Royal Gold adds to Pipeline holdings

Adding to its interest at the Pipeline mining complex in central Nevada, Royal Gold (RGL-T) has purchased two small royalties for a total of US$8.1 million.

The Denver-based company bought a sliding-scale royalty over the next 1.6 million oz. produced, amounting to 0.48% of the gross value of production. The royalty escalates to 0.71% of the gross value of production for all subsequent production.

The second part of the royalty purchase consists of a 0.71% gross value royalty over any production from a 6,000-acre area of interest around the deposit. The company would not release the name of the party selling the royalty.

Royal Gold already owns a sliding-scale royalty on production at Pipeline based on the price of gold. At current prices, the royalty stands at 2.25%. In April, the company converted a 20% net profits interest in the South Pipeline deposit into a gross smelter royalty over the entire operation.

Pipeline is operated by the Cortez joint venture, which is held 60% by Placer Dome (PGD-N) and 40% by Kennecott, a division of London-based Rio Tinto (RTP-N).

The deposit contains 8.3 million oz. in reserves within 173 million tons averaging 0.048 oz. gold per ton. The mine is expected to produce 1.3 million oz. in calendar 1999, falling off to at least 850,000 oz. annually in 2000 and 2001.

Royal Gold plans to complete the royalty purchase from its cash reserves of US$8.7 million and then boost cash reserves to as much US$5 million through a private placement and a line-of-credit.

The company posted a loss of US$8.8 million (or 51 cents per share) for the fiscal year ended June 30, 1999. Much of the loss is attributed to a US$4.6-million writedown of the Inyo gold property in eastern California, which was closed as a result of low gold prices.

Without the writedown, fiscal-year results would have been in line with last year’s net loss of US$3.5 million (21 cents per share).

Meanwhile, the company is exploring for gold on the Greek island of Milos, where reverse-circulation drilling of more than 72,000 ft. has outlined a resource of 927,000 oz. within 22.2 million tons grading 0.042 oz. per ton, using a 0.015-oz. cutoff.