Royal Gold Inc (RGLD) 2007 Q2 法說會逐字稿

Good afternoon. At this time I would like to welcome everyone to the Royal Gold fiscal 2007 second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Karen Gross, Vice President and Corporate Secretary. Please go ahead.

Thank you and hello, everyone. Welcome to our second quarter earnings conference call. Our call is being webcast live today, and 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 detailing our earnings results.

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.

Participating on the call today are Tony Jensen, President and Chief Executive Officer; Stefan Wenger, Chief Financial Officer; Stanley Dempsey, Executive Chairman; Bill Heissenbuttel, Manager of Business Development; Randy Parcel, our departing General Counsel; and Bruce Kirchhoff, our new General Counsel. A Q&A session will follow our comments.

Let me also mention that the call will include a discussion of the Company's free cash flow results, which is a non-GAAP financial measure. Therefore, there is a reconciliation for free cash flow in our press release that went out this morning.

Now I will turn the call over to Tony.

Good morning, everyone. Before I begin, I would like to welcome Bruce Kirchhoff to our team; he's a veteran of, now, about two hours with Royal Gold. We're baptizing him under fire today. But he's flanked by Randy Parcel; and, Randy, we wish you all the best in your retirement years going forward.

Let me turn to the quarterly highlights. We are pleased to report very strong financial results for the second quarter including record revenue, net income and free cash flow. For the three-month period ending December 31, revenues were $12.3 million, an increase of approximately 62% over the second quarter of last year. Net income was $5.6 million or $0.24 per share, which is a per-share increase of 100% over last year's comparable quarter. Free cash flow was $10.3 million or 84% of revenues. Working capital was about $74 million, and we ended the quarter with the cash balance of approximately $71 million.

For the six-month period, royalty revenue was $22 million. Net income was $10.6 million or $0.45 per share. Free cash flow was $18.3 million or 83% of revenues.

In addition to these excellent results we had a very active quarter. We signed an agreement to acquire a 2% net smelter return royalty on the Penasquito project in the state of Zacatecas, Mexico and closed this transaction just last week. We also signed an agreement to acquire a sliding scale net smelter return royalty on the Pascua Lama project, located on the border of Chile and Argentina. We closed the Gold Hill transaction, in which we acquired a sliding scale net smelter return royalty on the Gold Hill deposit in Nye County, Nevada.

We increased our dividend by 18% to $0.26 per share annually, and we expanded our credit line to $80 million.

Now I would like to highlight a few of the royalty properties that performed particularly well during the quarter. We are pleased with the progress that Newmont made in the final stages of the ramp-up at the Leeville project. Once full production is reached, Newmont is estimating production of 450,000 ounces of gold per year. Production of roughly 114,000 ounces of gold for the quarter clearly shows that they are making progress towards achieving this goal.

At the Pipeline Mining complex, production for the second quarter related to our royalty position totaled about 138,000 ounces of gold, providing approximately $5 million in royalty revenue. Total royalty production for calendar 2006 was 438,000 ounces, exceeding the operator's estimate of 385,000 ounces by 14%.

The Robinson mine in Nevada continues to provide strong royalty revenue. In our first six months of receiving royalties from this project, revenues have averaged over $1 million per month. In Burkina Faso, High River continues to make steady progress on the Taparko mine. They estimate that production will begin in just a few months, during the second calendar quarter of this year. We are estimating royalty revenue late in that same quarter. As of December 31, our funding totaled $33.6 million out of our total $35 million commitment on the project.

Next I would like to talk about two of our most recent transactions, the Penasquito and Pascua Lama royalties. As an overview of the project, we purchased the 2% net smelter return royalty on the Penasquito project for $80 million in cash and approximately 577,000 shares of Royal Gold stock. The Penasquito project is an open-pit polymetallic mine being developed by Goldcorp.

(indiscernible) July 2006 feasibility study estimates average annual metal production of about 388,000 ounces of gold, 23 million ounces of silver, 303 million pounds of zinc and 156 million pounds of lead over a 17-year mine life.

The reserves at Penasquito are already world-class and still growing. Gold reserves stand at 10 million ounces, silver at 575 million ounces, zinc at 8 billion pounds, and lead at 3.7 billion pounds. This ranks Penasquito as one of the largest undeveloped gold, silver and zinc deposits in the world.

Our (indiscernible) startup is designed at Penasquito. Goldcorp recently announced that it has received all permits required for construction and operation of the project. Goldcorp stated that the production is on schedule for initial production from heap leaching in mid-2008 and from the Mill circuit in late 2009.

One of the key attributes that attracted us to Penasquito was the expiration upside. Our royalty interest covers all of the current Penasquito mineralization and expands well beyond the current pit limits. Goldcorp is expected to develop a new reserve and resource estimate on the property in mid-2007.

In summary, we view the Penasquito royalty as an important and strategic acquisition for us. The project will be a significant near-term revenue generator. It is operated by a well-funded and experienced senior operator and located in an attractive host country. We expect this project to become a cornerstone royalty for our portfolio for many years to come.

Turning to Pascua Lama -- Pascua Lama is another development stage project that will add long-term royalty revenue to our portfolio. We recently entered into an agreement with a private individual to purchase a sliding-scale net smelter return royalty for $20.5 million on the project. Pascua Lama is owned by Barrick and is located on the border between Argentina and Chile.

The royalty ranges from approximately 2/10ths of a percent to about 1.1%. It is applicable to all gold production from an area of interest in Chile. Proven and probable reserves at Pascua Lama contained 18 million ounces of gold and approximately 80% of the reserves are located on the Chilean side.

The transaction also includes a fixed rate copper royalty, but this royalty does not take effect until after January 1, 2017. Barrick is targeting production in calendar 2010, and according to their technical report, annual production from the mine will average about 750,000 ounces of gold during the first decade of production. The Pascua Lama royalty will provide Royal Gold with exposure to yet another world-class long-life deposit, and we expect this transaction to close in early March.

Before I wrap up I'd like to mention that we're in the process of compiling our updated production and reserve figures from each of the operators that have a royalty interest. We expect to publish our annual reserve release in late March or early April.

In conclusion, let me say that I am very pleased with our record financial results for the quarter as well as our recent business development successes. Our prior investments have truly matured and are now strong contributors, and together with their traditional base royalties, are providing our shareholders with a diversified portfolio of quality royalties and are laying the groundwork for future growth.

As always, we remain determined to grow the Company through the creation and acquisition of royalties, and are constantly evaluating new opportunities. We are pleased how the Company is currently positioned and the growth potential that lies ahead.

Operator, that concludes my prepared remarks. We would be happy to entertain any questions, if there are some, at this time.

(OPERATOR INSTRUCTIONS). [Will Gee], National Bank Financial.

First of all, congratulations on such strong results this last quarter. I have just a quick question on the Gold Hill royalty. When do you expect to see a production profile out of this royalty?

Right now we don't have a production profile for the property. It is in reserve. There's about 750,000 ounce of reserve there. It's in the stage of permitting, with some of the more global activities that Round Mountain is doing. It is an open pit operation, and so what we would expect is that, once equipment comes freed up from the lay-back at Round Mountain, that would be put into the Gold Hill area. But we don't have anything definitive at this point.

(OPERATOR INSTRUCTIONS). Mark Johnson, USA Investment Management.

Just a question on exploration and development expenditures, which are down quite a bit year over year. Does that represent a change in strategy in any way, shape or form? Or just can you elaborate on the reasons for that?

Yes, thanks for the question. No, it certainly doesn't indicate a change in strategy at all. In fact, we would like to continue to do more strategic alliances with exploration companies like we've done at Taranis and like we did over at the [Spetloy] project. But your question is very much targeted at Taranis. Last year at this time we were in quite a big funding mode for the first commitment at Taranis, and now they're just starting to ramp up in the second year of drilling there. We expect some more funds to be flowing towards Taranis and on the Kettukuusikko project in this calendar quarter -- or sorry, in this fiscal quarter that we're currently in.

At this time there are no further questions.

Well, thank you very much for joining us today. We are very, very pleased with these financial results and where the company is currently positioned. We thank you very much for your interest in Royal Gold.

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