Royal Gold Inc (RGLD) 2010 Q4 法說會逐字稿

Good afternoon. My name is Mason and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold fiscal 2010 earnings 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. You may now begin.

Thank you, Operator, and hello everyone. Welcome to our fiscal fourth quarter and year-end 2010 conference call. This event is being webcast live. You will be able to access a replay of this call on our website at www.royalgold.com. Also on the website you will find our release detailing the our financial 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 and Treasurer; Bill Heissenbuttel, Vice President Corporate Development; Bill Zisch, Vice President Operations; Bruce Kirchhoff, Vice President and General Counsel, and Stanley Dempsey, Chairman. A Q&A will follow our comments.

We will also be discussing the Company's free cash flow which is a non-GAAP financial measure. There is a free cash flow reconciliation in today's release. Now I will turn the call over to Tony.

Good morning and thank you for joining us today. We are pleased to share with you details about our record financial results for fiscal 2010 and for the fourth quarter. Fiscal 2010 was a banner year for Royal Gold. We recognized record revenue and cash flow during the year and continue to execute on our long-term growth plan by adding quality to long life royalties to our portfolio. In total, we increased the assets of Royal Gold by $1 billion.

With the acquisition of International Royalty Corporation and the Andacollo transaction we expanded our number of producing and development royalties by 60% and grew our total royalty portfolio from 118 to 189 properties. This is remarkable growth when you consider that just two years ago our total royalty count stood at 44 properties. While we are proud of the portfolio growth in terms of total numbers, we are even more pleased with the quality of assets that have added over the last year, such as royalties at the Andacollo mine, additional royalty interest at Barrick's Pascua-Lama project and Valley's Voisey's Bay mine. Together with the recently announced Mt. Milligan transaction, we estimate that by 2013 two-thirds of our revenue will come from assets having a life of 15 years or more. With this -- this will provide a solid base to continue to grow Royal Gold through internally generated cash flow.

In addition to significant increases in our financials and asset base, we have also seen substantial growth in the number of precious metal equity ounces subject to our royalties. Including Mt. Milligan, which I will discuss in detail later, precious metal equity ounces have grown 203% since our fiscal 2009 reserve release.

Our strong revenue during fiscal 2010 was primarily driven by production growth at Taparko, Cortez, Penasquito, and Dolores, new revenue from the IRC portfolio, initial production at Andacollo, and higher metal prices, particularly for gold. We are especially pleased to see the turnaround at Taparko which became our largest revenue contributor during the year. We have been patient and supportive of the project, and that strategy has now paid off. Taparko has returned about $50 million on our original $35 million investment and the project still has about a seven-year mine life ahead of it. All of these factors contributed to a year of impressive asset, reserve, revenue and free cash flow growth for Royal Gold. Importantly, in fiscal 2010 we derived 84% of our revenue from precious metal production and I think a distinguishing factor is 81% of that came from gold. In the fourth quarter we derived 78% of our revenue from precious metal production even after adding the IRC assets.

Looking ahead, fiscal 2011 is shaping up to be an excellent year. We anticipate strong revenue growth from Andacollo and Penasquito, the commencement of production at Canadian Malartic and Wolverine, the potential resumption of full production at Voisey's Bay, and increased production at Las Cruces and Dolores. We are confident this expanding royalty pipeline will more than offset the anticipated revenue decreases at Taparko, Siguiri and Cortez. Now I will ask Stefan Wenger, our CFO, to review the financial highlights for both the year and the quarter, and after that Bill Zisch, our Vice President of Operations will provide an update on certain producing and development royalties. Stefan.

Thank you, Tony, and good morning, everyone. For the full fiscal year, we had record revenue of $136.6 million, an increase of 85% over last year's revenue of $73.8 million. Net income was $21.5 million or $0.49 per basic share compared with $38.3 million or $1.09 per basic share for fiscal 2009.

I would point out that we had several nonrecurring items included in our income for both fiscal years. Last quarter I told you that our net income was impacted by severance and acquisition costs related to the IRC transaction. Going back to fiscal 2009, net income was impacted by two separate one-time gains related to the Barrick royalty portfolio acquisition and the Benso royalty buyback exercise by Golden Star. Backing out these extraordinary events, our net income comparison would be $35.8 million, or $0.82 per share for 2010 versus $16.4 million or $0.47 per share for 2009.

Moving on, our free cash flow for fiscal 2010 was a record at $100.1 million or 73% of revenues. This compares to $61.7 million or 84% of revenues for fiscal 2009. Free cash flow as a percentage of revenue was negatively impacted for 2010 due to $19.4 million of IRC-related costs. Before these IRC costs, free cash flow for the year was 87% of revenue.

Our working capital as of June 30 was $336 million. We ended the year with a cash balance of $325 million of which we expect $226 million will be used in the closing of the Mt. Milligan transaction. During the year we also increased our annual dividend to $0.36 per share.

On the cost side, our cash expenses for the year, excluding the IRC transaction costs, were approximately $15 million compared to $11 million in the prior year. Approximately 25% of the increase in cash expenses was associated with higher production taxes that are directly associated with revenue growth while the remaining increase was associated with higher corporate costs, including accounting, tax, and legal fees resulting from our increased level of corporate activity during fiscal 2010. With the IRC integration nearly complete, our management team is focused on reviewing all of our corporate costs from the bottom up with the goal of increasing our free cash flow margin in fiscal 2011.

Non-cash compensation expenses increased to $7.3 million for the year compared with $2.9 million in the prior year consistent with our current expectations of investing of performance based stock grants as a result of the IRC and the Andocollo and Pascua-Lama acquisitions during the year.

Our average DD&A rate for the year on a gold equivalent ounce basis decreased slightly to $430 per ounce compared to $435 per ounce in the prior fiscal year. The DD&A rates at Taparko and Siguiri, which are both capped royalties based on a total cash threshold, increased during the year due to a higher average gold price of $1,084 per ounce compared to $874 per ounce in the prior year. For 2010 the DD&A rate per ounce for the Taparko and Siguiri royalties combined was $689 an ounce. Looking forward to 2011 we expect to incur DD&A expense per ounce in the first quarter of fiscal year of between $450 and $500 per ounce. Upon the attainment of the caps on Taparko and Siguiri, we expect our consolidated DD&A rate to fall to around $400 per ounce for the remainder of fiscal 2011.

We ended the year with cash and receivables on the balance sheet totaling $365 million and we had outstanding debt of $248.5 million. In June we completed the sale of 5,980,000 shares which included 780,000 shares for an underwriter's overallotment option for net proceeds of $276 million. The successful completion of the financing will allow us to fund additional acquisitions, including our agreement to acquire the Gold Stream from Mt. Milligan.

Moving on to our fiscal fourth quarter, we had record quarterly revenue of $40.7 million, an 83% increase over revenue of $22.3 million for the comparable quarter. Net income was $10.5 million or $0.21 per share compared to $7.1 million or $0.18 per share for the prior year period. Again, I would like to call your attention to the one-time gain on the Benso buyback that occurred during the prior year period. We also had record free cash flow of $35.1 million or 86% of revenues compared to $19.4 million or 87% of revenues for the prior year period.

On another matter, management has been looking hard at costs and after employee related expenses, audit fees represent the second largest cash expansion in our cost structure. As such, our audit committee determined in May that the Company should initiate a request for proposal process for its independent audit services and in July the request for proposal for the Company's independent audit services for fiscal 2011 was sent to several registered public accounting firms. On August 6, PricewaterhouseCoopers informed the Company that it would resign effective after their completion of its audit of the Company's financial statement for fiscal 2010. We are in the process of engaging a new firm for fiscal year 2011 and expect to make a decision at our next Board meeting to be held in late August. With that, I will turn the call over to Bill Zisch. Bill.

Thank you, Stefan, and good morning, everyone. We closed the year with 57 properties categorized as producing and development royalty properties. That breaks down into 33 producing properties and 24 development properties. Today I will talk about some of the key producing and development properties.

I will begin with Penasquito. Goldcorp has continued to deliver on the Penasquito project with completion and production forecast meeting or exceeding expectations. In June, Goldcorp announced the second sulfide processing line achieved mechanical completion ahead of schedule and is ramping up towards its 50,000 ton per day design capacity. They expect commercial production to be reached in just a few weeks and construction of the high-pressure grinding circuit to be completed in the fourth quarter of 2010. Full production ramp-up to 130,000 ton per day capacity is on track for early calendar 2011.

At Andacollo, tech reported that the ramp-up to full production continues and they expect design capacity to be reached during the fourth quarter of 2010. Three shipments of concentrate were made during the quarter with the first occurring in early May. Ramp-up of the hypogene concentrator, which began in February, continues and some plant enhancements have been identified that will improve overall performance. At the end of the second calendar quarter the concentrator was operating at about 50% of design rates with individual days operating reaching production levels of 80% of design. More powerful electro magnets are being added to the pebble crushing circuit to remove trap metal and increase throughput.

In early July, union workers at (Betze), Siguiri and Port Colbourne mines approved a new labor contract and ended one of the longest strikes in Canadian history. Workers at the Voisey's Bay mine were not a part of these local negotiations and they remain on strike. Regardless, (Betze) reported that they are currently working to ramp up to full production from their current level of about 40% of capacity. At the Dolores mine, mine finders reported that the phase 2 leech pad is under construction with expected completion this month. Gold and silver production decreased in the second quarter of 2010, primarily due to lower average ore grades stacked to leech patterns preceding quarters and as a result of remediation work on a tear in the phase 1 leech pad towards the end of June. The remediation work required the cessation of leeching on affected areas of leech pad and is expected to be completed by the end of August. Minefinders has indicated they expect calendar Q3 production to be above calendar Q2 levels and they still believe that they will reach their year-end guidance of between 91,000 and 100,000 ounces as grades increase and they place fresh ore close to plastic on the phase 2 leech pad.

Inmet's Las Cruces operation in Spain continues to experience difficulties as they start up. They have reported that a number of equipment failures and operational issues delayed the ramp-up of the plant and limited the ability to operate continuously. In July, Inmet initiated the installation of an additional pressure filter and began the addition of water treatment capacity that will allow for more consistent discharge into the aquifer and will maintain water balance throughout the process. Inmet expects to yield 20,000 to 30,000 tons of copper cathode this year. At Alamos' Mulatos mine production year to date has lagged the plan by 7%. This variance is expected to be reversed by the end of the year with guidance of 160,000 ounces maintained.

Two factors affected production in this second calendar quarter. First of all, increased solution percolation time due to the height of the heat leech pad is expected to be compensated for during the fourth quarter as the first lift of ore is placed directly on a new liner. Secondly, drought conditions that reduced solution flow during the latter half of June have been addressed through some water conservation measures. Production originally scheduled for calendar Q2 will be deferred until calendar Q3.

I will now turn the discussion to a few of our development properties. At Pascua-Lama, Barrick reports that detailed engineering and procurement is nearing completion and the project is on track to enter production in the first quarter 2013. Purchase orders have been placed or pricing firmed for major items like mining equipment, autogenous grinding and ball mills, the overlying conveyor, and the primary and pebble crushers. The [Varialis] camp in Chile is essentially complete and construction of the access road is progressing well. Earth works have commenced with about three million tons moved to date.

Osisko reports that construction at the Canadian Malartic mine and mill facilities continue to advance. As of early June, the mining fleet was being deployed and waste mining is providing material for earth works. The installation of the site on the ball mills is scheduled to begin shortly. Permitting to reroute a highway around the Barnett zone is in advanced stages. While Osisko continues to estimate the project will be fully operational in the second quarter of calendar 2013 with average annual gold production of 630,000 ounces.

Yukan zinc is currently working to complete the construction of its operating plant and facilities at the Wolverine mine. In June, wet commissioning was completed and batches of low-grade ore were put through the processing plant for testing of unit operations. The plant is scheduled to begin the ramp-up process as ore is introduced in the mill on a continuous basis in September.

In general, our portfolio of producing properties continues to perform well and our development properties continue to make good progress. With that, I will turn the call back over to Tony.

Thanks for the update, Bill. Before we close I would like to review our recent Mt. Milligan transaction. On July 15 we announced an agreement to acquire 25% of the payable gold produced from the Mt. Milligan copper gold project in British Columbia from Thompson Creek Metals concurrent with the closing of Thompson Creek's proposed acquisition of [Terrain Mounts]. Under the plan of arrangement, a favorable vote of two-thirds of Terrain's shareholders is required at a special shareholder meeting expected to be held in September. Currently, Thompson Creek has support agreements in place representing about 53% of Terrain's outstanding shares.

Upon closing, Royal Gold will provide $226.5 million to support the acquisition of Terrain in additional payments totaling $85 million to help fund a portion of the development costs of the project. On a per-ounce basis, we will pay Thompson Creek a cash payment equal to the lesser of $400 or the prevailing market price of gold until 550,000 ounces have been delivered to us and the lesser of $450 or the prevailing market price for each additional ounce thereafter. We are planning to fund this transaction with cash on hand. Thompson Creek is one of the largest publicly traded peer molybdenum producers in the world. It has three operating facilities, the Thompson Creek mine in Millin, Idaho, the metallurgical facility in Pennsylvania, and 75% share of the Endako Mine mill and (Rocine) facility in British Columbia just south of Mt. Milligan. The reserves consist of 556 million pounds of molybdenum, annual production of approximately 24 million pounds and annual 2009 revenue of $373 million. Their available liquidity as of March 31, 2010, was $512 million.

We were attracted to partner with Thompson Creek due to the experienced management team mostly originating from the Cyprus Amax Company as well as their open-pit experience in British Columbia, namely at Endako, and their strong cash reserves to carry forward with the construction of Mt. Milligan. Mt. Milligan project is in the early stages of construction and production is expected to commence in calendar 2013.

Proven and probable reserves associated with the project include 2.1 billion pounds of copper and 6 million ounces of gold. (inaudible) expects the reserves to support a mine life of at least 22 years and estimates that Mt. Milligan will produce approximately 262,000 ounces of gold annually during the first six years of operation and 195,000 ounces of gold annually over the mine life. At a gold price of $1200, this translates into annual net revenue potential for Royal Gold of approximately $51 million over the first six years, or about $37 million annually over the mine life. Assuming the transaction closes as planned, Mt. Milligan is likely to become our largest single revenue source.

The mine is designed to be a conventional truck, electric shovel operation with a 60,000 ton per day concentrator plant. The operation has robust economics with life-of-mine net cash costs of $0.17 per pound of copper using gold as byproduct. The provincial environmental assessment certificate and mines act permits have been approved as well as the federal environmental assessment.

In terms of resource opportunity, Terrain has identified 7.5 million ounces of resource inclusive of reserves. There's exploration potential at depth and adjacent to known resources and several exploration targets with similar geophysical and geochemical signatures have been identified. In review, we think this pure gold transaction is an excellent opportunity due to the long reserve life, the excellent exploration potential, attractive host country and capable operator as well as the substantial revenue that is expected to generate for Royal Gold.

In closing, we are very pleased to see the revenue begin to materialize from previous investments and anticipate further financial growth as additional projects come on line. The acquisition of the IRC portfolio, the completion of the Andacollo transaction, increased royalty interest at Pascua-Lama further strengthen our high quality precious metal portfolio and we obviously are excited about adding Mt. Milligan to this robust portfolio of assets in the near future. Operator, with that, we'd be happy to turn the call over to questions, if there were any.

(Operator Instructions) Your first question comes from the line of Kevin Chiu from CIBC. Your line is now open.

Hi, guys. Just a few questions. First on Andacollo, I see three concentrate shipments were made in the quarter. I'm wondering if you guys received payment on all three shipments?

Stefan?

Yes, we accrue our royalty revenue for all of their shipments. The cash payments are not always tied to the timing of their shipments. There could be a slight delay on that, but we -- by now we've collected cash on all those shipments.

Right. Okay. I see that you guys are now expecting full production in calendar Q4. So what kind of a ramp-up in revenue should we expect to see in the coming quarters?

I think the ramp-up is going quite good actually and we put out some guidance earlier this year with regard to full-year production. Bill Zisch, can you help me out with what that guidance was?

Yes, we were in the 30,000-ounce range, which has their ramp-up starting in May and getting to full capacity in the fourth quarter, as they mentioned, and our revenues were ramped up accordingly to that.

So if you start to subtract out what they've produced already, about 4,000 ounces, if memory serves me correct, they still have about 26,000 to go to give me full guidance. That'll be a bit aggressive, but they should be in that range.

Okay. And just the last question. Could you provide us maybe some more color on Voisey's Bay? I see revenues have gone up quite a bit quarter over quarter. What can we expect going forward?

Kevin, that's a very difficult question to answer, as you can well imagine. We believe Vale is keeping their cards pretty close to their chest during the negotiations with regard to labor issues there. I think the best thing that we can probably point to is that they been-- seems as though they've been able to sustain about 40% production and although we do understand they are looking at ways to increase that, I think conservatively somewhere around 40% production, similar to what we've been reporting now for the last two quarters, I think, Bill Zisch, would be a pretty good estimate.

Perfect, thank you.

Thanks, Kevin.

Your next question comes from the line of John Doody from Gold Stock Analysts. Your line is now open.

Congrats on a great year and quarter.

Thank you, John.

Of course my questions always revolve around dividends, so I trust will you forgive me if I ask another one. And I just want to note that for fiscal year 2009 where your growth royalties per share were $1.82 and you paid out $0.20 of that in terms of dividends, currently your rate is $0.36. And this year that you have just completed, your royalties per share, gross royalties per share have grown to $2.49. Great growth. And I'm wondering if we could exp-- since is you've got a Board meeting coming up the end of August, if we might expect a bump in the dividend and possibly up to -- maintain that 20% payout rate?

John, I think -- well, first of all, I can't comment on any specific things the Board might or might not do, but we are in a growth industry. We very much have needs for cash as you've seen with the Mt. Milligan transaction, the Pascua-Lama transactions we've just done. We'll have to consider those as well as the desire for additional yield on the stock, so I just wouldn't guide with you anything substantially different than what we've done in the past, but those issues will be taken up by the Board in due course.

Okay, great, I'll await the announcement.

Thanks, John.

Your next question comes from the line of Adrian Day from Adrian Day Asset Management. Your line is now open.

Good morning, afternoon. I had two questions actually, but at least in my mind are kind of connected so if I may ask them both at the same time. First of all, in your opening remarks you alluded to using -- hoping to use internal cash flow generation for capital going forward. And I wonder if you could -- I don't know how far you want to go in assuring the market there won't be too many more equity raisings. And the second question, I was wondering what the percentage of gold royalty income would be in two to three years' time, and then what your thoughts might be on selling some of the non-gold assets, particularly of course, Voisey's Bay which is a good royalty but it's non-gold in order to avoid having to do future equity raisings or reduce the need? Thanks.

Adrian -- I think I heard four questions in your two questions. Let me try to dissect those and if I'm not responsive, come back at me. But I do very much want to create a company here where we can fund our acquisitions throughout internally generated cash flow. We are not there yet. The deals, the opportunities that we've seen are beyond our internal generated cash flow. That's essentially a good thing. We now see the royalty financing opportunities in front of us that weren't there two or three years ago. So we're very pleased with the size of revenue that's starting to flow and additional revenue we anticipate coming in, but I will never be able to sit in front of you and say we would not do an equity raising for a good quality opportunity like we think we saw at Mt. Milligan. Having said that, we very much, I believe, garner our shares closely. We have 53 million outstanding. As I often say after being in this business for 25 years, that's a pretty frugal approach, and we'll continue to maintain the same kind of discipline we have in the past. With regard to the percent of gold royalties going forward, in two or three years' time I think is what you've said, I'm looking across the table to Stefan Wenger right now who keeps our entity model in top shape. What are we at there, Stefan, if you were to look for -- still north of 75% or so?

Yes, but the way I'd answer that, certainly it depends on the mix of metal prices because if Voisey's Bay was strong, we had a strong -- stronger base metal price, that could change the mix with higher revenue. But as I look forward to our long-term, our reserves really drive our long-term revenue and our reserve portfolio is about 77% precious metals. In -- I could see a slight dip in the percentage over the next two years, but in 2012, 2013 we have a number of strong gold properties coming on including Pascua-Lama and now Mt. Milligan as well, they're primarily gold. So you're going to see our gold percentage increase once we hit the 2013 period.

Adrian, if I can just pick up on the last part of that then. Obviously, we're looking at adding gold royalties at all times. We aren't interested in further non-gold or non-precious metal-type royalties unless they come in a portfolio or polymetalic deposit. We very much, if we could find a buyer at a reasonable price for our non-gold assets, we would consider that. We have had some approaches that we do not feel were reasonable for us, and so we're quite happy to keep in that our mix. As we've said, 81% of our revenue came from gold in the entire fiscal year. That's higher than our competition by quite a ways, and I think it's probably up there pretty close to some of the pure large gold producers. With regards specifically to Voisey's Bay, that is an asset that is just simply world-class. We think there's tremendous up-side on that project. We're quite happy to take the revenue from that, continue to [request full growth as] going forward. Adrian, I just got a bit of noise on the line. Did you hear my last bit?

I did. I got the static but I also heard it, thank you.

Very good. I hope that's responsive.

No, it absolutely is. You made an interesting comment there, if may just add something. Your percentage of gold revenue is obviously -- you were diplomatic, but it's probably a lot more than the gold revenue of a lot of so-called gold producers.

Thank you. We agree with that comment.

No, thank you, thank you.

Your next question comes from the line of David Christie from Scotia Capital. Your line is now open.

Good afternoon, guys, or good morning for you, I guess. Just on the Andacollo project, maybe I missed this question if somebody already asked it, but just wondering how the ramp-up's going there and how we can see production this year and next?

David, you did miss that question. Kevin Chiu just asked it. But happy to repeat it. We have put our guidance of about 30,000 ounces of gold for the entire year, and we've received a bit over 4,000 ounces to date. That means there's 26,000 ounces in the second half of this calendar year that tech needs to produce there.

It seemed a little light in the quarter. Is that what your feeling was?

Well, they've done some enhancements there that have slowed the ramp-up production a bit. I think they're taking a bit of the inefficiencies now and getting the property up in a position where it can be quite sustainable. So we're not too concerned about it. It's ramping up reasonably well, we believe, and I think if you look to 26,000 ounces in the second half that will be perhaps a bit aggressive, but perhaps not too far off the mark.

Okay. And as you guys look out there for acquisitions and what you're looking for, are you looking more towards the stream-type acquisitions or are you looking more for further royalties? What's your preferred method?

I don't think we have a significant preference one way or the other. I think our heritage is in royalties, and we like to do that, but frankly we're guided by tax efficiencies and the needs of our partners. So, we pride ourselves on being able to be flexible and put a product in front of potential counter-party that works for them.

Okay. Do you guys look at what provides with you more leverage to earnings and cash flow? Some types of royalties provide more than others.

Yes, I guess you -- maybe you're referencing the sliding scale nature of a gold stream. That what you are thinking?

I'm just looking at the way gold price moves versus reaction on NAV or earnings or cash flow. Streams seem to have a better reaction.

I think what's -- I don't know if that's the case in all jurisdictions, but we look at all those numbers every time that we put together a proposal, and frankly we're often more guided by what is the best interest of Royal Gold in a particular jurisdiction.

Okay. And as you look out in the next year are you going to continue to try to do big deals like the one you are working on right now or are you going to look at a lot more smaller deals?

I think we just look at opportunities as they present themselves. Obviously we're always chasing different opportunities, but I think we're quite pleased with getting Mt. Milligan in the position it is today. That was one that was obviously in the market, around the market, and we had been focused on that for a couple years time, and we were pleased to use our investment in that manner. Are there other ones out there? We'll keep looking for them. But I think we've got a very high quality one in Mt. Milligan.

For sure. Okay. Thank you, guys.

Thanks, David.

Your next question comes from the line of Andy Schopick from Nutmeg Securities. Your line is open.

Thank you. Good morning. Stefan, first for you. Weighted average shares diluted for the current fiscal year, about 50, 51 million, should be in the ballpark?

You're talking about fiscal 2011?

Yes. Yes.

Right now if you include our -- the exchangeable shares that we issued for the IRC transaction, we have just over 55 million shares outstanding.

Forgot about those.

Those will be outstanding for the entire year. If you recall our equity offering was completed in June so those new shares are going to be out for the entire year as well. So I would use 55 million.

55 million. Okay, thanks.

Diluted shares out there or dilution from options and others.

Tony, on the Mt. Milligan transaction, now that won't enter the equation here until 2013 at that earliest in terms of any royalty or revenue related that you will obtain?

That's correct.

And what would be the mechanism? I assume that effectively you are going to be paying at least $400 an ounce and the difference would be -- the margin would be the difference between what you are paying and what you would ultimately sell those ounces for. What would be the mechanism by which you are going to be able to sell or how is that production going to get delivered to another party so that you in fact get paid?

Okay. I'm not sure if I've got the question clearly but we are going to take physical delivery of gold from --

You are going to take physical delivery?

Yes, sir. We're going to take physical delivery. It will go in to our metals account and then we'll manage it from that point forward and liquidate it as we see fit.

Okay, Tony, you answered that question. I wasn't sure if you were actually going to take physical delivery. Also, on Voisey's Bay, I'm just wondering if you can give us any parameter. If the strike were to continue for another year, would the current quarterly royalty rate that you've recorded here in F4Q more or less continue, all other things being equal, at this level?

I think I would point you back to our year-end numbers and our press release. Just looking at the --

I have it.

We've got, what, $3.9 million in royalty revenue for the year?

That was for four months.

Yes, that was for four months. So you'd have to appropriately --

Well, you have it for the quester. It's here. It's listed in the quarter. Most of it was in the quarter.

Fair enough. And that strike happened for the entire year. I guess that would be a bit of a reasonable stretch mathematically, but I'm just going to ask Bill Zisch to comment on that because the shipments of copper and nickel are not smooth.

Right, they're quite lumpy and they can be delayed. Some what we see in the revenue recognition that we have had is a result of that. I think the best indication and -- if the strike were to continue, as you mentioned Andy, they are still producing at about 40% of capacity right now. So one could suggest that they could continue that on an ongoing basis, perhaps. Again, we can't -- I can't speculate on how much they would produce, but that's what they each been done -- doing right now under the strike.

Yes. So obviously there's a very wide range of possibilities here in terms of what the royalty revenue contribution could be from that property in the new fiscal year.

We agree, Andy.

Okay, thank you.

(Operator Instructions).

Operator, I think we'll leave it right there. We thank you very much for your questions, and we thank you for joining us today. We appreciate your interest in Royal Gold and we look forward to updating you as we continue to progress forward with the Company. Bye for now.

And this concludes today's conference call. You may now disconnect.