Summary of ROYAL GOLD INC - Yahoo! Finance

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restatement
As part of the Company's royalty monitoring program during the first fiscal quarter of 2009, Royal Gold identified a $3.1 million overpayment with respect to the Company's GSR1 and GSR2 royalties at the Cortez Pipeline Mining Complex ("Cortez"), which the Company received and recognized as royalty revenues. The overpayment of the royalty was the result of the operator incorrectly including non-Royal Gold royalty production in the Company's quarterly GSR1 and GSR2 royalty payments commencing in January 2007 and continuing through fiscal year 2008.
The error that caused the overpayment of royalty payments was not timely identified by our controls and procedures in place and $3.1 million was incorrectly recognized as royalty revenue, resulting in a material overstatement of royalty revenue for fiscal year 2008. On November 3, 2008, the Company's Audit Committee of the Board of Directors, in consultation with management, concluded that due to the error in accounting for royalty revenue, our previously issued consolidated financial statements as of and for the fiscal year ended June 30, 2008 and for each of the quarters comprising the fiscal year should no longer be relied upon and should be restated.
On November 6, 2008, the Company filed an amended Annual Report on Form 10-K/A ("Amended 10-K") with the Securities and Exchange Commission restating the Company's annual consolidated financial statements for fiscal year 2008 and for each of the quarters comprising fiscal year 2008. The consolidated financial statements and related disclosures for the quarter ended March 31, 2008 have been restated in this report to reflect the revenue accounting error discussed above and this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") gives effect to the restatement. General
MD&A is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as the Amended 10-K.
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We refer to "GSR," "NSR," and other types of royalty interests throughout this MD&A. These terms are defined in our Amended 10-K. Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties. Royalties are passive (non-operating) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs, if any. We seek to acquire existing royalties or to finance projects that are in production or in development stage in exchange for royalty interests. We are engaged in a continual review of opportunities to acquire existing royalties, to create new royalties through the financing of mine development or exploration, or to acquire companies that hold royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial and other confidential information, submission of

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indications of interest, participation in preliminary discussions and involvement as a bidder in competitive auctions.
The Company owns royalties on 27 producing properties, 9 development stage properties and over 80 exploration stage properties, of which the Company considers 25 to be evaluation stage projects. The Company uses "evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. We do not conduct mining operations nor are we required to contribute to capital costs, exploration costs, environment costs or other operating costs on the properties in which we hold royalty interests. During the quarter ended March 31, 2009, we focused on the management of our existing royalty interests, the acquisition of royalty interests, and the creation of royalty interests through financing and strategic exploration alliances.
Our financial results are primarily tied to the price of gold and other metals, as well as production from our producing stage royalty interests. Royalty revenue for the quarter ended March 31, 2009 was $20.8 million (which includes $0.3 million of minority interest), compared to $18.7 million (which includes $0.1 million of minority interest) for the quarter ended March 31, 2008. For the quarter ended March 31, 2009 and 2008, the price of gold averaged $908 per ounce and $925 per ounce, respectively, while the price of copper averaged $1.56 per pound and $3.52 per pound, respectively. For the three months ended March 31, 2009, Royal Gold derived 89% of its total royalty revenue from gold royalties, 3% of its total royalty revenue from silver royalties and 8% of its total revenue from other metal royalties.
The increase in royalty revenue for the quarter ended March 31, 2009, compared with the quarter ended March 31, 2008, resulted primarily from production from the recently acquired Barrick royalty portfolio, an increase in production at Taparko and commencement of production at Peñasquito and Dolores. These increases were partially offset by a decrease in gold and copper prices and a decrease in production and negative provisional pricing adjustments at Robinson. Please refer to "Recent Developments, Property Developments" below within this MD&A for further discussion on recent developments regarding properties covered by certain of our royalty interests.

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Principal Royalty Properties
Our royalty portfolio includes gold royalties on properties owned by various operating companies across five continents. While the Company maintains a strong royalty presence in Nevada, a jurisdiction with a long history of successful gold mining, our principal producing and development royalty properties outside of the United States are primarily located in Canada (Malartic), Mexico (Peñasquito, Mulatos and Dolores), Chile (Pascua-Lama) and West Africa (Taparko and Siguiri). The Company also holds royalties on properties in Argentina, Australia, Bolivia, Colombia, Finland, Honduras, Nicaragua and Russia. Our principal producing royalty interests are shown in the following table. Please refer to our Amended 10-K for further discussion on our principal producing royalty interests.

                                                                                       Royalty
Mine                       Location        Operator                         (Gold unless otherwise stated)
Cortez                     Nevada, USA     Barrick                          GSR1:    0.40%-5.0%
                                                                            sliding-scale GSR
                                                                            GSR2(1):   0.40%-5.0%
                                                                            sliding-scale GSR
                                                                            GSR3(1):   0.71% GSR
                                                                            NVR1(1):   0.39% NVR

Robinson                   Nevada, USA     Quadra Mining Ltd. ("Quadra")    3.0% NSR (copper, gold,
                                                                            silver, molybdenum)

Leeville Mining Complex    Nevada, USA     Newmont Mining Corporation       1.8% NSR
                                           ("Newmont")

Goldstrike                 Nevada, USA     Barrick                          0.9% NSR

Peñasquito(2)              Zacatecas,      Goldcorp                         2.0% NSR (gold and silver)
                           Mexico

Mulatos(3)                 Sonora,         Alamos Gold, Inc. ("Alamos")     1.0%-5.0% sliding-scale NSR
                           Mexico

Taparko(4)                 Burkina         High River Gold Mines Ltd.       15% GSR (TB-GSR1) and a 0%-10%
                           Faso, West      ("High River")                   sliding-scale GSR (TB-GSR2)
                           Africa

Siguiri(5)                 Guinea, West    AngloGold                        0.0%-1.875% sliding-scale NSR
                           Africa

Dolores                    Chihuahua,      Minefinders Corporation, Ltd.    1.25% NSR
                           Mexico          ("Minefinders")

(1) As part of the Barrick transaction, as discussed below within this MD&A, the GSR2 royalty rate was reduced to match the royalty rate of GSR1 and the portion of the GSR3 and NVR1 royalties on the mining claims that comprise the undeveloped Crossroads deposit at Cortez was eliminated. The Crossroads deposit, currently in development stage, continues to be subject to the Company's GSR2 royalty at the reduced rate. The NVR1 royalty is a 1.25% NVR royalty. The Company owns 31.6% of the 1.25% NVR (or 0.39%), while our consolidated minority interest owns the remaining portion of the 1.25% NVR royalty.

(2) The Peñasquito project consists of oxide and sulfide portions. The oxide portion of the deposit is currently in production. The sulfide portion is classified as development stage as shown below and is estimated by Goldcorp to commence production in mid-calendar 2009 and reach commercial production by the end of calendar 2009.

(3) As part of the Barrick transaction, as discussed below within this MD&A, the Mulatos sliding-scale royalty rate increased to 1.0%-5.0% from 0.30%-1.5%. The royalty is capped at 2.0 million gold ounces of production. Approximately
370,000
cumulative
ounces of gold
have been
produced as of
March 31,
2009.

(4) TB-GSR1 will remain in effect until cumulative production of 804,420 ounces of gold is achieved or until cumulative payments of $35 million have been made to Royal Gold, whichever occurs first. TB-GSR2 will remain in effect until the termination of TB-GSR1. As of March 31, 2009, we have recognized approximately $8.8 million in royalty revenue associated with TB-GSR1, which is attributable to cumulative production of approximately 67,000 ounces of gold.

(5) Royalty acquired as part of the Barrick transaction, as discussed below within this MD&A. The Siguiri royalty is subject to a dollar cap of approximately $12.0 million. As of March 31, 2009, approximately $9.3 million remains under the cap.

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Our principal development royalties are shown in the following table and are not yet in production. Please refer to our Amended 10-K for further discussion on our principal development stage royalty interests.

                                                                                   Royalty
Mine                  Location             Operator                     (Gold unless otherwise stated)
Peñasquito            Zacatecas, Mexico    Goldcorp                     2.0% NSR (gold, silver, lead
(sulfide circuit)                                                       and zinc)

Dolores(1)            Chihuahua, Mexico    Minefinders                  2.0% NSR (gold and silver)

Pascua-Lama(2)        Region III, Chile    Barrick                      0.16%-1.08% sliding-scale NSR
                                                                        0.22% fixed rate royalty
                                                                        (copper)

Malartic(3)           Quebec, Canada       Osisko Mining Corporation    2.0%-3.0% sliding-scale NSR
                                           ("Osisko")

(1) Royalty becomes effective once the facility reaches 75% of commercial production. Minefinders announced on May 7, 2009 that it has achieved commercial production at Dolores effective May 1, 2009.

(2) Barrick announced on May 7, 2009 that it will proceed with construction at Pascua-Lama. Please refer to "Recent Developments, Property Developments" below for further discussion.

(3) Royalty acquired as part of the Barrick transaction, as discussed below within this MD&A. The royalty is subject to a buy down right, which if exercised by Osisko would lower the sliding-scale NSR royalty to 1.0%-1.5%.

The Company considers both historical and future expected revenues in determining which royalties in our portfolio are principal to our business. Estimated future expected 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 and other factors and assumptions, any of which could change and could cause Royal Gold to conclude that such royalties are no longer principal to our business.

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Operators' Production Estimates by Royalty for Calendar 2009 We received production estimates from the operators of our producing mines during the first calendar quarter of 2009. The following table shows such production estimates for our principal producing properties for calendar 2009 as well as the actual production reported to us by the various operators for the quarter ended March 31, 2009. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators' estimates or production reports and have not independently assessed or verified the accuracy of such information.
Operators' Production Estimate by Royalty for Calendar 2009 and Reported Production Principal Producing Properties For the period January 1, 2009 through March 31, 2009

                                      Calendar 2009 Operator's Production                           Reported Production through
                                                  Estimate(1)                                            March 31, 2009(2)
                                   Gold              Silver             Copper              Gold              Silver              Copper
        Royalty                   (oz.)               (oz.)             (lbs.)              (oz.)              (oz.)              (lbs.)
Cortez GSR1                       345,296            -                  -                   58,273            -                   -
Cortez GSR2(3)                        614            -                  -                    5,683            -                   -
Cortez GSR3(3)                    345,910            -                  -                   63,956            -                   -
Cortez NVR1(3)                     72,863            -                  -                   34,239            -                   -
Robinson                          100,000            -                140  million          30,257            -                34.5  million
Leeville                          426,212            -                  -                  106,767            -                   -
Goldstrike                        440,879            -                  -                  136,733            -                   -
Peñasquito(4)                      70,000          2.3  million         -                   12,027          0.6  million          -
Mulatos                           145,000            -                  -                   41,871            -                   -
Dolores(5)                            N/A          N/A                  -                   14,169            -                   -
Taparko(5)                            N/A            -                  -                   22,963            -                   -
Siguiri                           300,000            -                  -                   79,836            -                   -

(1) There can be no assurance that production estimates received from our operators will be achieved. Please refer to our cautionary language regarding forward looking statements following this MD&A, as well as the Risk Factors identified herein and in Part I, Item 1A, of our Amended 10-K for information regarding factors that could affect actual results.

(2) Reported production relates to the amount of metal sales, subject to our royalty interests, for the period January 1, 2009 through March 31, 2009, as reported to us by the operators of the mines.

(3) As part of the royalty acquisition transaction between Royal Gold and Barrick, as discussed below in this MD&A, GSR2 was reduced to match the royalty rate of GSR1 and the portion of the GSR3 and NVR1 royalties on the mining claims that comprise the undeveloped Crossroads deposit at Cortez were eliminated. None of the production estimates shown are attributable to the Crossroads deposit, which is in development stage.

(4) Reported production estimate relates to the oxide circuit. The sulfide portion is classified as development stage as shown above and is estimated by Goldcorp to commence production in mid-calendar 2009 and reach commercial production by the end of calendar 2009.

(5) Production estimates have not yet been finalized by the operator.

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Recent Developments
Business Developments
Proposed Acquisition of Andacollo Production Interest On April 3, 2009, the Company entered into a definitive agreement ("Master Agreement") with a Chilean subsidiary of Teck Resources Limited ("Teck"), Compañía Minera Carmen de Andacollo ("CDA"), to acquire an interest in the gold produced from the sulfide portion of the Andacollo project in Chile (the "Andacollo Production Interest"). We refer to this transaction throughout this report as the "Teck Transaction." The purchase price for the Andacollo Production Interest initially consisted of $100 million in cash and 4,454,136 shares of the Company's common stock, $0.01 par value per share ("Common Stock") but was adjusted to $217.9 million in cash and 1,204,136 shares based on the equity offering (as discussed further under "Liquidity and Capital Resources" within this MD&A) completed by the Company. The initial number of shares to be issued was determined by dividing $200 million by the volume weighted average price of the Common Stock on the NASDAQ Global Select Market for the five day trading period that ended four trading days prior to the public announcement of the purchase of the Teck Transaction.
The Andacollo Production Interest will equal 75% of the gold produced from the sulfide portion of the deposit at the Andacollo mine until 910,000 payable ounces of gold have been sold and 50% of the gold produced in excess of 910,000 payable ounces of gold. The mine, located about 34 miles southeast of the city of La Serena, Chile, produces copper from the oxide portion of the deposit and Teck is currently constructing facilities to produce both copper and gold from the sulfide portion of the deposit. The Andacollo Production Interest will not cover copper production.
Proven and probable reserves estimated by the operator for the sulfide portion are 393.5 million tonnes with a grade of 0.39% copper and 0.13 g/t gold. This equates to 1.6 million contained ounces of gold. Reserves were estimated by the operator using a copper price of $1.50 per pound and a gold price of $480 per ounce. Gold will be produced as a by-product of copper production, with a gold recovery rate estimated by the operator to be approximately 61%. Once the mine is in full production, the operator expects the mill to have a capacity of 55,000 tonnes per day. The operator estimates that the mine will produce on average approximately 53,000 ounces of gold and 76,000 tonnes of copper in concentrate annually for the first 10 years of commercial production, with an estimated mine life of 20 years. The mine is estimated by the operator to begin initial production of gold in the fourth quarter of calendar 2009, with ramp up continuing into 2010. The operator anticipates commercial production at the mine to be achieved in the first half of calendar 2010.
Royal Gold's obligation to close the Teck Transaction is subject to CDA's completion of concentrate marketing for a specified percentage of its concentrate production from the Andacollo mine, the condition that CDA's material government approvals are not withdrawn or challenged and satisfactory completion of certain limited due diligence to Royal Gold, as well as other customary closing conditions. Either party may terminate the definitive agreement if the closing conditions are not met by October 30, 2009. The Company is currently evaluating the accounting for the Teck Transaction and will complete the initial purchase accounting during the period in which the transaction closes.
Acquisition of Barrick Royalty Portfolio Effective October 1, 2008, the Company completed its acquisition of royalties from Barrick for cash of approximately $181.3 million, including a restructuring of the Company's GSR2, GSR3 and NVR1 royalties at Cortez, valued at $31.5 million, for net cash of approximately $150 million. The transactions were completed pursuant to the Royalty Purchase and Sale Agreement ("the Agreement") dated

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July 30, 2008. The cash portion of the purchase price for the transaction was paid from the Company's cash on hand.
We acquired royalties on 72 properties in various stages of production, development, evaluation and exploration. The Company uses "evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves.
The restructuring of Royal Gold's royalty positions at Cortez consisted of:
(1) a reduction of the Company's GSR2 sliding-scale royalty (ranging from 0.72% to 9.0%) to match the current GSR1 sliding-scale royalty rate (ranging from 0.40% to 5.0%) and (2) the elimination of Royal Gold's interest in the 0.71% GSR3 royalty and the 0.39% NVR1 royalty on the mining claims that comprise the undeveloped Crossroads deposit. The GSR3 and NVR1 royalties that cover areas outside the Crossroads deposit at Cortez were not affected by this transaction. The Crossroads deposit continues to be subject to the Company's GSR2 royalty at the rate of 0.4% to 5.0%. The royalty portfolio acquired from Barrick has generated approximately $3.9 million in royalty revenue to the Company for the three months ended March 31, 2009 and approximately $7.9 million since the acquisition of the Barrick royalty portfolio on October 1, 2008. The key assets in the Barrick royalty portfolio include the following properties:
Mulatos - A sliding-scale NSR royalty currently paying 3.5% on Alamos' Mulatos mine. Prior to October 1, 2008, we owned a 0.30%-1.50% sliding-scale NSR royalty on the property. This acquisition consolidated the Mulatos royalty and increased our royalty interest to a 1.0%-5.0% sliding-scale NSR royalty. At current commodity prices, the Mulatos royalty is 5.0%. As a result of the acquisition, the Company recognized approximately $1.3 million in additional royalty revenue from Mulatos during the three months ended March 31, 2009 and approximately $2.4 million since the acquisition of the Barrick royalty portfolio on October 1, 2008. The royalty is capped at 2.0 million gold ounces of production and approximately 370,000 cumulative gold ounces have been produced through March 31, 2009;
Malartic - A 2.0%-3.0% sliding-scale NSR royalty on the Canadian Malartic gold project, owned by Osisko. Osisko announced the completion of a positive feasibility study resulting in proven and probable reserves of 202 million tons of ore, at a grade of 0.031 ounces per ton, containing 6.28 million ounces of gold, of which 4.7 million is subject to our royalty interest. Osisko estimated that gold production over the life of the mine will be approximately 591,000 ounces annually. The royalty is subject to a buy down right and is classified as a development stage royalty interest on the Company's consolidated balance sheets. If the buy down right is exercised by Osisko, the sliding-scale NSR royalty would be reduced to 1.0%-1.5%; and Siguiri - A sliding-scale NSR royalty currently paying 1.875% on the Siguiri gold mine in Guinea, West Africa, operated by AngloGold Ashanti. The Company recognized approximately $1.3 million in royalty revenue from Siguiri during the three months ended March 31, 2009 and approximately $2.5 million since the acquisition of the Barrick royalty portfolio on October 1, 2008. The royalty is capped on a dollar basis and approximately $9.3 million remains under the cap as of March 31, 2009.
Please refer to Note 2 of the notes to consolidated financial statements for further discussion on the acquisition of the Barrick royalty portfolio. Amended and Restated Credit Facility
On October 30, 2008, the Company entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement") with HSBC Bank USA National Association ("HSBC Bank"), Scotiabanc Inc.

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("Scotiabanc"), and The Bank of Nova Scotia ("Bank of Nova Scotia") which, among other things, increased the Company's existing credit facility from $80 million to $125 million and extended the maturity date to October 30, 2013. As of March 31, 2009, the Company did not have any amounts outstanding under the credit facility. Refer to "Liquidity and Capital Resources" below within this MD&A for further discussion on the Credit Agreement. Property Developments
Taparko
The Taparko mine commenced gold production in August 2007 and has contributed approximately $14.0 million in royalty revenue (from TB-GSR1 and TB-GSR2) since production commenced. Reserve characteristics, mining activity, and gold recovery performance has been near feasibility study estimates. However, mill performance has suffered since start-up due to problems associated with the grinding mill drive-train 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. In January 2009 and March 2009, High River completed further maintenance to improve mill performance. Despite the mill only achieving 68% availability, production for the quarter was higher than any prior comparable period, resulting in approximately 23,000 ounces in sales during the period.
Pursuant to the Amended and Restated Funding Agreement dated February 22, 2006 (the "Funding Agreement") between Royal Gold, Inc. and Somita SA ("Somita"), a 90% owned subsidiary of High River and the operator of Taparko, Somita is in breach of certain obligations under the Funding Agreement. The Company has invested $35 million for the development of the Taparko mine under the Funding . . .