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

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

(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: 34,008,851 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of January 30, 2009.

 

 

Introductory Note:

On November 6, 2008, the Company filed an amended Annual Report on Form 10-K/A with the Securities and Exchange Commission (“SEC”) restating the Company’s annual financial statements for fiscal year 2008, and for each of the quarters comprising fiscal year 2008, due to an error in revenue accounting as discussed in Note 1 to consolidated financial statements contained herein. The financial statements and related disclosures for the three and six months ended December 31, 2007 have been restated in this document to reflect the revenue accounting error.

INDEX

		PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			2
Consolidated Statements of Operations and Comprehensive Income			3
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			42
Item 4. Controls and Procedures			42
PART II OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Submission of Matters to a Vote of Security Holders			44
Item 5. Other Information			44
Item 6. Exhibits			45
SIGNATURES			46
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

ROYAL GOLD, INC.

Consolidated Balance Sheets

(In thousands except share data)

		December 31,				June 30,
		2008				2008
		(Unaudited)				(As Restated)
Current assets
Cash and equivalents		$	55,040			$	192,035
Royalty receivables			14,833				16,317
Income taxes receivable			—				2,186
Deferred tax assets			140				131
Prepaid expenses and other			709				308
Total current assets			70,722				210,977
Royalty interests in mineral properties, net (Note 3)			475,724				300,670
Restricted cash — compensating balance			19,250				15,750
Inventory — restricted			11,654				11,170
Other assets			5,277				7,283
Total assets		$	582,627			$	545,850
Current liabilities
Accounts payable		$	6,378			$	4,753
Income taxes payable			8,610				—
Dividends payable			2,736				2,384
Other			1,827				1,797
Total current liabilities			19,551				8,934
Net deferred tax liabilities			23,631				26,034
Term loan facility (Note 5)			19,250				15,750
Other long-term liabilities			490				504
Total liabilities			62,922				51,222
Commitments and contingencies (Note 11)
Minority interest in subsidiary			11,976				11,411
Stockholders’ equity
Common stock, $0.01 par value, authorized 100,000,000 shares; and issued 34,007,184 and 33,926,495 shares, respectively			340				339
Additional paid-in capital			465,862				463,335
Accumulated other comprehensive (loss) income			(7	)			65
Accumulated earnings			41,534				19,478
Total stockholders’ equity			507,729				483,217
Total liabilities and stockholders’ equity		$	582,627			$	545,850

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

ROYAL GOLD, INC.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited, in thousands except share data)

		For The Three Months Ended
		December 31,				December 31,
		2008				2007
						(As Restated)
Royalty revenues		$	14,622			$	14,710
Costs and expenses
Costs of operations (exclusive of depreciation, depletion and amortization shown separately below)			613				896
General and administrative			2,122				1,968
Exploration and business development			963				1,851
Depreciation, depletion and amortization			8,537				3,606
Total costs and expenses			12,235				8,321
Operating income			2,387				6,389
Gain on royalty restructuring (Note 2)			31,500				—
Interest and other income			166				2,072
Interest and other expense			(357	)			(789	)
Income before income taxes			33,696				7,672
Current tax expense			(14,116	)			(2,715	)
Deferred tax benefit			2,118				486
Minority interest in income of consolidated subsidiary			(301	)			(322	)
Loss from equity investment			—				(511	)
Net income		$	21,397			$	4,610
Adjustments to comprehensive income
Unrealized change in market value of available for sale securities, net of tax			240				13
Comprehensive income		$	21,637			$	4,623
Net income		$	21,397			$	4,610
Preferred dividends			—				(1,204	)
Net income available to common stockholders		$	21,397			$	3,406
Basic earnings per share		$	0.63			$	0.11
Basic weighted average shares outstanding			33,961,206				29,777,468
Diluted earnings per share		$	0.62			$	0.11
Diluted weighted average shares outstanding			34,375,388				30,124,299

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

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

		For The Six Months Ended
		December 31,				December 31,
		2008				2007
						(As Restated)
Royalty revenues		$	30,701			$	27,213
Costs and expenses
Costs of operations			1,460				1,742
General and administrative			3,793				3,527
Exploration and business development			1,637				2,481
Depreciation, depletion, and amortization			12,960				6,008
Total costs and expenses			19,850				13,758
Operating income			10,851				13,455
Gain on royalty restructuring (Note 2)			31,500				—
Interest and other income			1,123				3,952
Interest and other expense			(664	)			(1,163	)
Income before income taxes			42,810				16,244
Current tax expense			(17,668	)			(5,927	)
Deferred tax benefit			2,541				923
Minority interest in income of consolidated subsidiary			(537	)			(542	)
Loss from equity investment			—				(550	)
Net income		$	27,146			$	10,148
Adjustments to comprehensive income
Unrealized loss in market value of available for sale securities, net of tax			(72	)			(173	)
Comprehensive income		$	27,074			$	9,975
Net income		$	27,146			$	10,148
Preferred dividends			—				(1,204	)
Net income available to common stockholders		$	27,146			$	8,944
Basic earnings per share		$	0.80			$	0.30
Basic weighted average shares outstanding			33,943,851				29,253,504
Diluted earnings per share		$	0.79			$	0.30
Diluted weighted average shares outstanding			34,343,827				29,455,599

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

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

		For The Six Months Ended
		December 31,				December 31,
		2008				2007
						(As Restated)
Cash flows from operating activities
Net income		$	27,146			$	10,148
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			12,960				6,008
Deferred tax benefit			(2,541	)			(923	)
Non-cash employee stock compensation expense			1,551				1,418
Gain on royalty restructuring (Note 2)			(31,500	)			—
Loss on available for sale securities			—				48
Note receivable — Battle Mountain Gold Exploration			—				(714	)
Tax benefit of stock-based compensation exercises			(253	)			(114	)
Changes in assets and liabilities:
Royalty receivables			1,485				1,437
Prepaid expenses and other assets			(208	)			(2,318	)
Accounts payable			2,207				2,367
Income taxes payable (receivable)			11,372				(621	)
Other			(14	)			371
Net cash provided by operating activities		$	22,205			$	17,107
Cash flows from investing activities
Capital expenditures for property and equipment		$	(15	)		$	(11	)
Acquisition of royalty interests in mineral properties			(186,110	)			(2,300	)
Proceeds from royalty restructuring (Note 2)			31,500				—
Restricted cash — compensating balance			(3,500	)			—
Deferred acquisition costs			(62	)			(56	)
Battle Mountain acquisition, net of cash acquired of $1,398,181			—				(2,933	)
Net cash used in investing activities		$	(158,187	)		$	(5,300	)
Cash flows from financing activities:
Tax benefit of stock-based compensation exercises		$	253			$	114
Debt issuance costs			(721	)			—
Term loan facility (Note 5)			3,500				—
Common dividends paid			(4,768	)			(3,755	)
Gold loan payoff — Battle Mountain			—				(6,852	)
Net proceeds from issuance of common stock			723				398
Net proceeds from issuance of preferred stock			—				111,098
Net cash (used in) provided by financing activities		$	(1,013	)		$	101,003
Net (decrease) increase in cash and equivalents			(136,995	)			112,810
Cash and equivalents at beginning of period			192,035				82,842
Cash and equivalents at end of period		$	55,040			$	195,652
Supplemental cash flow information:
Non-cash financing activities:
Battle Mountain acquisition (with common stock)		$	—			$	35,832

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

1.

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

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 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.

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 SEC 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 December 31, 2007 have been restated in this report to reflect the revenue accounting error discussed above. Refer to Note 20A of the Amended 10-K for the effects of the restatement on the Company’s consolidated financial statements as of and for the fiscal year ended June 30, 2008 and to Note 20B of the Amended 10-K for the effects of the restatement on the Company’s consolidated financial statements for each of the quarters comprising fiscal year 2008.

The effect of the restatement on the Company’s consolidated balance sheet for the fiscal year ended June 30, 2008 is illustrated in the following table:

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Consolidated Balance Sheet Items

		As of June 30, 2008
		(in thousands)
		As Previously
		Reported				Adjustment				As Restated
Royalty receivables		$	17,627			$	(1,310	)		$	16,317
Income tax receivable			1,310				876				2,186
Total current assets			211,411				(434	)			210,977
Total assets			546,284				(434	)			545,850
Accounts payable			3,122				1,631				4,753
Total current liabilities			7,303				1,631				8,934
Total liabilities			49,591				1,631				51,222
Accumulated earnings			21,543				(2,065	)			19,478
Total stockholders’ equity			485,282				(2,065	)			483,217
Total liabilities and stockholders’ equity			546,284				(434	)			545,850

The effects of the restatement on the Company’s consolidated statement of operations and comprehensive income for the three and six months ended December 31, 2007 are illustrated in the following tables:

Consolidated Statement of Operations and Comprehensive Income Items

		For the three months ended December 31, 2007
		(in thousands, except share data)
		As Previously
		Reported				Adjustment				As Restated
Royalty revenue		$	15,396			$	(686	)		$	14,710
Cost of operations			930				(34	)			896
Operating income			7,041				(652	)			6,389
Income before income taxes			8,324				(652	)			7,672
Income tax expense			2,425				(196	)			2,229
Net income			5,065				(455	)			4,610
Net income available to common shareholders			3,861				(455	)			3,406
Basic earnings per share		$	0.13			$	(0.02	)		$	0.11
Basic weighted average shares outstanding			29,777,468				—				29,777,468
Diluted earnings per share		$	0.13			$	(0.02	)		$	0.11
Diluted weighted average shares outstanding			30,124,299				—				30,124,299

		For the six months ended December 31, 2007
		(in thousands, except share data)
		As Previously
		Reported				Adjustment				As Restated
Royalty revenue		$	28,213			$	(1,000	)		$	27,213
Cost of operations			1,794				(52	)			1,742
Operating income			14,405				(950	)			13,455
Income before income taxes			17,194				(950	)			16,244
Income tax expense			5,274				(270	)			5,004
Net income			10,827				(679	)			8,944
Net income available to common shareholders			10,827				(679	)			8,944
Basic earnings per share		$	0.33			$	(0.03	)		$	0.30
Basic weighted average shares outstanding			29,253,504				—				29,253,504
Diluted earnings per share		$	0.33			$	(0.03	)		$	0.30
Diluted weighted average shares outstanding			29,455,599				—				29,455,599

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

The effects of the restatement on the Company’s consolidated statement of cash flows for the six months ended December 31, 2007 is illustrated in the following table:

Consolidated Statement of Cash Flows Items

		For the six months ended December 31, 2007
		(in thousands)
		As Previously
		Reported				Adjustment				As Restated
Cash flows from operating activities:
Net income		$	10,828			$	(680	)		$	10,148
Deferred tax benefit			(900	)			(23	)			(923	)
Royalty receivables			437				1,000				1,437
Income taxes receivable			(374	)			(247	)			(621	)
Accounts payable			2,417				(50	)			2,367
Net cash provided by operating activities			17,110				(3	)			17,107

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 three and six months ended December 31, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2009. These interim unaudited financial statements should be read in conjunction with the Company’s Amended 10-K.

Recently Adopted Accounting Pronouncements

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 were adopted by the Company on July 1, 2008. The adoption of SFAS 157 during our first fiscal quarter of 2009 did not have a significant impact on the Company’s consolidated financial statements. Refer to Note 10 for a discussion regarding the Company’s fair value measurements as of December 31, 2008.

In February 2008, the FASB staff issued Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of FSP 157-2 are effective for the Company’s fiscal year beginning July 1, 2009; however, the Company does not expect the provisions to have a material impact, if any, on our consolidated financial statements.

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

Fair Value Option for Financial Assets and Liabilities

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which allows entities to choose to measure many financial instruments and certain other items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS 159 were adopted July 1, 2008. The Company did not elect the Fair Value Option for any of its financial assets or liabilities, and therefore, the adoption of SFAS 159 had no impact on the Company’s consolidated financial position, results of operations or cash flows.

Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards

In June 2007, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 06-11 "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF Issue No. 06-11 requires that the tax benefit related to dividend and dividend equivalents paid on equity-classified, non-vested shares and non-vested share units, which are expected to vest, be recorded as an increase to additional paid-in capital. EITF No. 06-11 was to be applied prospectively for tax benefits on dividends declared in our fiscal year beginning July 1, 2008. The adoption of EITF 06-11 had an insignificant impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS 162”) which identifies the sources of accounting principles and the accounting framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with GAAP.” The Company does not expect the adoption of SFAS 162 to have an impact on its consolidated 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 consolidated 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,

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

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 consolidated 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 consolidated financial statements.

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

2. ROYALTY ACQUISITION

Effective October 1, 2008, the Company completed its acquisition of royalties from Barrick for cash of approximately $181.3 million and a restructuring of the Company’s GSR2, GSR3 and NVR1 royalties at Cortez, valued at $31.5 million, for net cash of approximately $150.0 million. The transactions were completed pursuant to the Royalty Purchase and Sale Agreement dated July 30, 2008. The cash portion of the purchase price for the transaction was paid from the Company’s cash on hand.

The royalty portfolio acquired consisted of royalties on 72 properties, including nine producing royalties, three development stage properties and 60 exploration stage projects. Eighteen of the exploration stage projects are considered to be in an evaluation stage as these properties are engaged in the search for reserves but currently contain additional mineralized material. Please refer to Note 3 for a further discussion on the key royalty assets acquired from Barrick.

The restructuring of Royal Gold’s royalty positions at Cortez consisted of the following: (1) a reduction of the Company’s GSR2 sliding-scale royalty, from a range of 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 reduced rate.

The acquisition of Barrick’s royalty portfolio has been accounted for as an asset acquisition using the purchase method of accounting. The total purchase price of $181.3 million, plus direct transaction costs of approximately $3.2 million, has been allocated to the acquired royalty interests according to their relative fair values and is recorded as separate components of Royalty Interests in Mineral Properties on our consolidated balance sheets. The amounts allocated to the acquired royalty interests in mineral properties acquired from Barrick are preliminary and are subject to change upon completion of final valuations.

As part of the royalty restructuring, as discussed above, the Company recognized a gain of $31.5 million during the fiscal quarter ended December 31, 2008. The restructured royalties were a nonmonetary exchange and the fair value of the restructured royalties was determined based on expected future cash flows. The Company’s basis in the restructured royalties was zero thus giving rise to the $31.5 million gain. The royalty restructuring gain has been recorded as Gain on royalty restructuring on the Company’s consolidated statements of operations and comprehensive income.

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

3. ROYALTY INTERESTS IN MINERAL PROPERTIES

The following summarizes the Company’s royalty interests in mineral properties as of December 31, 2008 and June 30, 2008.

						Accumulated
As of December 31, 2008 (Amounts in thousands):		Cost				Depletion				Net
Production stage royalty interests:
Cortez		$	10,630			$	(9,057	)		$	1,573
Robinson			17,825				(5,391	)			12,434
Leeville			17,495				(7,110	)			10,385
Goldstrike-SJ Claims			20,788				(9,644	)			11,144
Mulatos			34,214				(2,895	)			31,319
Dolores			44,878				(18	)			44,860
Taparko			33,570				(5,374	)			28,196
Other			81,060				(15,934	)			65,126
			260,460				(55,423	)			205,037
Development stage royalty interests:
Peñasquito (sulfide circuit)			95,146				—				95,146
Malartic			34,031				—				34,031
Pascua-Lama			20,446				—				20,446
Other			46,682				—				46,682
			196,305				—				196,305
Exploration stage royalty interests			74,653				(271	)			74,382
Total royalty interests in mineral properties		$	531,418			$	(55,694	)		$	475,724

						Accumulated
As of June 30, 2008 (Amounts in thousands):		Cost				Depletion				Net
Production stage royalty interests:
Cortez		$	10,630			$	(8,901	)		$	1,729
Robinson			17,825				(4,271	)			13,554
Taparko			33,570				(4,514	)			29,056
Leeville			17,495				(5,567	)			11,928
Goldstrike-SJ Claims			20,788				(8,641	)			12,147
Other			40,782				(11,598	)			29,184
			141,090				(43,492	)			97,598
Development stage royalty interests:
Peñasquito (sulfide circuit)			95,146				—				95,146
Dolores			40,989				—				40,989
Pascua-Lama			20,446				—				20,446
Other			18,110				—				18,110
			174,691				—				174,691
Exploration stage royalty interests			28,652				(271	)			28,381
Total royalty interests in mineral properties		$	344,433			$	(43,763	)		$	300,670

As discussed in Note 2, effective October 1, 2008, the Company acquired a royalty portfolio from Barrick which consisted of 72 properties, including nine producing royalties, three development stage royalties and 60 exploration stage royalties.

Key royalty assets acquired from Barrick:

Mulatos — A sliding-scale net smelter return (“NSR”) royalty on the Mulatos mine, located in Sonora, Mexico, and operated by a subsidiary of Alamos Gold, Inc. Prior to October 1, 2008, we owned a 0.30%-1.50% NSR sliding-scale royalty on the property. The acquisition of the Barrick royalty portfolio consolidated the Mulatos royalty and increased our royalty interest to a 1.0% to 5.0% sliding-scale NSR royalty.

A portion (non-reserve) of our investment in Mulatos is classified as an exploration stage royalty interest, which is not subject to amortization. In the event that future proven and probable reserves associated with our royalty interest are developed at Mulatos, additional cost basis of our royalty interest will be reclassified to a development stage or a production stage royalty interest in future periods, as appropriate.

Malartic — A 2.0%-3.0% sliding-scale NSR royalty on the Canadian Malartic gold project, located in Quebec, Canada, and owned by Osisko Mining Corporation (“Osisko”). The Malartic royalty is associated with proven and probable reserves but is not currently in production and is therefore classified as a development stage royalty interest, which is not subject to amortization. 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%.

Siguiri — A sliding-scale NSR royalty currently paying 1.875% on the Siguiri gold mine, located in Guinea, West Africa, and operated by AngloGold Ashanti. The Siguiri royalty is currently in production and is classified as a production stage royalty interest, which is depleted using a units of production method.

Mt. Goode (Cosmos) — A 1.5% NSR royalty covering a portion of the Mt. Goode (Cosmos) nickel mine, located in Western Australia, Australia, and operated by Xstrata. The Mt. Goode (Cosmos) royalty is currently in production and is classified as a production stage royalty interest, which is depleted using a units of production method.

Allan — A sliding-scale royalty on the Allan potash mine, located in Saskatchewan, Canada, and operated by Potash Corporation of Saskatchewan. The royalty is currently paying at a rate of $1.44 per ton of relative production, subject to reductions based on annual production. The Allan royalty is currently in production and is classified as a production stage royalty interest, which is depleted using a units of production method.

On October 30, 2008, the Company and its wholly-owned subsidiaries, High Desert Mineral Resources, Inc. (“High Desert”) and RG Mexico, Inc. (“RG Mexico”), entered into the Credit Agreement with HSBC Bank USA, National Association (“HSBC Bank”), as administrative agent and a lender, Scotiabanc Inc., as a lender, HSBC Securities (USA) Inc. (“HSBC Securities”), as sole lead arranger and Bank of Nova Scotia, as sole syndication agent. The Credit Agreement replaced the Company’s $80 million revolving credit facility with HSBC Bank.

The Credit Agreement provides the Company a $125 million revolving credit facility with a maturity date of October 30, 2013. Borrowings under the credit facility will bear interest at a floating rate of LIBOR

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

plus a spread ranging from 1.75% to 2.25%, based on the Company’s leverage ratio (as defined). Unlike the prior credit facility, availability under the new credit facility is not limited by a borrowing base formula, therefore, the entire $125 million is available under the new credit facility.

The royalties securing the new credit facility consist of the GSR1, GSR2, GSR3, and NVR1 royalties at the Cortez and the royalties at Goldstrike-SJ Claims, Leeville, Robinson, Dolores, Peñasquito and Mulatos (the “Collateral Royalties”). In addition to the Collateral Royalties, the credit facility is secured by 100% of Royal Gold’s equity interests in High Desert and RG Mexico and substantially all of the present and future personal property and assets of the Company, High Desert and RG Mexico. The Credit Agreement contains financial covenants requiring the Company to maintain a leverage ratio (as defined) of 3.0 to 1.0 or less, a minimum consolidated net worth (as defined) of not less than a base amount that increases according to cumulative positive net income, an interest coverage ratio (as defined) of at least 3.0 to 1.0, a current ratio (as defined) of at least 1.5 to 1.0 and a facility coverage ratio (as defined) of at least 1.25 to 1.0.

As of December 31, 2008, the Company did not have any amounts outstanding under the new credit facility.

5. TERM LOAN FACILITY

Royal Gold Chile Limitada (“RGCL”), a wholly-owned subsidiary of Royal Gold, had a $15.75 million term loan outstanding bearing interest at LIBOR plus 0.25% pursuant to a Term Loan Agreement between RGCL and HSBC Bank. On August 27, 2008, RGCL entered into an Amended and Restated Term Loan Agreement (“Amended and Restated Agreement”) with HSBC Bank to amend the existing term loan facility. The Amended and Restated Agreement increased the maximum term loan principal amount from $15.75 million to $21.75 million, with such additional amounts available to be drawn at any time prior to October 1, 2008. Pursuant to the terms of the Amended and Restated Agreement, Royal Gold must maintain a restricted interest-bearing securities account (the “Collateral Account”) on deposit at HSBC Securities with a balance equal to or in excess of the outstanding amounts on the term loan. Royal Gold entered into a Guarantee (the “Guarantee”) for the life of the term loan, for the benefit of HSBC Bank to guaranty RGCL’s obligations under the Amended and Restated Agreement and a security agreement granting HSBC Bank a security interest in the Collateral Account to secure RGCL’s obligations under the Term Loan Agreement and its obligations under the Guarantee. The term loan will mature on March 1, 2012.

On September 19, 2008, RGCL drew an additional $3.5 million under the Amended and Restated Agreement and Royal Gold securitized RGCL’s additional obligation under the Amended Agreement by depositing $3.5 million into the Collateral Account. As of December 31, 2008, $19.25 million was outstanding under the term loan facility. The $2.5 million additional amount available to be drawn under the Amended Agreement expired on October 1, 2008.

The $19.25 million balance in the Collateral Account as of December 31, 2008, is recorded as Restricted cash — compensating balance on the Company’s consolidated balance sheets. RGCL’s $19.25 million principal obligation under the Amended and Restated Agreement is recorded as Note payable on the Company’s consolidated balance sheets.

The Company recognized stock option and other stock-based compensation expense as follows:

		For The Three Months Ended								For The Six Months Ended
		December 31,				December 31,				December 31,				December 31,
		2008				2007				2008				2007
Stock options		$	205			$	320			$	515			$	630
Stock appreciation rights			47				—				47				—
Restricted stock			639				436				901				563
Performance stock			24				124				88				225
Total non-cash compensation expense		$	915			$	880			$	1,551			$	1,418

Stock-based compensation expense 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 Six Months Ended
		December 31,				December 31,				December 31,				December 31,
		2008				2007				2008				2007
Stock-based compensation expense allocation:
Cost of operations		$	110			$	88			$	185			$	158
General and administrative			585				546				932				809
Exploration and business			220				246				434				451
Total stock-based compensation expense		$	915			$	880			$	1,551			$	1,418

For the three and six months ended December 31, 2008 and 2007, 24,000 and 110,500 stock options, respectively, were granted at an exercise price of $30.96 and $29.75, respectively. As of December 31, 2008, there was $0.9 million of unrecognized compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of 1.5 years. The total intrinsic value of options exercised during the three months ended December 31, 2008 and 2007 was $1.1 million and $0, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2008 and 2007 was $1.1 million and $0.8 million, respectively. During the six months ended December 31, 2008 and 2007, 96,500 and 97,917 stock options vested, respectively, at a weighted-average grant date fair value of $12.83 and $12.40, respectively.

During the three and six months ended December 31, 2008, 50,500 stock appreciation rights were granted at an exercise price of $30.96, which equals the closing market price of the Company’s common stock on the date of grant. No stock appreciation rights were granted during the three and six months ended December 31, 2007. Stock appreciation rights granted vest based on one to three years of continuous service and have 10 year contractual terms and are settled in shares of Royal Gold common stock. As of December 31, 2008, there was $0.6 million of unrecognized compensation expense related to non-vested stock appreciation rights, which is expected to be recognized over a weighted-average period of 1.4 years.

During the three and six months ended December 31, 2008 and 2007, 96,500 and 87,500 shares of restricted stock, respectively, were granted at a weighted-average grant date fair market value of $30.96 and $29.75, respectively. During the three and six months ended December 31, 2008 and 2007, 23,166 and 10,625 shares of restricted stock, respectively, vested at a weighted-average grant date fair market

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

value $26.51 and $29.59, respectively. As of December 31, 2008, there was $5.7 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a remaining weighted-average vesting period of 3.8 years.

During the three and six months ended December 31, 2008 and 2007, 46,500 and 48,000 shares of performance stock, respectively, were granted at a weighted-average grant date fair market value of $30.96 and $29.75, respectively. During the three months ended December 31, 2008 and 2007, 9,000 and 0 shares of performance stock, respectively, vested at a weighted-average grant date fair market value of $28.78 and $0, respectively. During the six months ended December 31, 2008 and 2007, 9,000 shares of performance stock vested at a weighted-average grant date fair market value of $28.78. As of December 31, 2008, there was $0.1 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a remaining estimated vesting period of 0.75 years.

7. EARNINGS PER SHARE (“EPS”)

		For The Three Months Ended December 31, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS
Income available to common stockholders		$	21,397				33,961,206			$	0.63
Effect of other dilutive securities			—				414,182
Diluted EPS		$	21,397				34,375,388			$	0.62

		For The Three Months Ended December 31, 2007
		Income								Per-Share
		(Numerator)				Shares				Amount
		(As Restated)				(Denominator)				(As Restated)
Basic EPS
Net income		$	4,610
Preferred dividends			(1,204	)
Income available to common stockholders		$	3,406				29,777,468			$	0.11
Effect of other dilutive securities			—				346,831
Diluted EPS		$	3,406				30,124,299			$	0.11

		For The Six Months Ended December 31, 2008
		Income				Shares				Per-Share
		(Numerator)				(Denominator)				Amount
Basic EPS
Income available to common stockholders		$	27,146				33,943,851			$	0.80
Effect of other dilutive securities			—				399,976
Diluted EPS		$	27,146				34,343,827			$	0.79
		For The Six Months Ended December 31, 2007
		Income								Per-Share
		(Numerator)				Shares				Amount
		(As Restated)				(Denominator)				(As Restated)
Basic EPS
Net income		$	10,148
Preferred dividends			(1,204	)
Income available to common stockholders		$	8,944				29,253,504			$	0.30
Effect of other dilutive securities			—				202,095
Diluted EPS		$	8,944				29,455,599			$	0.30

For the three months ended December 31, 2008 and 2007, all outstanding stock-based compensation awards were included in the computation of diluted EPS because the exercise price of the awards was less than the average market price of our common stock for the period.

For the six months ended December 31, 2008, all outstanding stock-based compensation awards were included in the computation of diluted EPS because the exercise price of the awards was less than the average market price of our common stock for the period. For the six months ended December 31, 2007, 240,100 stock-based compensation awards, at a weighted average purchase price of $29.77 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. For the six months ended December 31, 2007, 1,064,863 weighted shares of common stock into which the Preferred Stock could be converted were not included in the computation of diluted EPS as the result would be antidilutive.

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

8. INCOME TAXES

		Three Months Ended December 31,
		2008				2007
						(As Restated)
Current income tax expense		$	(14,116	)		$	(2,715	)
Deferred income tax benefit			2,118				486
Income tax expense reported		$	(11,998	)		$	(2,229	)
Effective tax rate			35.9	%			32.6	%

		Six Months Ended December 31,
		2008				2007
						(As Restated)
Current income tax expense		$	(17,668	)		$	(5,927	)
Deferred income tax benefit			2,541				923
Income tax expense reported		$	(15,127	)		$	(5,004	)
Effective tax rate			35.8	%			33.0	%

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, 2005, and the Colorado state return for tax years ended on or after June 30, 2004, are subject to examination by the relevant taxing authority.

As of December 31, 2008, the Company’s total unrecognized tax benefits were $0.4 million for uncertain tax positions. The liability for unrecognized tax benefits is reflected within Other long-term liabilities on the Company’s consolidated balance sheets.

Interest and penalties associated with the liability for unrecognized tax benefits is approximately $0.08 million at December 31, 2008, and is included in Other long-term liabilities on the Company’s consolidated balance sheets.

9. SEGMENT INFORMATION

We manage our business under one operating segment, consisting of royalty acquisition and management activities. All of our assets and revenues are attributable to the royalty operating segment.

Royal Gold’s royalty revenue and long-lived assets (royalty interests in mineral properties, net) are geographically distributed as shown in the following table.

		Royalty																Royalty Interests in
		Revenue																Mineral Properties, net
		Three months ended								Six months ended
		December 31,								December 31,
		2008				2007				2008				2007				As of				As of
						(As								(As				December 31,				June 30,
						Restated)								Restated)				2008				2008
USA			51%				84%				67%				89%				13%				18%
Mexico			18%				3%				14%				3%				44%				55%
Africa(1)			20%				7%				10%				5%				9%				12%
Canada			2%				1%				1%				1%				19%				2%
Other			9%				5%				8%				2%				15%				13%

10. FAIR VALUE MEASUREMENTS

The Company adopted the provision of SFAS 157 on July 1, 2007, with no significant impact on the Company’s consolidated financial statements. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are described below:

Level 1: Quoted prices for identical instruments in active markets;

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets measured at fair value by level within the fair value hierarchy. The Company’s financial liabilities are not within the scope of the provisions of SFAS 157.

		Fair Value at December 31, 2008
		Total				Level 1				Level 2				Level 3
Assets:
Money market investments(1)		$	48,270			$	48,270			$	—			$	—
Restricted cash			19,250				19,250				—				—
Marketable equity securities(2)			212				212				—				—
		$	67,732			$	67,732			$	—			$	—

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

The Company invests in money market funds, which are traded by dealers or brokers in active over-the-counter markets. The Company’s money market funds, which are invested in United States treasury bills or United States treasury backed securities, are classified within Level 1 of the fair value hierarchy.

The Company’s restricted cash, which is included in Restricted cash — compensating balance in the Company’s consolidated balance sheets, is invested in a money market fund which is traded by dealers or brokers in an active over-the-counter market. The Company’s restricted cash is classified within Level 1 of the fair value hierarchy.

The Company’s marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets. The fair value of the Level 1 marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

As of December 31, 2008, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with royalty interests in mineral properties, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition are applicable if any of these assets are determined to be impaired; however, no impairment losses have occurred relative to any of these assets during the six months ended December 31, 2008. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.

11. COMMITMENTS AND CONTINGENCIES

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 EPA and the United States Department of Justice intending to settle their liability for past and future clean-up costs incurred or expected to be incurred at the Site by the federal government. The United States District Court for the Central District of California entered the Partial Consent Decree on August 14, 2003. Based on the minimal volume of allegedly hazardous substances that Royal Resources, Inc. disposed of at the Site, which was characterized in volume as de minimis, our share of the $25.3 million settlement amount was approximately $0.1 million, which we deposited into the escrow account that the PRP group set up for that purpose in January 2002. The funds were paid to the United States Treasury on May 9, 2003 and the Partial Consent Decree was executed. As a result of the settlement, the United States of America may only pursue Royal Gold and the other PRPs for additional clean-up costs if the United States’ total clean-up costs at the Site significantly exceed the expected cost of approximately $272 million.

Royal Gold also executed a de minimis party Administrative Order on Consent (“AOC”) with the State of California on January 15, 2009. The AOC will become effective after notice from the California Attorney General that the required 30-day public comment period has closed and that comments received, if any,

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

do not require modifications to or withdrawal of the AOC by the State of California. It is not anticipated at this date that any such modifications or withdrawals will occur.

Under the terms of the federal Partial Consent Decree and the state AOC, we believe our potential liability with the United States of America, the State of California, and third parties to be effectively settled and any further exposure related to the Casmalia site to be a remote possibility.

12. 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 (“NVR1”) on production of minerals from a portion of Cortez. Denver Mining Finance Company (“DMFC”), our wholly-owned subsidiary, is the general partner and holds a 2.0% interest in CVP. In addition, Royal Gold holds a 29.6% limited partner interest in the partnership, while our 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.

Effective with the Barrick royalty portfolio acquisition (see Note 2), CVP assigned to Barrick the portion of CVP’s royalty interests in the undeveloped Crossroads deposit at Cortez attributable to Royal Gold through its limited partnership interest in CVP and general partnership interest through DMFC. The portion transferred equaled a 0.3954% royalty interest. CVP’s royalty interest outside the undeveloped Crossroads deposit was unaffected by the Barrick transaction.

CVP receives its royalty from the Cortez Joint Venture in-kind. The Company, as well as certain other limited partners, sell their pro-rata shares of such gold immediately and receive distributions in cash, while CVP holds gold for certain other limited partners. Such gold inventories, which totaled 28,090 ounces of gold as of December 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 approximately $11.7 million and $11.2 million as of December 31, 2008 and June 30, 2008, respectively, while the fair value of such ounces was approximately $24.4 million and $25.6 million as of December 31, 2008 and June 30, 2008, respectively. None of the gold currently held in inventory as of December 31, 2008 and June 30, 2008, is attributed to Royal Gold, as the gold allocated to Royal Gold is typically sold within five days of receipt.

13. SUBSEQUENT EVENTS

Holloway-Holt

On October 1, 2008, as part of the Company’s acquisition of a portfolio of royalties from Barrick Gold Corporation, we acquired a royalty on a portion of the development stage Holloway-Holt mining project in Ontario, Canada, owned by St Andrew Goldfields Ltd. (“St Andrew”). St Andrew succeeded Newmont Canada Corporation (“Newmont Canada”) as owner of the Holloway-Holt mining project in November 2006. By virtue of the Company’s acquisition of Barrick’s royalty portfolio, RGLD Canada succeeded Barrick as the royalty payee under the royalty agreement.

On or about November 3, 2008, St Andrew filed an action in the Ontario Superior Court of Justice (the “Court”) seeking, among other things, declarations by the Court that St Andrew’s obligation in respect of

ROYAL GOLD, INC.
Notes to Consolidated Financial Statements
(Unaudited, in thousands except share data, per ounce and per pound amounts)

the royalty is limited to only a portion of the total royalty payable, and that any additional royalty obligations under the royalty agreement remain the responsibility of Newmont. Newmont has responded St Andrew is responsible for all royalty obligations under the royalty agreement.

Barrick and we have been joined as necessary parties to the litigation. Trial concerning calculation of the royalty and the party or parties responsible for paying it commenced on January 30, 2009. The royalty is currently classified as a development stage royalty interest and the Company does not receive revenue from the royalty. At this time, the Company is unable to estimate the impact, if any, the litigation will have on the Company’s consolidated financial statements.

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

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 December 31, 2007 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 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 December 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 producing stage royalty interests. Royalty revenue for the quarter ended December 31, 2008 was $14.6 million, compared to $14.7 million for the quarter ended December 31, 2007. For the quarter ended December 31, 2008 and 2007, the price of gold averaged $795 per ounce and $786 per ounce, respectively, while the price of copper averaged $1.79 per pound and $3.28 per pound for the quarter ended December 31, 2008 and 2007, respectively. The slight decrease in royalty revenue for the quarter ended December 31, 2008, compared with the quarter ended December 31, 2007, resulted primarily from a decrease in production at Cortez and a decrease in royalty revenue at Robinson due to the negative provisional pricing adjustments, which resulted from the sharp decrease in copper prices during the period. These decreases were partially offset by a slight increase in gold prices, increased production at Leeville and Goldstrike-SJ Claims, production from the recently acquired Barrick royalty portfolio and commencement of production at Benso and Peñasquito. 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.

Our 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 (Leeville North and Leeville South)		Nevada, USA		Newmont Mining Corporation (“Newmont”)		1.8% NSR
Goldstrike-SJ Claims		Nevada, USA		Barrick		0.9% NSR
Troy(2)		Montana, USA		Revett Minerals, Inc. (“Revett”)		7.0% GSR (silver and copper)
Bald Mountain		Nevada, USA		Barrick		1.75%-3.5% sliding-scale NSR
Twin Creeks — Getchell(3)		Nevada, USA		Newmont		2.0% Gross Proceeds Royalty (“GPR”)
Wharf(3)		South Dakota, USA		Goldcorp Inc. (“Goldcorp”)		0.0%-2.0% sliding-scale NSR
Peñasquito (oxide)(4)		Zacatecas, Mexico		Goldcorp		2.0% NSR (gold and silver)
Mulatos(5)		Sonora, Mexico		Alamos Gold, Inc. (“Alamos”)		1.0%-5.0% sliding-scale NSR
El Chanate(6)		Sonora, Mexico		Capital Gold, Inc.		2.0%-4.0% sliding-scale NSR; 10.0% NPI
Dolores(7)		Chihuahua, Mexico		Minefinders Corporation, Ltd. (“Minefinders”)		1.25% NSR
Taparko(8)		Burkina Faso, West Africa		High River Gold Mines Ltd. (“High River”)		15% GSR (TB-GSR1) and a 0%-10% sliding-scale GSR (TB-GSR2)
Siguiri(3,9)		Guinea, West Africa		AngloGold		0.0%-1.875% sliding-scale NSR
Benso		Republic of Ghana, West Africa		Golden Star Resources Ltd.		1.5% NSR
Martha		Santa Cruz Province, Argentina		Coeur d’Alene Mines Corporation		2.0% NSR (silver)
Don Mario (Lower Mineralized Zone)		Chiquitos Province, Bolivia		Orvana Minerals Corp. (“Orvana”)		3.0% NSR (gold, silver and copper)
El Toqui(3)		Region XI, Chile		Breakwater Resources		1.0%-3.0% sliding-scale NSR (gold and zinc)
Williams		Ontario, Canada		Barrick (50%) and Teck Cominco Limited (50%)		0.72% NSR
Allan(3)		Saskatchewan, Canada		Potash Corporation of Saskatchewan		$0.36-$1.44 per ton sliding scale and a $0.25 per ton (potash)
El Limon		El Limon, Nicaragua		Central Sun Mining, Inc. (“Central Sun”) (95%) and Inversiones Mineras S.A. (5%)		3.0% NSR
Balcooma(3)		Queensland, Australia		Kagara Zinc		1.5% NSR (gold and silver)
Mt. Goode (Cosmos South)(3)		Western Australia, Australia		Xstrata		1.50% NSR (nickel)

We also own the following royalty interests that are currently in development stage 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 (sulfide circuit)		Zacatecas, Mexico		Goldcorp		2.0% NSR (gold, silver, lead and zinc)
Dolores		Chihuahua, Mexico		Minefinders		2.0% NSR(1) (gold and silver)
Pascua-Lama		Region III, Chile		Barrick		0.16%-1.08% sliding-scale NSR
						0.22% fixed rate royalty (copper)
Gold Hill		Nevada, USA		Kinross Gold Corporation		1.0%-2.0% sliding-scale NSR
				(50%), Barrick (50%)
Troy		Montana, USA		Revett		6.1% GSR
						2.0% GSR
Marigold		Nevada, USA		Goldcorp		2.0% NSR
Don Mario (Upper Mineralized Zone)		Chiquitos Province, Bolivia		Orvana		3.0% NSR
Taparko		Burkina Faso, West Africa		High River		2.0% GSR (TB-GSR3)
Relief Canyon		Nevada, USA		Firstgold Incorporated		4.0% NSR
Meekatharra (Paddy’s Flat)(2)		Western Australia, Australia		Mercator Gold		A$10.00 per gold ounce produced
Reedy’s Burnakura(2)		Western Australia, Australia		ATW Venture Australia		1.5%-2.5% NSR
Malartic(2)		Quebec, Canada		Osisko Mining Corporation		2.0%-3.0% sliding-scale NSR
				(“Osisko”)
Holloway-Holt(2,3)		Ontario, Canada		St Andrews Goldfields		0.00013 x quarterly average gold price
Pine Cove(2)		Newfoundland, Canada		New Island Resources (70%), Anaconda Gold (30%)		7.5% NPI

We received production estimates from the operators of our producing mines during the first calendar quarter of 2008. The following table shows such production estimates for calendar 2008 as well as the actual production reported to us by the various operators for year ended December 31, 2008. 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. Production estimates for the production stage royalty interests acquired as part of the Barrick transaction, as shown above, are not shown in the table below as the production estimates were not available. Please refer to our Results of Operations below for reported production of the acquired Barrick production stage royalty interests. The

Company anticipates receiving calendar 2009 production guidance for each of its production stage royalty interests sometime during the first or second calendar quarter of 2009.

Operators’ Production Estimate by Royalty for Calendar 2008 and Reported Production
For the period January 1, 2008 through December 31, 2008

		Calendar 2008 Operator’s Production												Reported Production through
		Estimate(1)												December 31, 2008(2)
		Gold				Silver				Copper				Gold				Silver				Copper
Royalty		(oz.)				(oz.)				(lbs.)				(oz.)				(oz.)				(lbs.)
Cortez GSR1			316,000				—				—				208,684				—				—
Cortez GSR2(3)			51,000				—				—				79,227				—				—
Cortez GSR3(3)			367,000				—				—				287,911				—				—
Cortez NVR1(3)			242,000				—				—				167,267				—				—
Robinson(4)			115,000				—			150 million					128,047				—			147 million
Leeville			415,000				—				—				458,176				—				—
SJ Claims			792,000				—				—				800,517				—				—
Troy			—			1.4 million				12.5 million				—				1.0 million				9.5 million
El Chanate(5)			50,000				—				—				42,559				—				—
Mulatos			120,000				—				—				148,449				—				—
Don Mario(6)			N/A				—				—				73,675				—				—
Peñasquito(7)			67,000			2.3 million					—				16,558			1.2 million					—
El Limon			43,000				—				—				37,024				—				—
Williams			126,000				—				—				135,904				—				—
Dolores(8)			10,000				350,000				—				2,440				42,800				—
Martha			—			3.2 million					—				—			2.9 million					—
Bald Mountain			28,000				—				—				24,262				—				—
Taparko(9)			91,000				—				—				34,902				—				—
Benso			25,000				—				—				38,968				—				—