Royal Gold Inc (RGLD) 2007 Q4 法說會逐字稿

Good morning. My name is Vanessa, and will be your conference operator today. At this time I would like to welcome everyone to the Royal Gold fourth quarter and fiscal year end 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). Thank you. I would now like to turn the call over to Ms. Karen Gross, Vice President and Corporate Secretary. Please go ahead, ma'am.

Thank you, operator, and hello everyone. Welcome to our fourth quarter and year end conference call that is being webcast live today. You will also 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 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 CEO; Stefan Wenger, CFO; Bill Heissenbuttel, Vice President Business Development and Bruce Kirchhoff, Vice President and 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, which is a non-GAAP financial measure. For your reference there is a free cash flow reconciliation in our press release.

Now I will turn the call over to Tony.

Good morning, everybody, and thanks very much for joining us today. Fiscal 2007 was an exceptional year for Royal Gold. We achieved record financial performance and executed on our plan to grow and diversify the Company. Some of the full-year highlights include revenue increased by 70%. Free cash flow increased by 85%. And earnings per share increased 58% over the prior year.

Our margins remained high with free cash flow totaling 78% of revenues. We added three new royalties to our development stage portfolio, including Penasquito, Pascua Lama and Gold Hill, helping us to achieve our key goals of portfolio diversification and revenue growth. Now we have thirteen producing royalties on nine properties in four countries.

We announced an agreement to acquire Battle Mountain Gold Exploration, and we continue to progress on closing that transaction. We completed our secondary offering to raise money for new business development activities and to pay off debt. We increased our annual dividend by 18% to $0.26 per share, and our fundamentals remain robust as we ended the year with working capital of more than $90 million, no debt and strong cash flow.

Turning to our financial results for the quarter and the year, for the fourth quarter royalty revenue was $14.4 million. Net income was $5.6 million or $0.20 per share, and free cash flow was $11.3 million or 78% of revenues. For fiscal 2007, and I should just mention that each of these is a record for Royal Gold, royalty revenue was $48.4 million; net income was $19.7 million or $0.79 per share and free cash flow was $37.9 million or 78% of revenues.

During the quarter and throughout fiscal 2007 we had solid performance from our core royalties of Pipeline, Goldstrike and Robinson. And we expect them to continue to be strong contributors in fiscal 2008.

Turning to operation and development highlights, let me begin with Taparko. We are pleased with the recent startup of production at High River gold's Taparko mine in Burkina Faso, West Africa. High River announced its first gold core on July 17, and we truly congratulate the management of High River on this great accomplishment. We understand the startup is progressing smoothly and the operation is expected to continue to ramp up over the next few months.

We hold four royalty interests at this property, two initial gross smelter return royalties are now generating royalty revenue. At an average gold price of $650 per ounce we will receive an amount equal to approximately 21.5% of the gross gold production from the mine for the first few years of operation. High River estimates production to be between 100,000 and 140,000 ounces of gold per year at full capacity, making these initial royalties immediate and strong contributors to our revenue stream. When these royalties end, a perpetual GSR royalty and a milling royalty will take effect.

Moving on to the Penasquito property located in Zacatecas, Mexico and under development by Goldcorp, we hold a 2% net smelter return royalty on this world-class asset. The Penasquito property acquisition was very important to us. With a significant transaction in the Company due to the magnitude and longevity of the project. Since our acquisition this past January, Goldcorp announced expanded reserves of 13 million ounces of gold, 864 million ounces of silver, 12.8 billion pounds of zinc and 5.9 billion pounds of lead. These new reserve estimates reflect a 31% increase in gold, a 50% increase in silver and a 60% increase in both zinc and lead over Goldcorp's prior estimates.

Goldcorp is planning a phased startup at the Penasquito project. The heap leach operation is expected to commence in 2008 followed by the first line of concentrates in 2009 and the second concentrate line in 2011. Full production is expected to be achieved in calendar 2012. Goldcorp also stated that they are analyzing in the potential for an expansion of the mill throughput from 100,000 tons per day to 130,000 tons per day to accelerate the production profile.

In addition, there are nine active core rigs on the property working to test the extent of the new high-grade zone and to find additional mineralization which may be mineable by underground methods concurrent with open pit operations. With all this upside obviously we're very pleased with our investment at Penasquito and anticipate this property will be a cornerstone royalty for the next couple of decades.

And at the Troy mine Revett reported record metal production for the quarter as a result of continuous improvement in operating performance. Revett also announced preliminary results from its exploration program that showed new mineralization at Troy below the currently defined reserve. And they expect to complete a new reserve estimate prior to year end.

A quick update at the Martha mine; just last week Coeure announced a 49% increase in silver reserves, taking into account the first-half production for new reserve figures of 7.6 million ounces of silver. They also expect to complete construction of the mill facility adjacent to the Martha mine by the end of this year. I would like to just point out that in all of these reserve updates that I've just highlighted at Penasquito, Troy and Martha come to us at no additional cost and compose that organic upside growth that we often refer to.

Now let me update you on the Battle Mountain merger transaction. We continue to make progress on our merger with Battle Mountain Gold Exploration. And recently announced an amended merger agreement in the filing of the S4 registration statement. The merger agreement was amended to allow Battle Mountain shareholders to have the choice of receiving either cash or shares of Royal Gold Stock, and we also obtained additional proxies in support of the transaction from Battle Mountain management and its Board. We now have beneficial ownership of 57%. Once the S4 registration statement is declared effective by the SEC, we will move quickly to seek Battle Mountain shareholder approval.

Before I conclude, I would like to briefly mention a few personnel changes. First of all, I want to recognize Ed Peiker, co-founder of Royal Gold who announced his plans to retire from the Board last month. Ed's contributions to the startup of this Company are numerous, and this generation of management are benefiting from his hard work. We wish Ed the very best and want to thank him for his long and dedicated service to the Company.

We did find a very capable replacement, however, and I want to welcome Craig Haase to the Board. Craig has a very strong background in mining and mining law, as well as expertise in the precious metal royalty business. He served as Director, Executive Vice President and chief legal officer of Franco-Nevada Mining Corporation for over 15 years and served in a similar capacity at Euro-Nevada Mining from 1987 to 1999. We look forward to his advice and expertise as we continue to grow the Company.

And finally I want to welcome Tim Thompson, Manager of Corporate Development to our business development team. Tim most recently served as manager of reserves and resources development at Barrick Gold North America and was the project leader for a team of geologists that are credited with the discovery of the Cortez Hill deposit. Tim will be working closely with Bill Heissenbuttel, Vice President of Corporate Development.

Let me conclude today's call by saying we're very pleased to report such strong fourth quarter and fiscal year results. We have added significantly to our development stage royalty portfolio and are pleased with the expected impact these acquisitions will have in our future financials. We anticipate that fiscal 2008 will be another good year as we benefit from the ramp up at Taparko, higher output from the Leeville Mining Complex as it progress towards full production and the expected completion of the Battle Mountain transaction. We are very excited about 2008.

Our unique and highly profitable business model and our broad and expanding royalty portfolio continue to yield excellent financial results and set us apart in the industry. And we believe we have put the right pieces in place to drive revenue and free cash flow growth going forward.

Operator, that concludes my prepared remarks, and the team and I would be happy to entertain any questions if there are any.

(OPERATOR INSTRUCTIONS) Tanya Jakusconek, National Bank Financial.

Hi, everyone. I just only have a few questions for modeling purposes. I am just wondering if you can give some guidance for your new year for G&A, your exploration and development? And also your level of depreciation?

Let me take G&A exploration development and I'll ask Stefan to talk about DD&A because that is probably the biggest wild-card in the whole bit. But we don't expect a significant change on the G&A line or exploration development.

So 6 million for one and about 2.5 for the other?

I think if you use the actual result that is probably pretty good feel going forward. We are interested in continuing our strategic alliance with exploration companies, and that could play into the business development line which we put exploration into as well. But those investments are generally less than $1 million.

Okay.

But that is what I would remark on the first two items, and maybe Stefan can speak to a bit of help on DD&A.

As you know, our DD&A is very old based on production from the properties, and as we go forward we will continue to see DD&A levels that are more closely tied to some of our newer properties and less contribution from some of our more mature properties. With that said, I see as Taparko comes online we will see DD&A increase due to that investment as we amortize our cost bases over the production of that mine as was expected. So I see DD&A increasing commensurate with production as we go forward. Although it is a variable number and as you know the DD&A rates change from time to time, the most interesting thing as Tony highlighted in his discussion is as we reserve increases at properties the DD&A rates go down.

And you depreciate over proven and probable recoverable?

Yes, that's correct.

Okay.

Did we get all that question, Tanya, or was there another piece to it? Okay.

Erica Brailey, HSBC.

In regards to Taparko for 2007 production is estimated at 35,000 ounces. It was once forecast at 60,000 ounces in the High River gold annual report for 2006. Can you tell us anything about the performance of this asset?

I can't really speak to the 60,000 ounce number, but they now have three gold [cores] under their belt there, and they are just bringing up the CIL circuit at Taparko. And of course these things take a few months to ramp up. We just don't flip the switch and expect full production. So I think it is going to take a couple, two or three months to get up to full speed. I think the 35,000 ounces is just a reasonable reflection of what you would expect the property to do during the second half of this calendar year. So I don't think there is anything mysterious behind it. I think the property is actually ramping up quite nicely as far as what we know.

Great. Thank you.

At this time there are no further questions.

Well operator, thank you very much then and we appreciate everybody joining us today even on a day when the gold market is down a bit. But we sure appreciate your support and interest in Royal Gold and hope we can count on that into the future.

This concludes today's conference call. Thank you for your participation. You may now disconnect.