME TAXES
For financial reporting purposes, income before income taxes includes the following components:
| Fiscal Years Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | |||||||
| (Amounts in thousands) | |||||||||
United States | $ | 55,623 | $ | 65,848 | $ | 38,284 | ||||
Foreign | (12,037 | ) | (2,634 | ) | (289 | ) | ||||
$ | 43,586 | $ | 63,214 | $ | 37,995 | |||||
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Year Ended June 30, 2009 | ||||||||||||
(In thousands, except share data) | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | $ | 38,348 | 35,337,133 | $ | 1.09 | |||||||
Effect of other dilutive securities | — | 451,943 | ||||||||||
Diluted EPS | $ | 38,348 | 35,789,076 | $ | 1.07 | |||||||
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For The Year Ended June 30, 2008 | ||||||||||||
(In thousands, except share data) | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income | $ | 24,043 | ||||||||||
Preferred stock dividends | (2,802 | ) | ||||||||||
Preferred stock deemed dividend upon conversion | (1,986 | ) | ||||||||||
Net income available to common stockholders for basic earnings per share | $ | 19,255 | 31,054,725 | $ | 0.62 | |||||||
Effect of other dilutive securities | — | 335,568 | ||||||||||
Diluted EPS | $ | 19,255 | 31,390,293 | $ | 0.61 | |||||||
For The Year Ended June 30, 2007 | ||||||||||||
(In thousands, except share data) | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | $ | 19,720 | 24,827,319 | $ | 0.79 | |||||||
Effect of dilutive securities | 247,767 | |||||||||||
Diluted EPS | $ | 19,720 | 25,075,086 | $ | 0.79 | |||||||
2009 | 2008 | 2007 | ||||||||||
Current federal tax expense | $ | 24,027 | $ | 11,935 | $ | 10,310 | ||||||
Deferred tax benefit | (2,953 | ) | (32 | ) | (813 | ) | ||||||
Increase in deferred tax asset valuation allowance | 783 | 147 | 52 | |||||||||
Total income tax expense | $ | 21,857 | $ | 12,050 | $ | 9,549 | ||||||
| Fiscal Years Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2008 | |||||||
| (Amounts in thousands) | |||||||||
Current: | ||||||||||
Federal | $ | 20,299 | $ | 23,625 | $ | 11,726 | ||||
State | 219 | 402 | 210 | |||||||
Foreign | 1,182 | — | — | |||||||
$ | 21,700 | $ | 24,027 | $ | 11,936 | |||||
Deferred and others: | ||||||||||
Federal | $ | (1,304 | ) | $ | (2,396 | ) | $ | 25 | ||
State | (114 | ) | 27 | — | ||||||
Foreign | (6,118 | ) | 199 | 89 | ||||||
$ | (7,536 | ) | $ | (2,170 | ) | $ | 114 | |||
Total income tax expense | $ | 14,164 | $ | 21,857 | $ | 12,050 | ||||
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| Fiscal Years Ended June 30, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 | 2009 | 2008 | ||||||||||||||||||||
2009 | 2008 | 2007 | (Amounts in thousands) | |||||||||||||||||||
Total expense computed by applying federal rates | $ | 21,072 | $ | 12,633 | $ | 10,244 | $ | 15,255 | $ | 22,125 | $ | 13,298 | ||||||||||
State income taxes, net of federal benefit | 288 | 128 | 84 | |||||||||||||||||||
State and Provincial income taxes, net of federal benefit | 189 | 288 | 128 | |||||||||||||||||||
Adjustments of valuation allowance | 783 | 147 | 52 | (231 | ) | 783 | 147 | |||||||||||||||
Excess depletion | (1,074 | ) | (1,294 | ) | (956 | ) | (1,642 | ) | (1,074 | ) | (1,294 | ) | ||||||||||
Acquisition related costs | 1,364 | — | — | |||||||||||||||||||
Estimates for uncertain tax positions | 2,898 | — | — | |||||||||||||||||||
Statutory tax attributable to Non-controlling interest | (2,775 | ) | (1,053 | ) | (665 | ) | ||||||||||||||||
Other | 788 | 436 | 125 | (894 | ) | 788 | 436 | |||||||||||||||
$ | 21,857 | $ | 12,050 | $ | 9,549 | $ | 14,164 | $ | 21,857 | $ | 12,050 | |||||||||||
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences and carryforwards, which give rise to our deferred tax assets and liabilities at June 30, 20092010 and 2008,2009, are as follows (in thousands):follows:
2010 | 2009 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2009 | 2008 | (Amounts in thousands) | |||||||||||||
Deferred tax assets: | |||||||||||||||
Stock-based compensation | $ | 2,205 | $ | 1,595 | $ | 3,267 | $ | 2,205 | |||||||
Net operating losses | 7,261 | 1,451 | 28,009 | 7,261 | |||||||||||
Other | 349 | 381 | 3,828 | 349 | |||||||||||
Total deferred tax assets | 9,815 | 3,427 | 35,104 | 9,815 | |||||||||||
Valuation allowance | (982 | ) | (199 | ) | (2,280 | ) | (982 | ) | |||||||
Net deferred tax assets | 8,833 | 3,228 | 32,824 | 8,833 | |||||||||||
Deferred tax liabilities: | |||||||||||||||
Mineral property basis | (31,690 | ) | (28,112 | ) | (180,323 | ) | (31,690 | ) | |||||||
Unrealized Foreign Exchange Gains | (3,384 | ) | — | ||||||||||||
Other | (397 | ) | (1,100 | ) | (1,568 | ) | (397 | ) | |||||||
Total deferred tax liabilities | (32,087 | ) | (29,212 | ) | (185,275 | ) | (32,087 | ) | |||||||
Total net deferred taxes | $ | (23,254 | ) | $ | (25,984 | ) | $ | (152,451 | ) | $ | (23,254 | ) | |||
The Company reviews the measurement of its deferred tax assets at each balance sheet date. All available evidence, both positive and negative, is considered in determining whether, based upon the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of June 30, 2010 and 2009, ourthe Company had $2.3 million and $1.0 million of valuation allowances recorded, respectively. The valuation allowance increased $1.5 million during the year as a result of the acquisition of IRC tax attributes, which did not have an effect on the overall tax rate. The increase was associated with foreignoffset by the reversal of $0.2 million of the valuation allowance previously recorded that did have an effect on the tax rate. The valuation allowance remaining at June 30, 2010 primarily is attributable to non-U.S. subsidiaries tax loss carry forwards.
At June 30, 2010 and 2009, the Company had $110 million and $27 million of net operating loss carryforwards attributed to RGCL and one of our Canadian wholly-owned subsidiaries, RGLD Gold Canada, Inc. (“RGLD Gold”). As of June 30, 2008, our valuation allowance was associated with foreign net operating loss carryforwards attributed to RGCL. As of June 30, 2009,carry forwards, respectively. The increase in the net operating loss associated with RGCLcarry forwards is attributable to (i) non-U.S. subsidiaries accounting losses of $23 million incurred during the year, (ii) non-U.S. subsidiaries accelerated tax deductions of $30 million for the year which have an offsetting deferred tax liability recorded, and RGLD Gold is approximately $1.3(iii) an increase of $30 million and $22.9 million, respectively. There isfor losses of IRC entities acquired that did not have an unlimited carryback and carryforward periodeffect on the overall tax rate. The majority of the tax loss carry forwards are in jurisdictions that allow a twenty year carry forward period. As a result, these losses do not begin to use such losses.
The Company adopted the provisions of FIN 48ASC 740 for accounting for uncertain income tax positions on July 1, 2007, with no impact on its financial statements. As of June 30, 2010 and 2009, the Company had $11.9 million and 2008, the Company’s$0.6 million of total gross unrecognized tax benefits, were $0.6 millionrespectively. The increase in gross unrecognized tax benefits was primarily related to tax positions of IRC entities taken prior to or upon the acquisition by the Company. If recognized, these unrecognized tax benefits would
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
impact the Company's effective income tax rate. A reconciliation of the beginning and $0.4 million, respectively, for uncertain tax positions. The liability forending amount of gross unrecognized tax benefits is reflected withinOther long-term liabilitieson the Company’s consolidated balance sheets.as follows:
| 2010 | 2009 | 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||
Total gross unrecognized tax benefits at beginning of year | $ | 614 | $ | 410 | $ | — | ||||
Additions / Reductions for tax positions of prior years | 144 | 28 | ||||||||
Additions / Reductions for tax positions of current year | 11,116 | 176 | 410 | |||||||
Reductions due to settlements with taxing authorities | — | — | — | |||||||
Reductions due to lapse of statute of limitations | — | — | — | |||||||
Total amount of gross unrecognized tax benefits at end of year | $ | 11,874 | $ | 614 | $ | 410 | ||||
The materialCompany or one of its subsidiaries files income tax returns the Company files arein the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal, state and local, and non-U.S. income tax return, which hasexaminations by tax authorities for fiscal years before 2007. As a three yearresult of (i) statute of limitations that will begin to expire within the next 12 months in various jurisdictions, and (ii) possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the Colorado stateissues are individually significant, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax return, which has a four year statutebenefits will decrease between $0 and $0.5 million in the next 12 months.
The Company's continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits as part of limitations. The U.S. federal return forits income tax years ended on or afterexpense. At June 30, 2006,2010 and 2009, the Colorado state
92
12. SUPPLEMENTAL CASH FLOW INFORMATION
The Company’sCompany's supplemental cash flow information for the fiscal years ending June 30, 2010, 2009 2008 and 20072008 is as follows (in thousands):follows:
2009 | 2008 | 2007 | ||||||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 391 | $ | 720 | $ | 801 | ||||||
Income taxes, net of refunds | $ | 23,303 | $ | 13,292 | $ | 10,293 | ||||||
Non-cash investing and financing activities: | ||||||||||||
Dividends declared | $ | 11,117 | $ | 11,571 | $ | 6,289 | ||||||
Conversion of preferred stock to common stock | $ | — | $ | 116,946 | $ | — | ||||||
Battle Mountain acquisition (with common stock) | $ | — | $ | 35,832 | $ | — | ||||||
Acquisition of royalty interest in mineral property (with common stock) | $ | — | $ | — | $ | 18,495 |
| 2010 | 2009 | 2008 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | ||||||||||
Cash paid during the period for: | |||||||||||
Interest | $ | 1,815 | $ | 391 | $ | 720 | |||||
Income taxes, net of refunds | $ | 16,630 | $ | 23,303 | $ | 13,292 | |||||
Non-cash investing and financing activities: | |||||||||||
Dividends declared | $ | 16,339 | $ | 11,117 | $ | 11,571 | |||||
Acquisition of IRC (with common stock and exchangeable shares) | $ | 308,882 | $ | — | $ | — | |||||
Acquisition of royalty interests in mineral properties (with common stock) | $ | 53,428 | $ | — | $ | 35,832 | |||||
In-kind distribution to CVP partners | $ | 6,125 | $ | — | $ | — | |||||
Treasury stock | $ | (3,557 | ) | $ | — | $ | — | ||||
Conversion of preferred stock to common stock | $ | — | $ | — | $ | 116,946 |
12.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. FAIR VALUE MEASUREMENTS
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1: Quoted prices for identical instruments in active markets;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company's financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
| Fair Value at June 30, 2010 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | Level 1 | Level 2 | Level 3 | ||||||||||
| (In thousands) | |||||||||||||
Assets: | ||||||||||||||
Money market investments(1) | $ | 284 | $ | 284 | $ | — | $ | — | ||||||
Marketable equity securities(2) | 185 | 185 | — | — | ||||||||||
$ | 469 | $ | 469 | $ | — | $ | — | |||||||
The carrying amount of our long-term debt (including the current portion) approximates fair value as of June 30, 2010.
The Company invests in money market funds, which are traded by dealers or brokers in active over-the-counter markets. The Company's money market funds, which are invested in United States treasury bills or United States treasury backed securities, are classified within Level 1 of the fair value hierarchy.
As of June 30, 2010, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with royalty interests in mineral properties, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition are applicable if any of these assets are determined to be impaired; however, no triggering events have occurred relative to any of these assets during the twelve months ended June 30, 2010. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. MAJOR SOURCES OF REVENUE
In each of fiscal years 2010, 2009 2008 and 2007,2008, we recognized approximately $30.6 million, $22.2 million $27.7 million and $28.2$27.7 million, respectively, of our total royalty revenue from the same operator, Barrick, but not from the same mine.
15. COMMITMENTS AND CONTINGENCIES
Voisey's Bay
On February 22, 2010, as part of the IRC Transaction discussed in Note 3, we acquired a Simplified Employee Pension Plan (“SEP Plan”royalty on the Voisey's Bay Mine in Newfoundland and Labrador owned by Vale Newfoundland & Labrador Limited ("VNL"). The royalty is owned by the LNRLP, in which all employeesthe Company's wholly-owned indirect subsidiary, Canadian Minerals Partnership, is the general partner and 89.99% owner. The remaining interests in LNRLP are eligibleowned by Altius (10%), a company unrelated to participate. We contribute a minimum of 3% of an employee’s compensation to an account set up for the benefit of the employee. If an employee chooses to make additional contributions to the SEP Plan through salary withholdings, we will match such contributions to a maximum of 7% of the employee’s salary. We contributed $0.2 million, $0.2 million and $0.1 million in fiscal years 2009, 2008 and 2007, respectively.
On October 16, 2009, LNRLP filed a claim in the Supreme Court of Newfoundland and Labrador Trial Division against Vale Inco Limited ("Vale Inco") underand its wholly owned subsidiaries, Vale Inco Atlantic Sales Limited ("VIASL") and VNL, related to calculation of 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 basedNSR on the disposalsale of allegedly
93
Holt
On October 1, 2008, as part of the Company’sCompany's acquisition of a portfolio of royalties from Barrick, , we acquired a royalty on athe Holt portion of the development stage Holloway-Holt mining project in Ontario, Canada, owned by St Andrew.Andrew Goldfields Ltd. ("St Andrew"). St Andrew succeeded Newmont Canada Corporation (“("Newmont Canada”Canada") as owner of the Holloway-Holt mining project in November 2006. By virtue of the Company’sCompany's acquisition of Barrick’sBarrick's royalty portfolio, RGLD Gold Canada, Inc. ("RGLD Gold") succeeded Barrick as the royalty payee under the royalty agreement.
On or about November 3, 2008, St Andrew filed an action in the Ontario Superior Court of Justice (the “Court”"Court") seeking, among other things, declarations by the Court that St Andrew’sAndrew's obligation in respect of the royalty is limited to only a portion of the total royalty payable, and that any additional royalty obligations under the royalty agreement remain the responsibility of Newmont Canada. Newmont Canada responded that St Andrew is responsible for all royalty obligations under the royalty agreement.
Royal Gold and RoyalRGLD Gold (collectively "Royal Gold") and Barrick were joined as necessary parties to the litigation in January 2009. Trial concerning calculation of the royalty and the party or parties responsible for paying it was held from January 30, 2009 to February 12, 2009. On July 23, 2009, the Court held that Royal Gold is entitled to payment from Newmont Canada of the full amount of the sliding-scale NSR royalty on gold produced from the Holt mine. The Court also held that St Andrew’sAndrew's sole obligation is to reimburse Newmont Canada for payment of the royalty up to a flat rate of 0.013% of the net smelter returns for gold, silver and other metals. The Court’sOn August 21, 2009, Newmont Canada appealed the Court's decision may be appealed within 30 daysto the Court of Appeal of Ontario and on December 9, 2009, made Royal Gold a party to the dateappeal.
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Holt royalty is currently classified as a development stage royalty interest and the Company does not currently receive revenue from the royalty.
94
Payments Due by Period (in thousands) | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
Note payable(1) | $ | 19,546 | $ | 108 | $ | 19,438 | $ | — | $ | — | ||||||||||
Operating leases | 718 | 193 | 525 | — | — | |||||||||||||||
Other long-term obligations | 89 | 26 | 53 | 10 | — | |||||||||||||||
Total | $ | 20,353 | $ | 327 | $ | 20,016 | $ | 10 | $ | — | ||||||||||
CVP was formed as a limited partnership in April 1992. It owns a 1.25% net value royalty (“NVR1”("NVR1") on production of minerals from a portion of Cortez. Denver Mining Finance Company (“DMFC”("DMFC"), our wholly-owned subsidiary, is the general partner and holds a 2.0% interest in CVP. In addition, Royal Gold holds a 29.6% limited partner interest in the partnership, while our Chairman of the Board of Directors, the Chairman of our Audit Committee and one other member of our board of directors hold an aggregate 35.56% limited partner interest. The general partner performs administrative services for CVP in receiving and processing the royalty payments from the operator, including the disbursement of royalty payments and record keeping for in-kind distributions to the limited partners, including ourwhich includes certain directors and our Chairman.
CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain other limited partners, sell their pro-rata shares of such gold immediately and receive distributions in cash, while CVP holds gold for certain other limited partners. Such gold inventories, which totaled 24,97718,067 and 27,55224,977 ounces of gold as of June 30, 20092010 and 2008,2009, respectively, are held by a third party refinery in Utah for the account of the limited partners of CVP. The inventories are carried at historical cost and are classified aswithinInventory — restrictedOther assets on the Company's consolidated balance sheets. The carrying value of the gold in inventory was approximately $10.6$8.7 million and $11.2$10.6 million as of June 30, 20092010 and 2008,2009, respectively, while the fair value of such ounces was approximately $23.3$22.5 million and $25.6$23.3 million as of
95
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of selected quarterly financial information (unaudited):
Basic | Diluted | |||||||||||||||||||
Royalty | Operating | Net | Earnings | Earnings | ||||||||||||||||
Revenues | Income | Income | Per Share | Per Share | ||||||||||||||||
Fiscal Year 2009 Quarter Ended (in thousands): | ||||||||||||||||||||
September 30 | $ | 16,079 | $ | 8,464 | $ | 5,749 | $ | 0.17 | $ | 0.17 | ||||||||||
December 31 | 14,622 | 2,387 | 21,397 | 0.63 | 0.62 | |||||||||||||||
March 31 | 20,797 | 7,139 | 4,142 | 0.12 | 0.12 | |||||||||||||||
June 30 | 22,273 | 9,302 | 7,060 | 0.18 | 0.16 | |||||||||||||||
$ | 73,771 | $ | 27,292 | $ | 38,348 | $ | 1.09 | $ | 1.07 | |||||||||||
Fiscal Year 2008 Quarter Ended (in thousands): | ||||||||||||||||||||
September 30 | $ | 12,503 | $ | 7,066 | $ | 5,538 | $ | 0.19 | $ | 0.19 | ||||||||||
December 31 | 14,710 | 6,389 | 4,610 | 0.11 | 0.11 | |||||||||||||||
March 31 | 18,731 | 9,001 | 6,889 | 0.11 | 0.11 | |||||||||||||||
June 30 | 20,353 | 10,526 | 7,006 | 0.21 | 0.20 | |||||||||||||||
$ | 66,297 | $ | 32,982 | $ | 24,043 | $ | 0.62 | $ | 0.61 | |||||||||||
| Royalty revenues | Operating income (loss) | Net income (loss) available to Royal Gold Common Stockholders | Basic earnings per share | Diluted earnings per share | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands except per share data) | ||||||||||||||||
Fiscal year 2010 quarter-ended: | |||||||||||||||||
September 30 | $ | 26,113 | $ | 10,754 | $ | 7,126 | $ | 0.18 | $ | 0.17 | |||||||
December 31 | 34,740 | 15,201 | 9,615 | 0.24 | 0.23 | ||||||||||||
March 31 | 35,043 | (1,231 | ) | (5,754 | ) | (0.13 | ) | (0.13 | ) | ||||||||
June 30 | 40,669 | 16,311 | 10,505 | 0.21 | 0.21 | ||||||||||||
$ | 136,565 | $ | 41,035 | $ | 21,492 | $ | 0.49 | $ | 0.49 | ||||||||
Fiscal year 2009 quarter-ended: | |||||||||||||||||
September 30 | $ | 16,079 | $ | 8,464 | $ | 5,749 | $ | 0.17 | $ | 0.17 | |||||||
December 31 | 14,622 | 2,387 | 21,397 | 0.63 | 0.62 | ||||||||||||
March 31 | 20,797 | 7,139 | 4,142 | 0.12 | 0.12 | ||||||||||||
June 30 | 22,273 | 9,302 | 7,060 | 0.18 | 0.16 | ||||||||||||
$ | 73,771 | $ | 27,292 | $ | 38,348 | $ | 1.09 | $ | 1.07 | ||||||||
ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. SUBSEQUENT EVENTS
Proposed Acquisition of Gold Stream on the Mt. Milligan Project
On July 15, 2010, Royal Gold entered into a letter agreement (the "Letter Agreement") pursuant to which it agreed to acquire 25% of the payable gold produced from the Mt. Milligan copper-gold project in British Columbia from Thompson Creek Metals Company Inc. or its affiliate ("Thompson Creek") concurrent with the closing of Thompson Creek's proposed acquisition (the "Acquisition") of Terrane Metals Corp. ("Terrane"). The terms and conditions under which Royal Gold will acquire the payable gold are contained in a Purchase and Sale Agreement (the "Purchase and Sale Agreement") among Royal Gold, Thompson Creek and a subsidiary of each entity to be identified prior to the closing of the Acquisition. The obligation of Royal Gold and Thompson Creek to enter into the Purchase and Sale Agreement is subject to certain customary conditions set forth in the Letter Agreement. Under the Letter Agreement, Thompson Creek and Royal Gold have each agreed to an exclusivity arrangement with the other party in respect to certain alternative gold-related financing transactions in connection with the Mt. Milligan project until the closing of the Acquisition or earlier termination of the Letter Agreement in accordance with its terms. The Letter Agreement also contains representations and warranties and covenants in respect of Royal Gold and Thompson Creek.
The Acquisition has been unanimously approved by the boards of directors of both Thompson Creek and Terrane. Goldcorp, which owns 52% of Terrane's fully diluted shares (including preference shares), has agreed to convert its preference shares into common shares and vote in favor of the Acquisition. Completion of the Acquisition is subject to, among other things, the favorable vote of 662/3 of the Terrane equity shareholders at a special meeting called to approve the Acquisition, which is expected to occur in September 2010.
Acquisition of Additional Royalty Interests at Pascua-Lama
On July 1, 2010, the Company entered into two separate assignment of rights agreements with two private Chilean citizens whereby Royal Gold acquired the right to acquire an additional 0.75% NSR sliding-scale royalty on the Pascua-Lama project, which is owned and operated by Barrick and located on the border between Argentina and Chile, for a purchase price of $53 million. Of this amount, $25 million has been paid to immediately acquire an additional 0.35% royalty interest. A deferred payment of $28 million is expected to be made on or before October 29, 2010, to acquire the remaining 0.40% royalty interest. In addition, on April 23, 2010, Royal Gold entered into an immaterial assignment of rights agreement with another private Chilean citizen whereby Royal Gold acquired an additional 0.25% NSR on the project for a purchase price of $15 million. Once the deferred closings occur, Royal Gold's total gold royalty interest in the Pascua-Lama project will increase to 5.23% NSR, at gold prices above $800 per ounce. Pursuant to the assignment of rights agreements, Royal Gold also acquired a 0.20% fixed-rate copper royalty that takes effect after January 1, 2017, increasing Royal Gold's copper royalty interest in the Pascua-Lama project to 1.05%.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Evaluation of Disclosure Controls and Procedures
As of June 30, 2009,2010, the Company’sCompany's management, with the participation of the President and Chief Executive Officer and its Chief Financial Officer and Treasurer of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act")). Based on such evaluation, the Company’sCompany's President and Chief Executive Officer and its Chief Financial Officer and Treasurer have concluded that, as of June 30, 2009,2010, the Company���sCompany's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and that such information is accumulated and communicated byto the Company’sCompany's management, including the President and Chief Executive Officer and its Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure.
Disclosure controls and procedures involve human diligence and compliance and are subject to lapses in judgment and breakdowns resulting from human failures. As a result, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2009.2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-IntegratedControl—Integrated Framework. Based on ourmanagement's assessment and those criteria, management concluded that, as of June 30, 2009,2010, our internal control over financial reporting is effective.
Our management, including our President and Chief Executive Officer and Chief Financial Officer and Treasurer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
97
PricewaterhouseCoopers LLP, the Company’sCompany's independent registered public accounting firm, audited the financial statements included in this Annual Report on Form 10-K, and the effectiveness of the Company’sCompany's internal control over financial reporting as of June 30, 2009,2010, as stated in their report, which is included herein.
Changes in Internal Control over Financial Reporting
There was no change in the Company’sCompany's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our fourth fiscal quarter ended June 30, 2009,2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
The information required by this item appears under the section headings “Proposal 1 - Election of Class I Directors”, “Directors and Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance”is included in the Company’sCompany's Proxy Statement for its 20092010 Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2009,2010, and is incorporated by reference in this Annual Report on Form 10-K.
The Company’sCompany's Code of Business Conduct and Ethics within the meaning of Item 406 of Regulation S-K adopted by the SEC under the Exchange Act that applies to our principal executive officer and principal financial officer is available on the Company’sCompany's website at www.royalgold.com and in print without changecharge to any stockholder who requests a copy. Requests for copies should be directed to Royal Gold, Inc., Attention Karen Gross, 1660 Wynkoop Street, Suite 1000, Denver, Colorado, 80202. The Company intends to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any amendment to, or a waiver from, a provision of the Company’sCompany's Code of Business Conduct and Ethics by posting such information on the Company’sCompany's website.
The information required by this item appears under the section heading “Executive Compensation”is included in the Company’sCompany's Proxy Statement for its 20092010 Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2009,2010, and is incorporated by reference in this Annual Report on Form 10-K.
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The information required by this item appears under the sub-section heading “Certain Relationships and Related Transactions” and “Independence of Directors”is included in the Company’sCompany's Proxy Statement for its 20092010 Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2009,2010, and is incorporated by reference in this Annual Report on Form 10-K.
The information required by this item appears under the sub-section heading “Independent Registered Public Accountants” and the section heading “Proposal 2 — Ratification of Appointment of Independent Registered Public Accountants”is included in the Company’sCompany's Proxy Statement for its 20092010 Annual Stockholders Meeting to be filed with the SEC within 120 days after June 30, 2009,2010, and is incorporated by reference in this Annual Report on Form 10-K.
(a)Financial Statements
The Consolidated Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP dated August 20, 2009,26, 2010, are included as part of Item 8, Financial Statements and Supplementary Data, commencing on page 6563 above.
Page | |||||||||
---|---|---|---|---|---|---|---|---|---|
Report of Independent Registered Public Accounting Firm | |||||||||
Consolidated Balance Sheets | |||||||||
Consolidated Statements of Operations and Comprehensive Income | |||||||||
Consolidated Statements of | |||||||||
Consolidated Statements of Cash Flows | |||||||||
Notes to Consolidated Financial Statements |
(b) Exhibits
Reference is made to the Exhibit Index beginning on page 101100 hereof.
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ROYAL GOLD, INC. | ||||
Date: August 26, 2010 | ||||
By: | /s/ TONY JENSEN Tony Jensen | |||
President, | ||||
and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: August | By: | /s/ TONY JENSEN Tony Jensen | |||
President, | and Director | ||||
Date: August | By: | /s/ | |||
WENGER Stefan Wenger | |||||
Chief Financial Officer and Treasurer | |||||
Date: August 26, 2010 | By: | /s/ STANLEY DEMPSEY Stanley Dempsey Chairman | |||
Date: August 26, 2010 | By: | /s/ M. CRAIG HAASE M. Craig Haase Director | |||
Date: August | By: | /s/ William M. Hayes Director | |||
Date: August | By: | /s/ S. ODEN HOWELL, JR. S. Oden Howell, Jr. Director | |||
Date: August | By: | /s/ | |||
James W. Stuckert Director | |||||
Date: August | By: | /s/ DONALD J. WORTH Donald J. Worth Director | |||
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Exhibit | ||||||
---|---|---|---|---|---|---|
Number | Description | |||||
2.1 | Amended and Restated Agreement and Plan of Merger, dated July 30, 2007, among Battle Mountain Gold Exploration Corp., Royal Gold, Inc. and Royal Battle Mountain, Inc. (filed as Exhibit 2.1 to the | |||||
2.2 | Amended and Restated Arrangement Agreement, dated January 15, 2010, among Royal Gold, Inc., RG Exchangeco Inc. (formerly, 7296355 Canada Ltd.) and International Royalty Corporation (filed as Exhibit 2.1 to the Company's Current Report of Form 8-K on January 22, 2010 and incorporated herein by reference) | |||||
3.1 | Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the | |||||
3.2 | ||||||
Amended and Restated Bylaws, as amended (filed as Exhibit 3.1 to the | ||||||
3.3 | ||||||
Amended and Restated Certificate of Designations of Series A Junior Participating Preferred Stock of Royal Gold, Inc. (filed as Exhibit 3.1 to the | ||||||
3.4 | Certificate of Designations, Preferences and Rights of the Special Voting Preferred Stock of Royal Gold, Inc. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K on February 23, 2010 and incorporated herein by reference) | |||||
4.1 | First Amended and Restated Rights Agreement dated September 10, 2007 between Royal Gold, Inc. and Computershare Trust Company, N.A. (filed as Exhibit 4.1 to the | |||||
4.2 | ||||||
Stockholder Agreement dated April 3, 2009 by and among Royal Gold, Inc., Compañía Minera Carmen de Andacollo and Teck Cominco Limited (filed as Exhibit 4.1 to the | ||||||
4.3 | Amendment No. 1 to the Stockholder Agreement, dated January 12, 2010 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K on January 15, 2010 and incorporated herein by reference) | |||||
4.4 | Appendix I to Schedule B of the Amended and Restated Arrangement Agreement, dated January 15, 2010, among Royal Gold, Inc., RG Exchangeco Inc. (formerly, 7296355 Canada Ltd.) and International Royalty Corporation (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K on January 22, 2010 and incorporated herein by reference) | |||||
10.1 | ** | Equity Incentive Plan (filed as part of the | ||||
10.2 | ||||||
Exploration and Development Option Agreement between Placer Dome United States, Inc. and Royal Gold, Inc. dated effective July 1, 1998 (filed as Exhibit 10(v) to the | ||||||
10.3 | ||||||
Royalty Agreement between Royal Gold, Inc. and the Cortez Joint Venture dated April 1, 1999 (filed as part of Item 5 of the |
Exhibit Number | Description | |||||||
---|---|---|---|---|---|---|---|---|
10.4 | Firm offer to purchase royalty interest of | |||||||
10.5 | ||||||||
** | Amendment to Equity Incentive Plan (filed as Appendix A to the |
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10.6 | ||||
Assignment and Assumption Agreement, dated December 6, 2002 (filed as Exhibit 10.2 to the | ||||
10.7 | ||||
Production Payment Agreement between Genesis Inc. and Royal Gold, Inc. dated October 13, 2004 (filed as Exhibit 10.1(a) to the | ||||
10.8 | ||||
Royalty Deed between Genesis Inc. and Royal Gold, Inc. dated October 13, 2004 (filed as Exhibit 10.1(b) to the | ||||
10.9 | ||||
Agreement between Genesis Inc. and Royal Gold, Inc. dated October 13, 2004 (filed as Exhibit 10.1(c) to the | ||||
10.10 | ||||
Royalty Assignment and Agreement, effective as of December 26, 2002, between High Desert Mineral Resources, Inc. and High Desert Gold Corporation (filed as Exhibit 99.4 to the | ||||
10.11 | ||||
Royalty Assignment, Confirmation, Amendment, and Restatement of Royalty, and Agreement, dated as of November 30, 1995, among Barrick Bullfrog Inc., Barrick Goldstrike Mines Inc. and Royal Hal Co. (filed as Exhibit 99.5 to the | ||||
10.12 | ||||
Amendment to Royalty Assignment, Confirmation, Amendment, and Restatement of Royalty, and Agreement, effective as of October 1, 2004, among Barrick Bullfrog Inc., Barrick Goldstrike Mines Inc. and Royal Hal Co. (filed as Exhibit 99.6 to the | ||||
10.13 | ||||
Proceeds Agreement with HSBC Bank USA (filed as Exhibit 10.3 to the | ||||
10.14 | ||||
Purchase Agreement, between Kennecott Minerals Company and Royal Gold, Inc., dated December 22, 2005 (filed as Exhibit 10.1 to the | ||||
10.15 | ||||
Amended and Restated Funding Agreement dated as of February 22, 2006, between Société des Mines de Taparko, also known as Somita, SA, and Royal Gold, Inc. (filed as Exhibit 10.1 to the | ||||
10.16 | ||||
Conveyance of Tail Royalty and Grant of Milling Fee dated as of February 22, 2006, between Société des Mines de Taparko, also known as Somita, SA, and Royal Gold, Inc. (filed as Exhibit 10.2 to the |
Exhibit | ||||||
---|---|---|---|---|---|---|
Number | Description | |||||
10.17 | Conveyance of Production Payment dated as of February 22, 2006, between Société des Mines de Taparko, also known as Somita, SA, and Royal Gold, Inc. (filed as Exhibit 10.3 to the | |||||
10.18 | ||||||
Guaranty and Agreement in Support of Somita Funding Agreement dated as of February 22, 2006, from High River Gold Mine Ltd. to and for the benefit of Royal Gold Inc. (filed as Exhibit 10.1 to the | ||||||
10.19 | ||||||
Pledge Agreement dated as of February 22, 2006, between High River Gold Mines (International) Ltd., High River Gold Mines (West Africa) Ltd. and Royal Gold, Inc. (filed as Exhibit 10.2 to the | ||||||
10.20 | ||||||
Guarantee Agreement dated as of February 22, 2006, by High River Gold Mines Ltd. in favor of Royal Gold, Inc. (filed as Exhibit 10.3 to the | ||||||
10.21 | ||||||
Pledge of Securities dated as of February 22, 2006, by High River Gold Mines Ltd. in favor of Royal Gold, Inc. (filed as Exhibit 10.4 to the | ||||||
10.22 | ||||||
Contribution Agreement in Support of Somita Funding Agreement dated as of February 22, 2006, from High River Gold Mine Ltd. to and for the benefit of Royal Gold Inc. (filed as Exhibit 10.5 to the | ||||||
10.23 | ||||||
** | Form of Amended and Restated Indemnification Agreement | |||||
10.24 | ||||||
Purchase and Sale Agreement for Peñasquito and Other Royalties among Minera Kennecott S.A. DE C.V., Kennecott Exploration Company and Royal Gold, Inc., dated December 28, 2006 (filed as Exhibit 10.2 to the | ||||||
10.25 | ||||||
Shares for Debt Agreement between Kennecott Exploration Company and Royal Gold, Inc., dated December 28, 2006 (filed as Exhibit 10.3 to the | ||||||
10.26 | ||||||
Contract for Assignment of Rights Granted, by Minera Kennecott, S.A. de C.V. Represented in this Agreement by Mr. Dave F. Simpson, and Minera Peñasquito, S.A. de C.V., Represented in this Agreement by Attorney, Jose Maria Gallardo Tamayo (filed as Exhibit 10.4 to the |
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10.27 | ||||
Supplemental Mortgage, Deed of Trust, Security Agreement, Pledge and Financing Statement between High Desert Mineral Resources, Inc. and HSBC USA Bank, National Association, dated January 5, 2007 (filed as Exhibit 10.6 to the |
Exhibit Number | Description | |||||||
---|---|---|---|---|---|---|---|---|
10.28 | Amended and Restated Mortgage, Deed of Trust, Security Agreement, Pledge and Financing Statement between Royal Gold and HSBC USA Bank, National Association, dated January 5, 2007 (filed as Exhibit 10.7 to the | |||||||
10.29 | ||||||||
Second Amended and Restated Promissory Note between Royal Gold, High Desert Mineral Resources, Inc. and HSBC USA Bank, National Association, dated January 5, 2007 (filed as Exhibit 10.8 to the | ||||||||
10.30 | ||||||||
Assignment of Rights Agreement among Mario Ivan Hernández Alvarez, Royal Gold Chile Limitada and Royal Gold Inc., dated January 16, 2007 (filed as Exhibit 10.9 to the | ||||||||
10.31 | ||||||||
Royalty Purchase and Sale Agreement dated July 30, 2008 by and between Royal Gold, Inc. and Barrick Gold Corporation (filed as Exhibit 10.44 to Royal | ||||||||
10.32 | ||||||||
** | Employment Agreement by and between Royal Gold, Inc. and Tony Jensen dated September 15, 2008 (filed as Exhibit 10.1 to Royal | |||||||
10.33 | ||||||||
** | Form of Employment Agreement by and between Royal Gold, Inc. and each of the following: Stanley Dempsey, Karen Gross, Stefan Wenger and Bruce Kirchhoff (filed as Exhibit 10.2 to Royal | |||||||
10.34 | ||||||||
** | Form of Award Modification Agreement by and between Royal Gold, Inc. and each of the following: Stanley Dempsey, Tony Jensen, Karen Gross and Bruce Kirchhoff (filed as Exhibit 10.3 to Royal | |||||||
10.35 | Third Amended and Restated Credit Agreement dated as of October 31, 2008 by and among Royal Gold, Inc., High Desert Mineral Resources, Inc., RG Mexico, Inc., HSBC Bank USA, National Association, HSBC Securities (USA) Inc. and Bank of Nova Scotia (filed as Exhibit 10.1 to Royal |
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10.36 | ||||
** | 2004 Omnibus Long-Term Incentive Plan, as amended (filed as Exhibit 10.2 to Royal | |||
10.37 | ||||
** | Form of Incentive Stock Option Agreement under Royal | |||
10.38 | ** | Form of Non-qualified Stock Option Agreement under Royal Gold's 2004 Omnibus Long-Term Incentive Plan (filed as Exhibit 10.3 to Royal Gold's Current Report on Form 8-K filed on November 7, 2008 and incorporated herein by reference) | ||
10.39 | ** | Form of Restricted Stock Agreement under Royal Gold's 2004 Omnibus Long-Term Incentive Plan (filed as Exhibit 10.4 to Royal Gold's Current Report on Form 8-K filed on November 7, 2008 and incorporated herein by reference) |
Exhibit Number | Description | |||
---|---|---|---|---|
10.40 | ** | Form of Performance Share Agreement under Royal Gold's 2004 Omnibus Long-Term Incentive Plan (filed as Exhibit 10.5 to Royal Gold's Current Report on Form 8-K filed on November 7, 2008 and incorporated herein by reference) | ||
10.41 | ||||
** | Form of | |||
10.42 | ||||
Amended and | ||||
Restated Master Agreement | ||||
10.43 | Amended and Restated Term Loan Facility Agreement, dated as of March 26, 2010, among Royal Gold, Inc., as a Borrower, Royal Gold Chile Limitada, as a Guarantor, RGLD Gold Canada, Inc., as a Guarantor, High Desert Mineral Resources, Inc., as a Guarantor, the other Guarantors from time to time party thereto, HSBC Bank USA, National Association, as Administrative Agent and a Lender, Bank of Nova Scotia, as Sole Syndication Agent and a Lender and HSBC Securities (USA) Inc., as Sole Lead Arranger (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on April 1, 2010 and incorporated herein by reference) | |||
10.44 | Amended and Restated Promissory Note, dated March 26, 2010, by Royal Gold, Inc. to HSBC Bank USA, National Association (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K on April 1, 2010 and incorporated herein by reference) | |||
10.45 | Amended and Restated Promissory Note, dated March 26, 2010, by Royal Gold, Inc. to The Bank of Nova Scotia (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K on April 1, 2010 and incorporated herein by reference) | |||
10.46 | * | Release Agreement among Royal Gold, Inc., RGLD Gold Canada, Inc. and HSBC Bank USA, National Association dated July 19, 2010 | ||
10.47 | * | Commercial Pledge on Equity Interests in Royal Gold Chile Limitada by Royal Gold, Inc. et al. to HSBC Bank USA, National Association dated May 7, 2010 (English Translation) | ||
10.48 | * | Irrevocable Commercial Commission among Royal Gold, Inc. et al. and HSBC Bank USA, National Association dated May 7, 2010 (English Translation) | ||
10.49 | * | Agreement on Surety and Joint and Several Co-Debt established by Royal Gold Chile Limitada in favor of HSBC Bank USA, National Association dated May 7, 2010 (English Translation) | ||
10.50 | * | Commercial Pledge on Rights by Royal Gold Chile Limitada to HSBC Bank USA, National Association dated May 7, 2010 (relating to Andacollo royalty) (English Translation) | ||
10.51 | * | Commercial Pledge on Rights by Royal Gold Chile Limitada to HSBC Bank USA, National Association dated May 28, 2010 (relating to Pascua Lama royalty) (English Translation) | ||
10.52 | * | Commercial Pledge on Rights by Royal Gold Chile Limitada to HSBC Bank USA, National Association dated May 28, 2010 (relating to El Toqui royalty) (English Translation) |
Exhibit Number | Description | ||
---|---|---|---|
10.53 | Consent and First Amendment to Third Amended and Restated Credit Agreement, dated March 26, 2010, among Royal Gold, Inc., as a Borrower, High Desert Mineral Resources, Inc., as a Borrower, RG Mexico, Inc., as a Guarantor, HSBC Bank USA, National Association, as Administrative Agent and a Lender, Scotiabanc Inc., as a Lender, Bank of Nova Scotia, as Sole Syndication Agent and HSBC Securities (USA) Inc., as Sole Lead Arranger (filed as Exhibit 10.6 to the Company's Current Report on Form 8-K on April 1, 2010 and incorporated herein by reference) | ||
10.54 | Support Agreement, dated as of February 22, 2010, among Royal Gold, Inc., RG Callco Inc., and RG Exchangeco Inc. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on February 23, 2010 and incorporated herein by reference) | ||
10.55 | Voting and Exchange Trust Agreement, dated as of February 22, 2010, among Royal Gold, Inc., RG Exchangeco Inc. and Computershare Trust Company of Canada (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K on February 23, 2010 and incorporated herein by reference) | ||
10.56 | Labrador Option Agreement, dated May 18, 1993, between Diamond Fields Resources Inc. and Archean Resources Ltd., as amended (filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q on May 7, 2010 and incorporated herein by reference) | ||
10.57 | Form of Assignment of Rights Agreement between Royal Gold, Inc. and certain individuals dated July 1, 2010 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on July 8, 2010 and incorporated herein by reference) | ||
10.58 | Letter Agreement between Royal Gold, Inc. and Thompson Creek Metals Company Inc. dated July 15, 2010, (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on July 21, 2010 and incorporated herein by reference). (Certain portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The omitted confidential portions have been submitted separately to the U.S. Securities and Exchange Commission). The form of Purchase and Sale Agreement attached thereto has been superseded by the form of Purchase and Sale Agreement included in Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 20, 2010. | ||
10.59 | Letter Agreement between Royal Gold, Inc. and Thompson Creek Metals Company Inc. dated August 16, 2010, which includes the form of Purchase and Sale Agreement by and among Royal Gold, Inc., Thompson Creek Metals Company Inc. and a subsidiary of each entity to be identified prior to the closing of the Acquisition (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on August 20, 2010 and incorporated herein by reference) (Certain portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The omitted confidential portions have been submitted separately to the U.S. Securities and Exchange Commission). | ||
10.60 | * | Robinson Property Trust Ancillary Agreement by and between Kennecott Holdings Corporation, Kennecott Rawhide Mining Company and Kennecott Nevada Copper Company and BHP Nevada Mining Company, dated September 12, 2003 | |
10.61 | * | Shares Purchase and Sale Agreement by Jaime Ugarte Lee and others to Compañia Minera Barrick Chile Limitada, dated as of March 23, 2001 (English Translation) | |
10.62 | * | Letter Agreement between Minefinders Corporation Ltd., Francis J.L. Guardia and John W. Perston, dated January 27, 1993 |
Exhibit Number | Description | |||
---|---|---|---|---|
10.63 | * | Mining Rights Purchase Agreement by and between Mr. Liébano Sáenz Ortiz and Compañía Minera Dolores, S.A. de C.V. dated October 13, 2006 (English Translation) | ||
10.64 | * | Royalty Deed between St Barbara Mines Limited and Resource Capital Funds III L.P., dated March 29, 2005, as supplemented and amended by the Supplemental Deed between St Barbara Mines Limited and Resource Capital Funds III L.P., dated May 20, 2005 | ||
10.65 | * | Net Smelter Return Royalty Agreement by and between Newmont Canada Limited and Barrick Gold Corporation, dated October 8, 2004 | ||
10.66 | Royalty for Technical Expertise Agreement by and between Tenedoramex S. A. de C. V. and Kennecott Minerals Company, dated as of March 23, 2001 (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K on January 6, 2006 and incorporated herein by reference) | |||
10.67 | Siguiri Gold Project, Guinea, WestAfrica, Option Agreement by and between N.V. Union Miniere S.A. and Golden Shamrock Mines Limited, dated December 23, 1992 (filed as Exhibit 99.6 to the Company's Current Report on Form 8-K on April 6, 2009 and incorporated herein by reference) | |||
21.1 | * | |||
Royal Gold and Its Subsidiaries | ||||
23.1 | * | |||
Consent of Independent Registered Public Accounting Firm | ||||
31.1 | * | |||
Certification of President and Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
31.2 | * | |||
Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
32.1 | * | |||
Written Statement of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||
32.2 | * | |||
Written Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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