Royal Gold Inc (RGLD) 2005 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Royal Gold fourth quarter fiscal 2005 conference call. (OPERATOR INSTRUCTIONS). Ms. Gross, you may begin your conference.

Good morning everyone. Welcome to our fourth quarter and year-end fiscal 2005 conference call. Our call is being webcast live today. You will be able to access a replay of it on our website at www.royalgold.com. Also, on the website you will find this morning's release.

As always, this discussion falls under the Safe Harbor provision of the Private Securities Litigation Reform Act. A discussion of the Company's current risks and uncertainties is included in the Safe Harbor statement in today's press release, and is presented in greater detail in our filings with the SEC.

On the call today are Stanley Dempsey, Chairman and CEO; Tony Jensen, President and COO; Don Baker, Vice President Corporate Development; Stefan Wenger, Treasurer and Chief Accounting Officer; and Randy Parcel, Vice President and General Counsel. Today's presentation will consist of a financial update from Stan, and a portfolio overview by Tony. Concluding remarks will be followed by a Q&A. Now I will turn the call ever to Stan for our financial update.

Good morning to everybody. I am pleased to report that we had record revenues, earnings and free cash flow for fiscal 2005, with royalty revenue of $25 million, which is an increase of nearly 18% over fiscal 2004. Our free cash flow was $18.1 million, or about 71% of revenues. There is a reconciliation in our press release for this non-GAAP measure of cash flow. Net income was $11.5 million, or $0.55 per share. Working capital at the end of June was $53.3 million. We ended the fiscal year with a cash balance of $49 million and no debt.

Also, during the fiscal year we completed funding of our $1.3 million commitment on the Russian exploration property, which earned our 1% royalty interest, and we expanded our royalty portfolio with a financing of the Troy mine in Montana.

For the fourth quarter royalty revenue was $7.5 million, which was an increase of 23% over fourth quarter of last year. Net income was $3.6 million, or $0.17 per share. And free cash flow was $5.8 million, or about 77% of revenues.

Now Tony will provide the specifics of our royalty portfolio.

First, just a reminder that the production numbers I will present reflect only that portion of the operator's production, subject to our royalty interest. In other words, the numbers do not reflect the total output of the mines overall, but just the portion that we receive royalties on.

The Pipeline Mining Complex in Nevada is owned by the Cortez Joint Venture and is operated by Placer Dome. Here we own two sliding scale royalties and two fixed royalties. For the quarter our GSR1 royalty rate was 4.25% at an average gold price of $427 per ounce. Production was about 289,000 ounces, providing about 6.4 million in royalty revenue from the GSR1, the GSR3 and the NVR1 royalties. For our fiscal year production was about 974,000 ounces of gold, providing royalty revenue of $21.4 million.

At Newmont's Leeville project in Nevada we own a 1.8% net smelter return royalty on the majority of this project. Production for the quarter was about 17,000 ounces from Leeville South, providing about $133,000 in royalty revenue. For fiscal 2005 Leeville South produced a total of about 93,000 ounces of gold, providing royalty revenue of about $763,000. At the Betze-Post mine, a part of Betze-Post's Goldstrike operation in Nevada, we own a .9% net smelter return royalty on all of the SJ Claims. Production for the quarter was approximately 114,000 ounces for a royalty revenue of about $440,000. For fiscal 2005 production was 531,000 ounces for a royalty revenue of about $2 million.

The Troy mine, located in northwestern Montana, is operated by Revett. Here we own a 7% GSR royalty, which extends until either cumulative production of about 9.9 million ounces of silver and 84.6 million pounds of copper is reached, or until we receive $10.5 million in cumulative payments, whichever comes first. Production for the quarter was approximately 308,000 ounces of silver and 2.7 million pounds of copper for a revenue of approximately $445,000. For fiscal 2005 production was about 522,000 ounces of silver and 4.6 million pounds of copper for royalty revenues of about $750,000.

At Bald Mountain in Nevada, operated by Placer Dome, we own a 1.75% to 3.5% sliding scale net smelter return royalty on a portion of their top pit mine. Approximately 5,000 ounces of gold were produced during the quarter, providing royalty revenue of about $33,000. For fiscal 2005 28,000 ounces were produced, providing royalty revenue of about $208,000.

And finally at the Martha mine in Argentina, and operated by Coeur d'Alene Mines, we own a 2% net smelter return royalty. We received about $40,000 in royalty revenue for the quarter, and about $163,000 in royalty revenue for the fiscal year.

Now I would like to give you a brief update on some of the royalty properties as reported by the mine operators. We continue to look forward to production from Leeville North, where we hold a 1.8% NSR. Development at Leeville North is continuing to progress. Newmont just reported that the project remains on schedule for initial gold production in the fourth quarter of calendar 2005, and that the production shaft is 94% complete to a depth of 1,710 feet, and hoisting from the completed ventilation shaft also began in late June. Overall construction at Leeville North is approximately 73% complete. At full production this mine is scheduled to produce about 500,000 ounces annually.

At Troy the operation is experiencing challenges and turnover and in training operators, particularly in operating the jumbo drill. I just might say that the jumbo drills are the first equipment that goes into a stoke to take off the top slice before the more productive bench drills can come in. So it is very important and critical element of the production at Troy. But this appears to be a rather finite bottleneck at present, and the rest of the operation seems capable of meeting planned production rates at 6,500 tons per day.

Revett just announced that it will try to attain planned production levels by the end of the third quarter or early in the fourth quarter of calendar 2005. If they can do that, they estimate production for calendar 2005 will be about 2 million ounces of silver and 17 million pounds of copper.

Coeur also recently announced that as of June 30, 2005 silver reserves at Martha have increased to 4.5 million ounces versus the year-end 2004 figure of 3.9 million ounces. This is based on $6.50 silver versus $6.00 silver at the year-end 2004 estimate. And Coeur also expects additional success at this property.

In summary, our portfolio continues to generate excellent results. Because of the cost installation afforded by our royalty model, we are not directly impacted as the operators are by the rising costs of fuel, labor, materials or strengthening currencies versus the U.S. dollar. We expect that increasing production from the Troy mine will continue to add to our financial results in the coming quarters. And we also look forward to the revenue contribution from Leeville North, which is scheduled to begin production late this year.

Now I will turn the call back over to you, Stan.

Our record full performance -- full year performance was very gratifying, and we are pleased you see our royalty business model perform so well. During times of rising gold prices and rising consumer prices our model displays significant upside leverage, while minimizing the cost pressures faced by operating gold companies. That said, we are not satisfied with where we currently stand because we believe there are many acquisitions and financing opportunities out there to draw our sales and cash flow results further. We expect gold to continue to perform well into the next year, and have high expectations for growing the size of our Company in the year ahead.

I also want to share with you that Royal Gold was recently named to the Fortune Small Business 100, a list of America's fastest-growing small public companies. Our ranking this year was number 26. But more importantly, this marks the third consecutive year Royal Gold has achieved this distinction. We're delighted by this recognition of our great track record in growing revenues and earnings. We will now take questions.

(OPERATOR INSTRUCTIONS). Mike Niehuser with the Robins Group.

It is Mike Niehuser. Just to follow-up on your last comment, if I could. With the price of gold and the opportunity for acquisitions, I just wondering which one of those do you see provides the greater opportunity for your Company, whether it is a sustained higher gold price or acquisitions? And then kind of a follow-on question is the higher price of gold is that going to reduce the attractiveness of acquisitions as they maybe follow the price of gold themselves?

I really think both are going to contribute to further growth, and particularly in revenues. The gold price -- we are so nicely leveraged, the gold price because of our sliding scale royalties at Cortez, or Pipeline. And on the acquisition front and royalty financing front, it is my judgment that more opportunities are available when prices are higher. And obviously you have to pay up for them, but we have always been prepared to pay a reasonable price. And I think that situation is not going to change. But there are certainly more people exploring, more people developing new properties, more late stage projects maturing. That gold price is making the whole industry buoyant and really creating some opportunities for us.

Just one more follow-on question, if I could. That I believe is the case. If in the event that gold should soften in the midterm, I imagine a lot of these opportunities that came to the foreign would, in exposing themselves, might become cheaper, but exposed -- and would that provide a greater field of opportunities than you would have if the price of gold hadn't risen to begin with?

I think it would be a target-rich environment. It will be harder for those folks to find money in other places, and royalty financing would really be attractive to them.

That is what -- that answers my question. Thank you very much.

David Hurwitz (ph), SE Fundamental (ph).

Placer Dome announced earlier this year that they would be coming out with some detailed plans on what they're going to do in their other mines in the Cortez area. Is there any chance that their plans could have any effect on the Pipeline Complex?

I would be happy to take that. This is Tony Jensen. The pipeline production we feel is reasonably straightforward in the developments that has to continue regardless of anything -- any other development they might have in the area. And the main reason for that is there is a very expensive dewatering cost. There is about 30,000 gallons of water a day that are treated, or I should say that are pumped and released at the property. So is a very strong financial incentive for them to continue to develop that project. So we look forward to continuing operations there in a rather orderly fashion.

(OPERATOR INSTRUCTIONS). Christensen Solis (ph), National Bank Financial.

I want to congratulate you guys on a great year and a great quarter. I just also wanted to see if you could provide any more insight into operations at Troy. I know they have had a little bit of problem in the first two quarters. I thought maybe you could comment on what you anticipate or what kind of information they have provided for Q3 '05 calendar?

First of all, thanks for joining us on the call, and thanks for the question. There isn't a significant more amount of material that we can provide at Revett. We are actually going to go up to the operation and see that next week. But we expect that they will achieve their 6,500 tons a day. It is a function of training new operators and getting those folks up to speed. There is this suite of new equipment there as well. But we're not concerned about the long-term value at Troy. We really believe that this is going to be a great revenues source for us in the next four or five, maybe six years. So we are a bit patient while they have their teething issues, but we have seen production increase quite substantially since they first started up. And we look forward to them reaching full capacity.

One other question. I just noticed you guys -- obviously you are interested in the acquisitions environment or targets out there. But also I noticed you are building up a fairly hefty cash war chest. Have you guys ever considered the option of maybe buying back some shares or something along those lines?

We have a buy back provision in place. In the past we have bought back some shares. Currently we have no plan to do anything with that authority.

Jay Sasusney (ph), private investor.

Good morning. And again, let me reiterate congratulates on a wonderful quarter, and more success in the future. I have one question. Has Royal Gold explored securing a gross smelter return with a company that Bob Bishop has given his cachet to? They're supposed to have a deposit that they are working on now in James Bay based in Québec that could rival the Ontario Hemlo Camp. I have the name, but I don't know if it is all right for me to mention it out loud on a conference call. But I'm sure you're well aware of this company.

Don, do you have any information on that?

I'm not sure I know exactly the target you're specifying, but --.

I could tell you the name of the company. I would just like to know if you're trying to secure a gross smelter return?

We're trying to do those on any one of a number of projects. I don't know if that is one that is specific to our target list or not. But we are well aware of a lot of the exploration developments in Nunavut and Northwest Territories, Canada, North America in general. We have looked pretty hard and remain in communication with a number of people.

It has been written up in the Northern Miner on the front page about a month or so ago. So you are probably aware of it. I was just wondering if you have approached them to see if they would take an investment from our company and give off a gross smelter return? Again, I don't know if I can mention the name to you, if this is --?

Why don't you give us a call here. Call Don Baker, our business development person, and have a visit with him. We are always glad to get new ideas.

So you don't want it now, you want me just to call you directly.

Yes, that would be fine.

Lon Johnson (ph), USAA.

Just a quick one on the G&A line. The last two years revenues up 60%, G&A is up 80% from 12.5% of revenue to 14% of revenue. I know some of that is really just Sarbanes-Oxley. I am just wondering whether -- what we can look forward to in the future in terms of the G&A line?

This is Stefan Wenger. Thanks for the question. Obviously, we are well aware of the increase in the G&A line. Most of that cost increase has been related to the increased regulatory environment that we face as a public company. And just to answer your question briefly, we expect that line to level out, and we don't expect similar increases in future periods.

At this time there are no further questions. Are there any closing remarks?

Thanks everyone for taking the time to join us on the call today. We appreciate it. As you can tell from our results, we're very pleased with this fourth quarter and year-end performance. And we look forward to another great year in 2006. Thanks everybody.

This concludes today's Royal Gold conference call. You may now disconnect.