UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                        to                                         

 

Royal Gold, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		84-0835164
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation)		Identification No.)
1660 Wynkoop Street, Suite 1000
Denver, Colorado		80202
(Address of Principal Executive Office)		(Zip Code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: 33,921,495 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of April 30, 2008.

 

 

INDEX

		PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			2
Consolidated Statements of Operations and Comprehensive Income			3
Consolidated Statement of Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			41
PART II OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			43
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 5. Other Information			43
Item 6. Exhibits			44
SIGNATURES			45
Amended and Restated Bylaws
Certification of President and Chief Executive Officer Required by Section 302
Certification of Chief Financial Officer Required by Section 302
Written Statement of the President and Chief Executive Officer Pursuant to Section 906
Written Statement of the Chief Financial Officer Pursuant to Section 906

ROYAL GOLD, INC.
Consolidated Balance Sheets
(In thousands except share data)

		March 31,				June 30,
		2008				2007
		(Unaudited)
Current assets
Cash and equivalents		$	183,823			$	82,842
Royalty receivables			15,677				12,470
Deferred tax assets			83				154
Prepaid expenses and other			329				217
Total current assets			199,912				95,683
Royalty interests in mineral properties, net (Note 4)			306,277				215,839
Restricted cash – compensating balance			15,750				15,750
Inventory – restricted (Note 11)			10,904				10,612
Note receivable – Battle Mountain Gold Exploration (Note 2)			—				14,494
Other assets			7,445				4,271
Total assets		$	540,288			$	356,649
Current liabilities
Accounts payable		$	4,738			$	2,342
Income taxes payable			187				5
Dividends payable			2,384				1,869
Other			1,649				472
Total current liabilities			8,958				4,688
Net deferred tax liabilities			25,017				5,911
Note payable			15,750				15,750
Other long-term liabilities			488				98
Total liabilities			50,213				26,447
Commitments and contingencies (Note 10)
Minority interest in subsidiary (Note 11)			11,119				11,121
Stockholders’ equity
Common stock, $0.01 par value, authorized 100,000,000 shares; and issued 34,347,705 and      28,892,980 shares, respectively			344				289
Additional paid-in capital			468,982				310,439
Accumulated other comprehensive income			176				458
Accumulated earnings			16,067				8,992
Less treasury stock, at cost (426,210 and 229,224 shares, respectively)			(6,613	)			(1,097	)
Total stockholders’ equity			478,956				319,081
Total liabilities and stockholders’ equity		$	540,288			$	356,649

ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited, in thousands except share data)

		For The Three Months Ended
		March 31,				March 31,
		2008				2007
Royalty revenues		$	19,516			$	11,209
Costs and expenses
Costs of operations (exclusive of depreciation, depletion and amortization shown separately below)			1,046				712
General and administrative			1,981				1,565
Exploration and business development			817				679
Depreciation, depletion and amortization			5,925				2,562
Total costs and expenses			9,769				5,518
Operating income			9,747				5,691
Interest and other income			1,715				457
Interest and other expense			(330	)			(670	)
Income before income taxes			11,132				5,478
Current tax expense			(3,814	)			(1,891	)
Deferred tax benefit			242				205
Minority interest in income of consolidated subsidiary			(140	)			(353	)
Net income		$	7,420			$	3,439
Adjustments to comprehensive income
Unrealized loss in market value of available for sale securities, net of tax			(109	)			(83	)
Comprehensive income		$	7,311			$	3,356
Net income		$	7,420			$	3,439
Preferred stock dividends and deemed dividend			(3,584	)			—
Net income available to common stockholders		$	3,836			$	3,439
Basic earnings per share		$	0.12			$	0.14
Basic weighted average shares outstanding			30,932,084				24,042,235
Diluted earnings per share		$	0.12			$	0.14
Diluted weighted average shares outstanding			31,213,663				24,318,738

ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited, in thousands except share data)

		For The Nine Months Ended
		March 31,				March 31,
		2008				2007
Royalty revenues		$	47,729			$	33,993
Costs and expenses
Costs of operations (exclusive of depreciation, depletion and amortization shown separately below)			2,838				2,280
General and administrative			5,509				4,231
Exploration and business development			3,298				1,570
Depreciation, depletion, and amortization			11,933				5,751
Total costs and expenses			23,578				13,832
Operating income			24,151				20,161
Interest and other income			5,667				2,383
Interest and other expense			(1,492	)			(802	)
Income before income taxes			28,326				21,742
Current tax expense			(9,989	)			(7,811	)
Deferred tax benefit			1,143				1,167
Minority interest in income of consolidated subsidiary			(682	)			(1,064	)
Loss from equity investment			(550	)			—
Net income		$	18,248			$	14,034
Adjustments to comprehensive income
Unrealized loss in market value of available for sale securities, net of tax			(282	)			(194	)
Comprehensive income		$	17,966			$	13,840
Net income		$	18,248			$	14,034
Preferred stock dividends and deemed dividend			(4,788	)			—
Net income available to common stockholders		$	13,460			$	14,034
Basic earnings per share		$	0.45			$	0.59
Basic weighted average shares outstanding			29,808,962				23,653,946
Diluted earnings per share		$	0.45			$	0.59
Diluted weighted average shares outstanding			30,134,888				23,956,549

ROYAL GOLD, INC.
Consolidated Statement of Stockholders’ Equity for the Nine Months Ended March 31, 2008
(Unaudited, in thousands except share data)

																						Accumulated
																		Additional				Other
		Preferred Shares								Common Shares								Paid-In				Comprehensive								Treasury Stock								Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Income				Accumulated Earnings				Shares				Amount				Equity
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 (Note 7)			1,150,000				115,000												(3,902	)																			111,098
Issuance of common stock for:
Conversion of 7.25% Mandatory
Convertible Preferred Stock (Note 7)			(1,150,000	)			(115,000	)			3,977,683				40				116,946																				1,986
Battle Mountain acquisition (Note 2)											1,144,025				11				35,832																				35,843
Equity offering costs (April 2007)																			(29	)																			(29	)
Exercise of stock options											96,750				1				701																				702
Vesting of restricted stock											19,625				1																								1
IAMGOLD Corporation and Repadre
International Corporation (Note 7)											216,642				2				6,343																				6,345
Repurchase of common stock (Note 7)																															196,986				(5,516	)			(5,516	)
Tax benefit of stock-based compensation exercises																			507																				507
Recognition of non-cash compensation expense for stock-based compensation																			2,145																				2,145
Net income and comprehensive loss for the nine months ended																							(282	)			18,248												17,966
Preferred stock deemed divided upon conversion of 7.25% Mandatory Convertible																											(1,986	)											(1,986	)
Preferred stock dividends declared																											(2,802	)											(2,802	)
Common stock dividends declared																											(6,385	)											(6,385	)
Balance at March 31, 2008			—			$	—				34,347,705			$	344			$	468,982			$	176			$	16,067				426,210			$	(6,613	)		$	478,956

ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)

		For The Nine Months Ended
		March 31,				March 31,
		2008				2007
Cash flows from operating activities
Net income		$	18,248			$	14,034
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			11,933				5,751
Deferred tax benefit			(1,143	)			(1,167	)
Non-cash employee stock compensation expense			2,145				1,725
Loss on available for sale securities			49				—
Interest income accrued for Battle Mountain note receivable			(713	)			—
Tax benefit of stock-based compensation exercises			(507	)			(97	)
Changes in assets and liabilities:
Royalty receivables			(2,479	)			(2,261	)
Prepaid expenses and other assets			(2,199	)			(270	)
Accounts payable			3,010				2,646
Income taxes payable (receivable)			541				(1,001	)
Accrued liabilities and other current liabilities			(151	)			(198	)
Other long-term liabilities			(20	)			(20	)
Net cash provided by operating activities		$	28,714			$	19,142
Cash flows from investing activities
Capital expenditures for property and equipment		$	(12	)		$	(268	)
Acquisition of royalty interests in mineral properties			(15,939	)			(119,736	)
Note Receivable – Battle Mountain Gold Exploration			—				(13,927	)
Deferred acquisition costs			(63	)			(375	)
Restricted cash – compensating balance			—				(15,750	)
Purchase of available for sale securities			—				(81	)
Battle Mountain acquisition, net of cash acquired of $1,398,181			(2,933	)			—
Net cash used in investing activities		$	(18,947	)		$	(150,137	)
Cash flows from financing activities:
Tax benefit of stock-based compensation exercises		$	507			$	97
Debt issuance costs			(27	)			(461	)
Revolving credit facility payable			—				60,000
Note payable			—				15,750
Common stock dividends			(5,869	)			(4,142	)
Preferred stock dividends			(2,802	)			—
Gold loan payoff – Battle Mountain			(6,852	)			—
Net proceeds from issuance of common stock			675				470
Net proceeds from issuance of preferred stock			111,098				—
Stock repurchase program			(5,516	)			—
Net cash provided by financing activities		$	91,214			$	71,714
Net increase (decrease) in cash and equivalents			100,981				(59,281	)
Cash and equivalents at beginning of period			82,842				78,449
Cash and equivalents at end of period		$	183,823			$	19,168
Supplemental cash flow information:
Non-cash financing activities:
Acquisition of royalty interest in mineral property (with common stock)		$	—			$	18,495
Conversion of preferred stock to common stock		$	116,946			$	—
Battle Mountain acquisition (with common stock)		$	35,832			$	—

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

1.

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

Operations

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

We seek to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. We are engaged in a continual review of opportunities to acquire existing royalties, to create new royalties through the financing of mine development or exploration, or to acquire companies that hold royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial and other confidential information, submission of indications of interest, participation in preliminary discussions and involvement as a bidder in competitive auctions. We also fund exploration on properties thought to contain precious metals and seek to obtain royalties and other carried ownership interests in such properties through the subsequent transfer of operating interests to other mining companies. Substantially all of our revenues are and will be expected to be derived from royalty interests. We do not conduct mining operations at this time.

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair statement have been included in this Form 10-Q. Operating results for the nine months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2008. Certain prior period amounts have been reclassified to conform to the current period presentation. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

Recently Issued Accounting Pronouncements

On July 13, 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109, was issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 on July 1, 2007. Refer to Note 10 for a discussion regarding the effect of adopting FIN 48.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement No. 157 provides guidance for using fair value to measure assets and liabilities. Statement No. 157 applies whenever other accounting standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Under Statement No. 157, fair value

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

refers to the price that would be received to sell an asset or paid to transfer a liability between participants in the market in which the reporting entity transacts. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. The provisions of Statement No. 157 are effective for our fiscal year beginning July 1, 2008, and interim periods within the fiscal year. The Company is evaluating the impact, if any, the adoption of Statement No. 157 could have on its financial statements.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which allows entities to choose to measure many financial instruments and certain other items at fair value. The provisions of Statement No. 159 are effective for our fiscal year beginning July 1, 2008, and interim periods within the fiscal year. The Company is evaluating the impact, if any, the adoption of Statement No. 159 could have on its financial statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations,” (“SFAS 141R”), which significantly changes the ways companies account for business combinations and will generally require more assets acquired and liabilities assumed to be measured at their acquisition date fair value. Under SFAS 141R, legal fees and other transaction-related costs are expensed as incurred and are no longer included in goodwill as a cost 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, and is to be applied prospectively. The Company is evaluating the impact, if any, the adoption of SFAS 141R could have on its financial statements.

Also in December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires all entities to report non-controlling interests in subsidiaries as a separate component of equity in the consolidated financial statements. SFAS 160 establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. Companies will no longer recognize a gain 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 measure at fair value 100 percent of the assets and liabilities, including goodwill, as if the entire target company had been acquired. SFAS 160 is effective for the Company’s fiscal year beginning July 1, 2009, and is to be applied prospectively. The Company is evaluating the impact, if any, the adoption of SFAS 160 could have on its financial statements.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 intends to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS 161 also requires disclosure about an entity’s strategy and objectives for using derivatives, the fair values of derivative instruments and their related gains and losses. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and will be applicable to the Company’s fiscal year beginning July 1, 2009. The Company is evaluating the impact, if any, the adoption of SFAS 161 could have on its financial statements.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

2.

ACQUISITION OF BATTLE MOUNTAIN GOLD EXPLORATION

On July 30, 2007, we entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) with Battle Mountain and Royal Battle Mountain, Inc. (“Merger 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. Immediately prior to the merger, Royal Gold owned approximately 18% of Battle Mountain’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 nine months ended March 31, 2008.

As part of the acquisition of Battle Mountain, we acquired thirteen royalty interests in various stages of production, development or exploration. Please refer to Note 4 for a further discussion on the thirteen royalty interests acquired from Battle Mountain.

Subject to settlement of the Battle Mountain litigation discussed below, additional merger consideration of up to an aggregate of 37,418 shares of Royal Gold common stock and approximately $0.1 million in cash may be paid to former Battle Mountain stockholders. On September 13, 2006, an action was filed against Battle Mountain and its former Chairman and Chief Executive Officer, Mark Kucher, by James E. McKay, a former officer and director of Battle Mountain, in the second Judicial Court of the State of Nevada. The action seeks to enforce alleged rights to certain shares of Battle Mountain common stock and options to purchase shares of Battle Mountain common stock pursuant to a stock option agreement and a stock option plan, and unspecified damages. Royal Gold may pay the additional consideration described above to Battle Mountain stockholders depending upon the cost of settling this litigation.

The acquisition of Battle Mountain has been accounted for as an asset acquisition using the purchase method of accounting, whereby assets acquired and liabilities assumed were recorded at their fair market values as of the date of acquisition. The purchase price was calculated using the fair market value of the Royal Gold common shares issued, as of the date we completed the transaction, plus cash and direct acquisition costs paid by Royal Gold.

We have allocated the purchase price of approximately $65.8 million to the fair market values of the assets acquired and liabilities assumed, including $85.5 million to royalty interests in mineral properties, $2.2 million to current assets, $5.8 million to intangible assets (included within Other assets on the consolidated balance sheets), $3.8 million to deferred tax assets, $6.5 million to a gold loan payable, $24.5 million to deferred tax liabilities resulting from the acquisition and $0.5 million of other liabilities. The amounts allocated to the acquired royalty interests in mineral properties and related deferred taxes are preliminary and are subject to change upon completion of final valuations. The operating impact of the assets acquired from Battle Mountain have been reflected in the results of Royal Gold from October 24, 2007.

The gold loan payable assumed as part of the acquisition of Battle Mountain was paid in full during November 2007. The Note Receivable – Battle Mountain Gold Exploration as shown on the Company’s consolidated balance sheets as of June 30, 2007, was assumed during the acquisition and was included in the purchase price for Battle Mountain.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

3. ROYALTY ACQUISITIONS

Marigold and El Chanate Royalty Acquisitions

On February 20, 2008, we acquired three royalties from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold’), a wholly-owned subsidiary of AngloGold Ashanti North America Inc., for $13.75 million. The first royalty is a 2.0% net smelter return (“NSR”) royalty on the Marigold mine, located on the Battle Mountain-Eureka trend in Nevada, and operated by Goldcorp, Inc. (“Goldcorp”). The second royalty is a 2.0-4.0% sliding-scale NSR royalty on the El Chanate mine, located in Sonora, Mexico and operated by Capital Gold, Inc. (“Capital 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”) royalty, also on the El Chanate mine. The 10.0% NPI royalty at El Chanate is capped at $1.0 million.

The sliding-scale NSR royalty at El Chanate pays at a rate of 2.0% when the average gold price is below $300 per ounce, 3.0% when the gold price is between $300 and $350 per ounce, and 4.0% when the gold price is above $350 per ounce. The El Chanate mine commenced production in mid-2007. For the three and nine months ended March 31, 2008, we recognized royalty revenue associated with the El Chanate sliding-scale and NPI royalties of $0.2 million and $0, respectively. Including royalty payments made to AngloGold, there have been cumulative payments made on the sliding-scale NSR royalty of $0.7 million, resulting in $16.3 million remaining under the $17.0 million cap as of March 31, 2008. There have been no payments made on the NPI royalty as of March 31, 2008.

The 2.0% NSR royalty interest on the Marigold mine covers the majority of six sections of land, containing a number of open-pits, but does not cover the current mining in the Basalt/Antler area. Approximately 38% of the current Marigold reserves are covered by this royalty. Based on our own estimates, we expect to begin receiving royalty payments on the 2.0% NSR royalty on the Marigold mine in calendar 2011, when mine operations are expected to move into areas covered by our royalty interest.

The AngloGold transaction has been accounted for as a purchase of assets. The total purchase price of $13.75 million, less royalty amounts received for production prior to the purchase date of $0.15 million, plus direct transaction costs, has been allocated to the three acquired royalties according to their relative fair values, as separate components of Royalty Interests in Mineral Properties on our consolidated balance sheets. Accordingly, $7.5 million has been allocated to the sliding-scale NSR royalty at El Chanate, $0.8 million has been allocated to the NPI royalty at El Chanate, and $5.3 million has been allocated to the Marigold royalty.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

4.

ROYALTY INTERESTS IN MINERAL PROPERTIES

     The following table summarizes the net book value of each of our royalty interests in mineral properties as of March 31, 2008 and June 30, 2007.

						Accumulated Depletion &
As of March 31, 2008 (Amounts in thousands):		Gross				Amortization				Net
Production stage royalty interests:
Pipeline Mining Complex
GSR1		$	—			$	—			$	—
GSR2			—				—				—
GSR3			8,105				(6,825	)			1,280
NVR1			2,525				(2,009	)			516
Bald Mountain			1,979				(1,836	)			143
SJ Claims			20,788				(8,254	)			12,534
Robinson			17,825				(3,638	)			14,187
Mulatos			7,442				(1,177	)			6,265
Troy mine GSR royalty			7,250				(4,447	)			2,803
Troy mine Perpetual royalty			250				—				250
Taparko mine
TB-GSR1			25,978				(2,195	)			23,783
TB-GSR2			7,592				(635	)			6,957
Leeville South			1,776				(1,776	)			—
Leeville North			15,719				(3,195	)			12,524
Martha			173				(173	)			—
Don Mario			5,028				(803	)			4,225
Williams			3,978				(298	)			3,680
El Limon			2,326				(250	)			2,076
El Chanate NSR			7,563				(68	)			7,495
El Chanate NPI			766				—				766
			137,063				(37,579	)			99,484
Development stage royalty interests:
Peñasquito			99,172				—				99,172
Taparko mine
TB-GSR3			1,071				—				1,071
Pascua-Lama			20,446				—				20,446
Gold Hill			3,340				—				3,340
Dolores			40,989				—				40,989
Don Mario			6,488				—				6,488
Benso			1,910				—				1,910
Marigold			5,301				—				5,301
			178,717				—				178,717
Exploration stage royalty interests:
Taparko mine
TB-GSR3			217				—				217
TB-MR1			142				—				142
Pascua-Lama			411				—				411
Leeville North			827				(271	)			556
Buckhorn South			70				—				70
Dolores			9,866				—				9,866
El Limon			5,653				—				5,653
Relief Canyon			1,075				—				1,075
Williams			2,736				—				2,736
Seguenega			2,880				—				2,880
Joe Mann			1,000				—				1,000
Marmato			470				—				470
Lluvia de Oro			500				—				500
Fletcher Junction			500				—				500
Night Hawk Lake			1,000				—				1,000
Hot Pot			500				—				500
Vueltas del Rio			500				—				500
			28,347				(271	)			28,076
Total royalty interests in mineral properties		$	344,127			$	(37,850	)		$	306,277

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

						Accumulated
						Depletion &
As of June 30, 2007 (Amounts in thousands)		Gross				Amortization				Net
Production stage royalty interests:
Pipeline Mining Complex
GSR1		$	—			$	—			$	—
GSR2			—				—				—
GSR3			8,105				(6,444	)			1,661
NVR1			2,525				(1,978	)			547
Bald Mountain			1,978				(1,833	)			145
SJ Claims			20,788				(7,159	)			13,629
Robinson			17,825				(2,053	)			15,772
Mulatos			7,442				(664	)			6,778
Troy mine GSR royalty			7,250				(3,035	)			4,215
Troy mine Perpetual royalty			250				—				250
Leeville South			1,776				(1,776	)			—
Leeville North			15,086				(1,472	)			13,614
Martha			173				(173	)			—
			83,198				(26,587	)			56,611
Development stage royalty interests:
Peñasquito			99,172				—				99,172
Taparko mine
TB-GSR1			25,681				—				25,681
TB-GSR2			7,506				—				7,506
TB-GSR3			1,059				—				1,059
Pascua-Lama			20,445				—				20,445
Gold Hill			3,340				—				3,340
			157,203				—				157,203
Exploration stage royalty interests:
Taparko mine
TB-GSR3			215				—				215
TB-MR1			140				—				140
Pascua-Lama			411				—				411
Leeville North			1,460				(271	)			1,189
Buckhorn South			70				—				70
			2,296				(271	)			2,025
Total royalty interests in mineral properties		$	242,697			$	(26,858	)		$	215,839

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Discussed below is an update to our royalty interests in mineral properties during our fiscal year 2008. Please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007, for further information about the Company’s producing, development and exploration stage royalty interests.

Troy Mine

The 7.0% gross smelter return (“GSR”) royalty from all metals and products produced and sold from the Troy underground silver and copper mine extends until either cumulative production of approximately 9.9 million ounces of silver and 84.6 million pounds of copper, or the Company receives $10.5 million in cumulative payments, whichever occurs first. As of March 31, 2008, we have recognized royalty revenue associated with the GSR royalty totaling $7.1 million, which is attributable to cumulative production of approximately 3.0 million ounces of silver and approximately 26.0 million pounds of copper.

Taparko Mine

The 15.0% GSR (TB-GSR1) royalty on all gold produced from the Taparko open pit gold mine 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. The sliding-scale GSR royalty (TB-GSR2 ranging from 0% to 10%) on all gold produced from the Taparko mine is effective concurrently with TB-GSR1, and will remain in effect until the termination of TB-GSR1. As of March 31, 2008, we have recognized royalty revenue associated with the TB-GSR1 royalty totaling $2.9 million, which is attributable to cumulative production of 23,022 ounces of gold.

During our first fiscal quarter of 2008, High River commenced production at the Taparko mine. Accordingly, we reclassified our cost basis in TB-GSR1 and TB-GSR2 from development stage royalty interests to production stage royalty interests. As such, we began depleting the associated cost basis using the units of production method during the first quarter of fiscal 2008.

Our royalties on the Taparko mine were subject to completion of our $35 million funding commitment to Somita and the royalty documents for the forgoing royalties had been signed but held pending the completion of the funding commitment. We completed the remaining $0.4 million of our funding commitment on September 27, 2007. See Note 10 for further discussion.

Leeville Mining Complex

We carry our interest in the non-reserve portion of Leeville North as an exploration stage royalty interest, which is not subject to amortization at this time. During our third fiscal quarter of 2008, Newmont communicated to us that additional proven and probable reserves were developed at Leeville North. As such, we reclassified approximately $0.6 million of our cost basis in the Leeville North exploration stage royalty interest to the Leeville North production stage royalty interest. In the event that future proven and probable reserves associated with our royalty interest are developed at Leeville North, additional cost basis of our exploration stage royalty interest will be reclassified as a development stage royalty interest or a production stage royalty interest in future periods, as appropriate. In the event that future circumstances indicate that the non-reserve portion of Leeville North will not be converted into proven and probable reserves, we will evaluate our carrying value in the exploration stage interest for impairment.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

El Chanate

As discussed in Note 3, we own a sliding-scale NSR royalty on the El Chanate mine, located in Sonora, Mexico, and operated by Capital Gold. The sliding-scale ranges from 2.0%, when the gold price is below $300 per ounce, to 4.0% when the gold price is above $350 per ounce. The sliding-scale royalty is in effect until cumulative payments of approximately $17.0 million have been made to Royal Gold. We also own a 10.0% NPI royalty on the El Chanate mine, which is in effect until cumulative payments of $1.0 million have been made to Royal Gold. As the El Chanate mine is currently in production, we have classified our cost basis in the sliding-scale and NPI royalties as production stage royalty interests, which are subject to depletion using the units of production method. As of March 31, 2008, we have recognized royalty revenue associated with the sliding-scale royalty and the NPI royalty of $0.2 million and $0, respectively.

Marigold

As discussed in Note 3, we own a 2.0% NSR royalty on the Marigold mine, which contains a number of open-pits, and is located in Humboldt County, Nevada, at the north end of the Battle Mountain-Eureka Trend. The Marigold mine is operated by Goldcorp. Our royalty interest on the Marigold mine covers the majority of six sections of land but does not cover the current mining in the Basalt/Antler area. Our 2.0% NSR royalty is associated with existing proven and probable reserves and has been classified as a development stage royalty interest, which is not subject to amortization at this time.

Don Mario

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 3.0% NSR royalty on the Don Mario mine which is an open-pit and underground gold mine located in the Chiquitos Province of Bolivia. The Don Mario mine is operated by Orvana Minerals Corporation. A portion of the Don Mario royalty is currently in production and is classified as a production stage royalty interest. The production stage portion of the royalty is being depleted using the units of production method. A portion of the Don Mario royalty is associated with existing proven and probable reserves but is not currently in production. The non-producing portion has been classified as a development stage royalty interest, which is not subject to amortization at this time.

Williams

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 0.72% NSR royalty interest on the underground and open-pit Williams mine located in Marathon, Ontario, Canada. This gold mine is owned and operated by Teck Cominco Limited (50%) and a subsidiary of Barrick (50%). A portion of the Williams royalty is currently in production and is classified as a production stage royalty interest. The production stage portion of the royalty is being depleted using the units of production method. The portion of the Williams royalty which is not currently associated with proven and probable reserves is classified as an exploration stage royalty interest, and is not subject to amortization at this time.

El Limon

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 3.0% NSR royalty on the underground El Limon gold mine located in northern Nicaragua. The mine is owned and operated by Central Sun Mining Inc. (95%) and Inversiones Mineras S.A. (5%). A portion of the El Limon royalty is currently in production and is classified as a production stage royalty interest. The production stage portion of the royalty is being depleted using the units of production method. The portion of the El

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Limon royalty which is not currently associated with proven and probable reserves is classified as an exploration stage royalty interest and is not subject to amortization at this time.

Dolores

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, 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 owned and operated by a subsidiary of Minefinders Corporation Ltd. The 2.0% NSR royalty becomes effective when the facility has been producing at 75% of its design capacity for three consecutive months. We carry our interest in the proven and probable reserves at the Dolores project as a development stage royalty interest, which is not currently subject to amortization. The remaining portion of the Dolores royalty, which is not currently associated with proven and probable reserves, is classified as an exploration stage royalty interest and is not subject to amortization at this time.

Benso

We hold a 1.5% NSR royalty on gold produced from the Benso concession located in the Western Region of the Republic of Ghana, West Africa. The Benso concession, controlled by Golden Star, is located approximately 25 miles south of Golden Star’s Wassa mine. We carry our interest in the Benso gold concession as a development stage royalty interest, which is not subject to amortization at this time.

Relief Canyon

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 4.0% NSR royalty on the mineral deposit at Relief Canyon, located in Pershing County, Nevada, and owned by Firstgold Incorporated. The Relief Canyon royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

Seguenega

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 3.0% NSR royalty on the Seguenega (“Sega”) project, located in northern Burkina Faso, West Africa, and owned by Orezone Resources Incorporated. The Sega royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

Joe Mann

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 1.8% to 3.6% sliding-scale NSR royalty on gold produced from the Joe Mann mine located 330 miles north of Montreal, Quebec, Canada. The Joe Mann mine currently is owned by Campbell Resources Incorporated but is subject to a memorandum of understanding for sale of the mine to Gold Bullion Development Corporation. We also hold a 2.0% NSR royalty on all silver production in excess of 1.0 million ounces and a 2.0% NSR royalty on all copper production greater than 5.0 million pounds. The Joe Mann royalty interest is classified as an exploration stage royalty interest as it is currently under care and maintenance and is not subject to amortization at this time.

Marmato

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we own a 5.0% NSR royalty on certain properties located in the Municipality of Marmato in Colombia, South America, and believed to be owned by Mineros Nacionales S.A. The Marmato royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Lluvia de Oro

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we hold a 4.0% NSR royalty on the Lluvia de Oro property, located in Sonora, Mexico. The mining concessions to which the royalty applies are believed to be held by Atotoncilco Construcciones, S.A. de C.V., subject to the right of a subsidiary of Tara Gold Resources Corp. (“Tara Gold”) to acquire the concessions. Tara Gold has entered into an agreement with Columbia Metals Corporation, pursuant to which Columbia Metals Corporation may acquire the concessions, subject to a retained interest by Tara Gold. The Lluvia de Oro royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

Fletcher Junction and Hot Pot

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we hold a 1.25% NSR royalty on both the Fletcher Junction property and the Hot Pot property. Both properties are located in Mineral County, Nevada, and are owned by Pediment Gold LLC (“Pediment”). The Fletcher Junction and Hot Pot royalty interests are classified as exploration stage royalty interests, which are not subject to amortization at this time.

Night Hawk Lake

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we hold a 2.5% NSR royalty on the Night Hawk Lake property located in Ontario, Canada, and owned by Selkirk Metals Corporation (40%), East West Resource Corporation (40%), and Canadian Golden Dragon Resources Limited (20%). The Night Hawk Lake royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

Vueltas Del Rio

As part of the acquisition of Battle Mountain (Note 2) on October 24, 2007, we hold a 2.0% NSR royalty on the Vueltas Del Rio property, located in Honduras, and owned by Lundin Mining Corporation. The Vueltas del Rio royalty interest is classified as an exploration stage royalty interest, which is not subject to amortization at this time.

5.

CREDIT FACILITY

On January 23, 2008, the Company entered into an amendment of its existing credit facility with HSBC Bank USA, National Association. The amendment extends the maturity date of the credit facility two years from December 31, 2010 to December 31, 2012. The amendment also updated the assumptions used in the calculation of the borrowing base, which included an increase in the metal price assumption of gold and added a metal price assumption for silver.

The $80 million credit facility bears interest at LIBOR plus 1.5% and includes both affirmative and negative covenants, as defined, so long as any portion of the facility is outstanding and unpaid. The Company’s borrowing base will be calculated based on our GSR1, GSR3, and NVR1 royalties at the Pipeline Mining Complex and our SJ Claims, Leeville, Bald Mountain and Robinson royalties. Additional royalties may be added to the borrowing base calculation with the lender’s approval. As of March 31, 2008, the total availability under the borrowing base was $80.0 million, based upon the future cash flows from the royalties included in the borrowing base calculation. The borrowing base calculation is recalculated as of April 15 and October 15 each year. As of April 15, 2008, the Company’s borrowing

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

capacity under the credit facility was $70.8 million. The Company had no amounts outstanding under the credit facility as of March 31, 2008 and June 30, 2007.

6.

STOCK-BASED COMPENSATION

For the three and nine months ended March 31, 2008, we recorded total non-cash stock compensation expense related to our equity compensation plan of $0.7 million and $2.1 million, respectively, compared to $0.4 million and $1.7 million for the three and nine months ended March 31, 2007, respectively. 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 as summarized below:

		For The Three Months Ended								For The Nine Months Ended
		March 31,				March 31,				March 31,				March 31,
(Amounts in thousands)		2008				2007				2008				2007
Non-cash stock compensation allocation:
Cost of operations		$	99			$	48			$	257			$	222
General and administrative			350				240				1,159				1,082
Exploration and business development			278				114				729				421
Total non-cash stock compensation expense		$	727			$	402			$	2,145			$	1,725

As of March 31, 2008, there are 70,567 shares of common stock reserved for future issuance under our current long-term incentive plan.

Stock Options

For the three months ended March 31, 2008 and 2007, we recorded non-cash stock compensation expense associated with stock options of $0.3 million and $0.2 million, respectively. For the nine months ended March 31, 2008 and 2007, we recorded non-cash compensation associated with stock options of $0.9 million and $0.8 million. To determine non-cash stock compensation expense for stock option awards, the fair value of each stock option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model for all periods presented.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

A summary of the status of the Company’s non-vested stock options for the nine months ended March 31, 2008 and 2007, is presented below:

		2008								2007
						Weighted-								Weighted-
						Average								Average
						Grant Date								Grant Date
		Shares				Fair Value				Shares				Fair Value
Non-vested at beginning of period			138,434			$	13.00				132,334			$	11.24
Granted			110,500			$	12.82				108,100			$	13.79
Vested			(99,517	)		$	12.45				(91,167	)		$	11.62
Forfeited			(1,250	)		$	13.94				(10,833	)		$	10.93
Non-vested at March 31			148,167			$	13.23				138,434			$	13.00

The total intrinsic value of options exercised during the three and nine month periods ended March 31, 2008, was $1.6 million and $2.3 million, respectively. The total intrinsic value of options exercised during the three and nine month periods ended March 31, 2007, was $0.1 million and $0.4 million, respectively.

As of March 31, 2008, there was $1.4 million of total unrecognized non-cash stock compensation expense related to non-vested stock options granted under our equity compensation plan, which is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of shares vested during the three months ended March 31, 2008 and 2007, was $24,000 and $0, respectively. The total fair value of shares vested during the nine months ended March 31, 2008 and 2007, was $1.3 million and $1.1 million, respectively.

Other Stock-based Compensation

Officers and certain employees may be granted shares of restricted common stock that can be earned only if defined multi-year performance goals are met within five years of the date of grant (“Performance Shares”). For the three and nine months ended March 31, 2008, we recorded non-cash stock compensation expense associated with our Performance Shares of $0.2 million and $0.4 million, respectively. For the three and nine months ended March 31, 2007, we recorded non-cash stock compensation expense associated with our Performance Shares of $0.2 million and $0.6 million, respectively.

A summary of the status of the Company’s non-vested Performance Shares for the nine months ended March 31, 2008 and 2007, is presented below:

		2008								2007
						Weighted-								Weighted-
						Average								Average
						Grant Date								Grant Date
		Shares				Fair Value				Shares				Fair Value
Non-vested at beginning of period			27,000			$	28.78				41,500			$	19.19
Granted			48,000			$	29.75				36,000			$	28.78
Vested			(9,000	)		$	28.78				—			$	—
Forfeited			—			$	—				(5,625	)		$	19.53
Non-vested at March 31			66,000			$	29.49				71,875			$	23.97

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

We measure the fair value of the Performance Shares based upon the market price of our common stock as of the date of grant. As of March 31, 2008, total unrecognized non-cash stock compensation expense related to our Performance Shares was $0.4 million, which is expected to be recognized over the remaining vesting period of 0.75 years.

Officers, non-executive directors and certain employees may be granted shares of restricted stock that vest on continued service alone (“Restricted Stock”). For the three months ended March 31, 2008 and 2007, we recorded non-cash stock compensation expense associated with the Restricted Stock of $0.2 million and $0.1 million, respectively. For the nine months ended March 31, 2008 and 2007, we recorded non-cash stock compensation expense associated with the Restricted Stock of $0.8 million and $0.3 million, respectively.

A summary of the status of the Company’s non-vested Restricted Stock for the nine months ended March 31, 2008 and 2007, is presented below:

		2008								2007
						Weighted-								Weighted-
						Average								Average
						Grant Date Fair								Grant Date Fair
		Shares				Value				Shares				Value
Non-vested at beginning of period			117,000			$	24.73				77,250			$	20.60
Granted			87,500			$	29.75				63,500			$	28.83
Vested			(10,625	)		$	29.59				(7,500	)		$	26.41
Forfeited			(625	)		$	29.20				(16,250	)		$	20.36
Non-vested at March 31			193,250			$	26.72				117,000			$	24.73

We measure the fair value of the Restricted Stock based upon the market price of our common stock as of the date of grant. As of March 31, 2008, total unrecognized non-cash stock compensation expense related to Restricted Stock was $4.0 million, which is expected to be recognized over a remaining average vesting period of 4.25 years.

7. STOCKHOLDERS’ EQUITY

Stock Issuances

On September 4, 2007, we issued 216,642 shares of our common stock to IAMGOLD Corporation (“IAMGOLD”) and Repadre International Corporation (“Repadre”) in connection with our acquisition from IAMGOLD and Repadre of all of their issued and outstanding shares of Battle Mountain common stock. We had the option to acquire the shares of Battle Mountain common stock from IAMGOLD and Repadre pursuant to an option and support agreement we entered into with IAMGOLD in connection with the merger with Battle Mountain.

On October 24, 2007, we issued 1,144,025 shares of our common stock to Battle Mountain shareholders as part of the Company’s acquisition of 100% of the issued and outstanding shares of Battle Mountain. Refer to Note 2 for further discussion regarding the acquisition of Battle Mountain.

On March 10, 2008, we issued 3,977,683 shares of our common stock as part of the conversion of our 7.25% mandatory convertible preferred stock (“Preferred Stock”). Please refer to “Mandatory Convertible Preferred Stock” below for further information regarding the Preferred Stock.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Common Stock Repurchase

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 is included in Treasury Stock on the Company’s consolidated balance sheets as of March 31, 2008. The common stock repurchase program, pursuant to the January 25, 2008, announcement, ended on March 31, 2008.

On April 2, 2008, the Company determined that it will cancel the 196,986 common shares reacquired, pursuant to the repurchase plan. The 196,986 common shares repurchased will be returned to the Company’s authorized but unissued amount of common stock.

Mandatory Convertible Preferred Stock

On November 9, 2007, the Company completed an offering of 1.15 million shares of Preferred 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 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’s discretion, in cash, common 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’s board of directors declared the regular quarterly dividend for the first dividend period of $1.9333 per share of the Preferred Stock. The dividend was payable on February 15, 2008, to preferred shareholders of record at the close of business on February 1, 2008. The preferred dividend was paid in cash.

Each share of the Preferred Stock was to automatically convert on November 15, 2010, into between 2.8335 and 3.4002 shares of our common stock, subject to anti-dilution adjustments. At any time prior to November 15, 2010, holders may have elected to convert each share of the Preferred Stock into shares of our common stock at the minimum conversion rate of 2.8335 shares of common stock per share of the Preferred Stock, subject to anti-dilution adjustments. At any time prior to May 15, 2008, we may have, at our option, caused the conversion of all, but not less than all, of the Preferred Stock into shares of our common stock at the provisional conversion rate described within the Preferred Stock offering. However, we may not have elected to exercise our provisional conversion right if, on or prior to May 15, 2008, we completed a material transaction involving the acquisition of assets or a business with a purchase price of $100 million or more.

On January 25, 2008, the Company announced that it exercised its provisional conversion right for all of the issued and outstanding shares of its Preferred Stock. As part of the provisional conversion right, each share of the Preferred Stock was converted into shares of our common stock on March 10, 2008 (the “Conversion Date”), based on the average closing price per common share on the Nasdaq Global Select Market (“Nasdaq”) over a 20 consecutive trading day period, which ended on March 5, 2008, as provided in the Certificate of Designations of the Preferred Stock. The average closing price over the 20 consecutive trading day period was $29.78 and each outstanding share of Preferred Stock was automatically converted into 3.4589 shares of common stock on the Conversion Date. The Company issued 3,977,683 shares of its common stock upon conversion of the Preferred Stock.

In connection with the conversion, all accrued and unpaid dividends on the Preferred Stock up to the Conversion Date were payable at $0.5035 per share of Preferred Stock and were paid in cash to holders of

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

record on the Conversion Date. Trading of the Preferred Stock on the Nasdaq was suspended at the close of business on March 5, 2008, and the Preferred Stock was de-listed on March 24, 2008. The Company applied a contingent beneficial conversion feature model to account for the provisional conversion of the 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 Preferred Stock.

8. EARNINGS PER SHARE (“EPS”) COMPUTATION

		For The Three Months Ended March 31, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Net income		$	7,420
Preferred stock dividends			(1,598	)
Preferred stock deemed dividend upon conversion			(1,986	)
Net income available to common stockholders for basic earnings per share		$	3,836				30,932,084			$	0.12
Effect of other dilutive securities			—				281,579
Diluted EPS		$	3,836				31,213,663			$	0.12

		For The Three Months Ended March 31, 2007
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS
Income available to common stockholders		$	3,439				24,042,235			$	0.14
Effect of dilutive securities							276,503
Diluted EPS		$	3,439				24,318,738			$	0.14

For the three months ended March 31, 2008 and 2007, 1,600 stock-based compensation awards, at a purchase price of $32.40 per share, were outstanding, but were not included in the computation of diluted EPS because the exercise price of these awards was greater than the average market price of our common stock for the period.

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

		For The Nine Months Ended March 31, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Net income		$	18,248
Preferred stock dividends			(2,802	)
Preferred stock deemed dividend upon conversion			(1,986	)
Income available to common stockholders		$	13,460				29,808,962			$	0.45
Effect of other dilutive securities			—				325,926
Diluted EPS		$	13,460				30,134,888			$	0.45

		For The Nine Months Ended March 31, 2007
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS
Income available to common stockholders		$	14,034				23,653,946			$	0.59
Effect of dilutive securities							302,603
Diluted EPS		$	14,034				23,956,549			$	0.59

For the nine months ended March 31, 2008 and 2007, 1,600 stock-based compensation awards, at a purchase price of $32.40 per share, were outstanding, but were not included in the computation of diluted EPS because the exercise price of these awards was greater than the average market price of our common stock for the period.

9. INCOME TAXES

		Three Months Ended March 31,
		2008				2007
Current income tax expense		$	(3,814	)		$	(1,891	)
Deferred income tax benefit			242				205
Income tax expense reported		$	(3,572	)		$	(1,686	)
Effective tax rate			32.5	%			32.9	%

		Nine Months Ended March 31,
		2008				2007
Current income tax expense		$	(9,989	)		$	(7,811	)
Deferred income tax benefit			1,143				1,167
Income tax expense reported		$	(8,846	)		$	(6,644	)
Effective tax rate			32.6	%			32.1	%

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

The Company adopted the provisions of FIN 48 on July 1, 2007, with no impact on its financial statements. As a result of the acquisition of Battle Mountain on October 24, 2007, the Company recorded a liability for unrecognized tax benefits of approximately $0.4 million. The liability for unrecognized tax benefits is reflected within Other long-term liabilities on the Company’s consolidated balance sheets.

The material income tax returns the Company files are the U.S. federal income tax return, which has a three year statute of limitations, and the Colorado state income tax return, which has a four year statute of limitations. The U.S. federal return for tax years ended on or after June 30, 2004, and the Colorado state return for tax years ended on or after June 30, 2003, are subject to examination by the relevant taxing authority.

Interest and penalties associated with the liability for unrecognized tax benefits is approximately $47,000 at March 31, 2008, and is included in Other long-term liabilities on the Company’s consolidated balance sheets.

10. COMMITMENTS AND CONTINGENCIES

Taranis

On November 4, 2005, we entered into a strategic alliance with Taranis for exploration on the Kettukuusikko project located in Finland. During our fiscal year 2006, we funded exploration totaling $0.5 million in return for a 2.0% NSR royalty. We also have an option to fund up to an additional $0.6 million. The Company elected to exercise this option in April 2006. If we fund the entire additional amount, we will earn a 51% joint venture interest in the Kettukuusikko project, and we will release our 2.0% NSR royalty. In the event that we do not fully fund the $0.6 million to earn the joint venture interest, we would retain our 2.0% NSR royalty. As of March 31, 2008, we have funded $0.5 million of the additional $0.6 million option, which has been expensed during our fiscal year ended June 30, 2007.

Revett

Under the terms of the Revett purchase agreement relating to the Troy mine, the Company has the right, but not the obligation, to cure any default by Revett under their obligations pursuant to an existing mortgage payable, secured by a promissory note, to Kennecott Montana Company, a third party and prior joint venture interest owner of the Troy mine. In February 2008, Revett satisfied all of the outstanding principal and accrued interest under the promissory note with Kennecott Montana Company.

Casmalia

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

After extensive negotiations, on September 23, 2002, Royal Gold, along with 35 members of the PRP group targeted by EPA, entered into a Partial Consent Decree with the United States of America intending to settle their liability for the United States of America’s past and future clean-up costs incurred at the Site. Based on the minimal volume of allegedly hazardous waste that Royal Resources, Inc. disposed of at the Site, our share of the $25.3 million settlement amount was $0.1 million, which we deposited into

ROYAL GOLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands except share data, per ounce and per pound amounts)

the escrow account that the PRP group set up for that purpose in January 2002. The funds were paid to the United States of America on May 9, 2003. The United States of America may only pursue Royal Gold and the other PRPs for additional clean-up costs if the United States of America’s total clean-up costs at the Site significantly exceed the expected cost of approximately $272 million. We believe our potential liability with the United States of America to be a remote possibility.

At present, Royal Gold is considering entering into a de minimis settlement with the State of California. The date for accepting a settlement was extended indefinitely by the State of California pending preparation of settlement documentation by the State. Such settlement will result in a final conclusion regarding the Company’s responsibility to address the Casmalia Site matter.

11. RELATED PARTY

Crescent Valley Partners, L.P. (“CVP”) was formed as a limited partnership in April 1992. It owns a 1.25% net value royalty on production of minerals from a portion of the Pipeline Mining Complex. Denver Mining Finance Company, 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 Executive Chairman, 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 received from the operator including the disbursement of royalty payments and record keeping for in-kind distributions to the limited partners, including our directors and Executive Chairman.

CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain other limited partners, sells its pro-rata share of such gold immediately and receives distributions in cash, while CVP holds gold for certain other limited partners. Such gold inventories, which totaled 27,464 ounces of gold as of March 31, 2008, are held by a third party refinery in Utah for the account of the limited partners of CVP. The inventories are carried at historical cost and are classified as Inventory — restricted on the consolidated balance sheets. The carrying value of the gold in inventory was $10.9 million and $10.6 million as of March 31, 2008 and June 30, 2007, respectively, while the fair value of such ounces was $25.6 million and $17.9 million as of March 31, 2008 and June 30, 2007, respectively. None of the gold currently held in inventory as of March 31, 2008, is attributed to Royal Gold, as the gold allocated to Royal Gold is typically sold within five days of receipt.

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

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our 2007 Annual Report on Form 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 2007 Annual Report on Form 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 near production in exchange for royalty interests. We are engaged in a continual review of opportunities to acquire existing royalties, to create new royalties through the financing of mine development or exploration, or to acquire companies that hold royalties. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, analysis of technical, financial and other confidential information, submission of indications of interest, participation in preliminary discussions and involvement as a bidder in competitive auctions. We also fund exploration on properties thought to contain precious metals and seek to obtain royalties and other carried ownership interests in such properties through the subsequent transfer of operating interests to other mining companies. Substantially all of our revenues are and will be expected to be derived from royalty interests. We do not conduct mining operations at this time. During the quarter ended March 31, 2008, 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 royalty properties. For the quarter ended March 31, 2008, the price of gold averaged $925 per ounce compared with an average price of $650 per ounce for the quarter ended March 31, 2007. The increase in the average gold price, the continued ramp-up of gold production at the Taparko and Leeville mines and production from the recently acquired Battle Mountain Gold Exploration Corp. (“Battle Mountain”) royalties, contributed to royalty revenue of $19.5 million during the quarter ended March 31, 2008, compared to royalty revenue of $11.2 million during the quarter ended March 31, 2007.

Our Producing Royalty Interests

Our principal producing royalty interests are shown in the following table:

						Royalty
Mine		Location		Operator		(Gold unless otherwise stated)
Pipeline Mining Complex		Nevada, USA		Barrick Gold Corporation (“Barrick”)		GSR1: 0.40%-5.0% sliding-             scale GSR GSR2: 0.72% 9.0% sliding-             scale GSR, GSR3: 0.71% GSR NVR1(1): 0.39% NVR
Robinson		Nevada, USA		Quadra Mining Ltd. (“Quadra”)		3.0% NSR (copper, gold, silver, molybdenum)
SJ Claims-Goldstrike		Nevada, USA		Barrick		0.9% NSR
Troy		Montana, USA		Revett Minerals, Inc. (“Revett”)		7.0% GSR (silver and copper)
Leeville Mining Complex (Leeville North and Leeville South)		Nevada, USA		Newmont Mining Corporation (“Newmont”)		1.8% NSR
Taparko		Burkina Faso, West Africa		High River Gold Mines Ltd. (“High River”)		15% GSR (TB-GSR1) and a 0%-10% sliding-scale GSR (TB GSR2)
Bald Mountain		Nevada, USA		Barrick		1.75%-3.5% sliding-scale NSR
Mulatos		Sonora, Mexico		Alamos Gold, Inc. (“Alamos”)		0.30%-1.5% sliding-scale NSR
El Chanate(2)		Sonora, Mexico		Capital Gold, Inc. (“Capital Gold”)		2.0%-4.0% sliding-scale NSR; 10.0% net profits interest (“NPI”)
Martha		Santa Cruz Province, Argentina		Coeur d’Alene Mines Corporation (“Coeur d’Alene”)		2.0% NSR (silver)
Don Mario(3)		Chiquitos Province, Bolivia		Orvana Minerals Corp. (“Orvana”)		3.0% NSR
Williams(3)		Marathon, Ontario		Teck Cominco Limited (“Teck”) / Barrick		0.72% NSR
El Limon(3)		El Limon, Nicaragua		Central Sun Mining, Inc. (“Central Sun”) (95%) and Inversiones Mineras S.A. (“Inversiones”) (5%)		3.0% NSR

Our Development Stage Royalty Interests

We also own the following royalty interests that are in the development stage and are not currently in production:

						Royalty
Mine		Location		Operator		(Gold unless otherwise stated)
Taparko		Burkina Faso, West Africa		High River		2.0% GSR (TB-GSR3)
Peñasquito		Zacatecas, Mexico		Goldcorp Inc. (“Goldcorp”)		2.0% NSR (gold, silver, lead and zinc)
Pascua-Lama		Region III, Chile		Barrick		0.16%-1.08% sliding-scale NSR
Gold Hill		Nevada, USA		Kinross Gold Corporation		1.0%-2.0% sliding-scale NSR
Dolores(1)		Chihuahua, Mexico		Minefinders Corporation, Ltd. (“Minefinders”)		1.25 % NSR 2.0 % NSR (gold and silver) (when commercial production has been producing at 75% of its design capacity for three consecutive months)
Don Mario(1)		Chiquitos Province, Bolivia		Orvana		3.0% NSR
Marigold(2)		Nevada, USA		Goldcorp		2.0% NSR
Benso(3)		Republic of Ghana, West Africa		Golden Star Resources Ltd. (“Golden Star”)		1.5% NSR