Royal Gold Inc (RGLD) 2013 Q3 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time I would like to welcome everyone to the Royal Gold fiscal 2013 third-quarter 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 Ms. Karen Gross. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us today to discuss Royal Gold's fiscal 2013 third-quarter results. This event is being webcast live, and you'll be able to access a replay of the call on our website. Participating on the call today are Tony Jensen, President and CEO; Stefan Wenger, CFO and Treasurer; Bill Heissenbuttel, Vice President, Corporate Development; Bill Zisch, Vice President, Operations; Bruce Kirchhoff, Vice President and General Counsel; and Stan Dempsey, Chairman. Tony will open with an overview of the quarter, followed by Stefan with the financial review, and then Bill Zisch will discuss the performance of our portfolio.

After Management completes their opening remarks, we will open the lines for Q&A. Before we begin, I want to remind everyone that 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. Now, I will turn the call over to Tony.

Good morning, and thank you for joining us today. The Company reported a 7% increase in year-over-year revenue, which was largely driven by increased production at three of our principal properties -- Andacollo, Holt, and Wolverine. Specifically, a 10.5% volume increase in production for the entire portfolio of 36 revenue generating assets, (technical difficulties) offset the 3.5% lower metal prices compared to the prior-year quarter. While operating cash flow remains strong, net income for the period was impacted by two items -- first, a non-cash loss we recognized related to securities we own; and, second, a higher income tax expense related to the filing of our June 30, 2012, income tax return. Stefan will discuss both of those items in more detail. For the quarter, 51% of our revenue came from our three producing cornerstone properties -- Andacollo, Voisey's Bay, and Penasquito.

Andacollo was again our largest revenue source, contributing approximately $23 million; followed by Voisey's Bay at $9 million; and Penasquito at $5.4 million. Compared with the prior-year period, we saw production increases at 6 of our 12 principal properties, most notably at Andacollo. Our percent of revenue from precious metals was 79%, of which 73% was from gold. Approximately 32% of our revenue was derived from Chile; 26% from Canada; followed by Mexico and United States, each contributing 17% and 15%, respectively. Now, I'd like to ask Stefan Wenger, our Chief Financial Officer, to give you some more details on our financial results for the quarter.

Thank you, Tony, and good morning, everyone. For the quarter, we had revenue of $74.2 million, an increase of 7% over revenue of $69.6 million in the comparable period. Cash flow from operations increased by 43% to $68.1 million, or $1.05 per share, compared with $47.5 million, or $0.81 per share, for the third quarter of fiscal 2012. Adjusted EBITDA totaled $66.1 million, or 89% of revenues, compared with $63.6 million, or 91% of revenues, for the prior-year period. Net income was $6.5 million, or $0.10 per share, compared with $26 million, or $0.44 per share, for the third period of fiscal 2012.

Our net income was impacted negatively by a couple of unique items. First, due to the prolonged decline in the value of our investment in Seabridge common stock, we determined that a write-down of this investment was necessary during the period. As this write-down was for accounting purposes only, there was not a related tax benefit on the loss, and, as a result, the impact of net -- on net income was $12.1 million, or $0.17 per share. Excluding a loss on the Seabridge shares, net income would have been $17.4 million, or $0.27 per basic share. Second, net income for the quarter was also impacted by higher income tax charges of approximately $7 million, the majority of which resulted from a reduction in foreign tax credit benefit recorded in the current quarter related to the filing of our June 30, 2012, income tax return.

While this amount relates to taxes for the year ended June 30, 2012, it was recorded as an additional expense in the current quarter. This additional tax expense resulted in income -- an impact to net income of $0.10 per share for the quarter. Excluding these two items, net income for the quarter would have been $24.3 million, or $0.37 per share. For the nine-month period ended March 31, net income excluding these items would have been $76.3 million, or $1.22 per share. Looking at our costs and expenses, G&A expenses were $7.2 million versus $4.4 million for the previous period, primarily due to increases in business development activities. For the quarter, our DD&A expense per gold equivalent ounce was $476 compared with $479 in the comparable quarter. For the full year, we continue to expect DD&A of between $450 and $500 per ounce.

Interest and other expense increased to $5.8 million from $1.6 million in the comparable quarter due to additional interest expense of $5.2 million associated with our convertible notes issued in June of 2012. Of the amount associated with the notes, $2.6 million was cash interest for the coupon, while the remaining $2.6 million was related to accretion of the original bond discount and amortization of expenses related to the issuance of the notes. Due to the securities loss and the additional tax expense, our effective tax rate for the quarter was 72.6%. Excluding these items, our normalized tax rate for the quarter would have been 33.7%. For fiscal 2013, we expect that our effective tax rate will now be in the range of 44% to 46%. Excluding the unique items recorded in the quarter, our expected normalized rate for the full year would have been 36% to 38%. For the fiscal year to date, our cash tax rate is about 28% of pretax income. For the full year, we would expect a cash tax rate of approximately 30%.

Now, I will turn the call over to Bill Zisch. Bill?

Thank you, Stefan, and good morning, everyone. Once again, to provide you with the current review of our operational performance, I will compare the March 2013 quarterly results with the December 2012 quarterly results rather than the prior-year comparables. With many of our principal properties remaining at steady state operating levels and somewhat typical soft production in the first calendar quarter of a new year, our portfolio, which consists of 36 producing properties, performed as expected. Overall, production was down about 3% from the December quarter, well within the expected variation of ongoing operations, particularly in the first calendar quarter of the year. At Andacollo, gold sales were in line with expectations and exceeded the preceding quarter by 5%, totaling 19,000 ounces to our account, as higher gold grade material was mined as planned, and sales exceeded production by about 600 ounces more than in the preceding quarter.

Given Teck's full-year guidance of 63,000 ounces for calendar 2013, we anticipate future production will likely reflect transition to lower grade. In March, at Voisey's Bay, the government of Newfoundland and Labrador announced amendments to their Voisey's Bay development agreement, including a commitment from Vale to pursue underground mining to extend the mine life. The underground mine is expected to start producing ore in 2019. Also included in the new agreement is Vale's right to continue processing Voisey Bay ore at the Sudbury smelter for up to another three years, as construction and startup of the Long Harbour facility in Newfoundland is completed. The hydromet facility is expected to start operations in the second half of 2013, initially using imported nickel concentrate, with Voisey Bay concentrate being introduced gradually in 2014. Treatment of copper concentrates will continue in Europe, so the seasonal shipping schedule that impacts the timing of concentrate sales is likely to continue, even after start up in Long Harbour.

Quarterly sales at Voisey Bay were 50% above the December period, as nickel production was up significantly and a copper shipment expected at year-end 2012 was delayed until this quarter. Nickel production typically runs about 40 million pounds per quarter; however, nickel production in December and March periods was 31 million pounds and 49 million pounds, respectively, resulting in a significant quarter-over-quarter increase. Yukon Zinc's Wolverine mine continued to increase production over the past two quarters. Production increases were 80% in the December quarter and 26% for this quarter, as Yukon Zinc continued to increase throughput and improve metallurgical performance in the plant.

Let me now discuss the producing properties that were a part of our 3% decrease in production, quarter over quarter. While production was in line with the plan at KGHM's Robinson mine, it did not match the record levels reported during the previous quarter, resulting in a 30% decline for the March period. Goldcorp's 2013 annual guidance for Penasquito anticipated back-end weighted production, as mining moves from a lower grade portion of the pit to higher grade ore. For this reason, the first calendar quarter of production was below the preceding quarter's level and at about 17% of their expected 2013 production.

Goldcorp stated that studies to develop a long-term water strategy continue to progress, and that a new water source has been identified within their current permitted basin with the potential to supply sufficient freshwater to continue the plant ramp up to full design capacity. Studies for this new well field are expected to be completed in the second quarter of calendar 2013. Goldcorp has maintained their guidance, as they continue to expect increased production throughout the year.

Production from St Andrew's Holt mine was similar to the December quarter; however, with the 5% decrease in gold price, the amount of production credited to our account was lower, as the royalty rate slides with the price of gold. Overall, Osisko's Canadian Malartic mine had a very strong quarter, reporting records for quarterly gold production, quarterly tonnage processed and daily tonnage processed in the mill; however, we do not have an interest over the entire property, and mine plant sequencing resulted in less material mined from areas covered by our royalty than in the previous quarter. Other properties with decreased production for the quarter as a result of mine plant sequencing include Cortez, Goldstrike, and Leeville. One final property update relates to AuRico Gold's El Chanate mine. This royalty, which we acquired in 2008, had a $17 million cap that was realized at the end of March.

So, looking at our portfolio as a whole, with pluses offsetting most of the minuses, performance was well within the expected level of predictability for the steady-state nature of most of our producing assets. And, with that, I will turn the call back over to Tony.

Thanks for the update, Bill. I'd now like to bring you up to date on two of our key development properties. At Pascua-Lama, through March, about 70% of the structural steel was erected for the process plant facility. 65% of concrete was -- has been poured, 55% of earth works was completed, and the ore conveyance tunnel is approximately 80% complete. Barrick has spent approximately $4.8 billion on the project as of the end of March. During the fourth quarter of calendar 2012, Barrick reported that pre-stripping activities in Chile were halted to address increased dust in the open pit area and that the project has since strengthened dust mitigation control measures. In addition, regulatory restrictions have also been placed on the project due to the need to repair and improve certain aspects of the water management system in Chile.

In April, a Chilean court granted a request for a preliminary injunction to suspend construction activities on the Chilean side of the project. The corresponding action alleges noncompliance with the environmental requirements of the project's environmental approval. Construction activities in Argentina, where the majority of Pascua-Lama's critical infrastructure is located, including the process and tailing storage facilities, are not affected. Given these pending regulatory and legal issues, Barrick stated on April 24 that they were not -- they were unable to fully assess the impact of the capital budget, operating costs, and schedule of the project. We acquired our Pascua-Lama royalty interest through a series -- through several transactions. Because these were existing royalty interests, we have to honor the existing agreement terms. And I should note that we do not have any redemption rights if production does not occur by a specific date. Our carrying value for book purposes is about $400 million, or $600 per net royalty ounce.

If Barrick were to delay the project, our investment would remain intact, but royalty revenue would be postponed. On April 3, we had the pleasure of hosting a trip to Thompson Creek's Mt. Milligan project in British Columbia. During the visit, Thompson Creek reiterated that, as of December 31, 2012, the project capital cash spend totaled approximately $1.14 billion. Approximately $370 million to $390 million remains to be spent, with $250 million of that amount contractually committed. This brings the total spent and committed to $1.4 billion, or 91% of the $1.5 billion budget. The pit is in full operation.

The mine is stripping a small amount of waste, which is integral to the continued construction of the tailings dam, and exposing ore in advance of the mill start up. The tailings dam is at the desired level for start up of the plant, and more than sufficient water has been captured. The primary crusher stands ready for operation, and with the exception of installing liners in the SAG mill and one of the two ball mills, the grinding circuit is about ready to roll. The primary focus of activity in the concentrator includes electrical and instrumentation flotation circuit. The operation's senior management team is in place, and a large portion of the operating team is already hired and on-site, completing readiness reviews and training. Thompson Creek reiterated that start up will commence in the third quarter of calendar 2013, or just a few months from now, with a commercial production expected in the fourth quarter.

I'd like to highlight the results for a recent reserve announcement. At the end of calendar 2012, precious metal reserves on properties subject to our interest, net of depletion, were approximately 83 million ounces of gold and 1.2 billion ounces of silver. This compares to reserves of approximately 85 million ounces of gold and 1.2 billion ounces of silver estimated as of December 31, 2011. The reserve reductions were mainly due to production depletion. A more meaningful way to look at our value of these reserves is to calculate reserve ounces attributable to Royal Gold. We do this by applying our interest at each property to the reserves associated with the property to arrive at our net reserve ounces. Evaluated in this way, the net gold reserves attributable to Royal Gold at the end of December 2012 totaled 5.7 million ounces, which is the same reserve figure that we reported last year.

Reserves represent an asset that is indicative of future opportunities for any mining company. Reserve additions represent tremendous leverage in our royalty and streaming model, as future production gains from reserve increases come at no additional cost to us. Before I close, I'd like to mention the addition of two new management team members who will be joining us in the very near future. I am pleased to announce that Karli Anderson will assume the position of Vice President, Investor Relations starting on May 15. And Jason Hynes will come on board as Director of Business Development and Global Sales beginning on July 8.

Karli, who has been serving as Senior Director, Investor Relations at Newmont Mining, has the financial expertise, industry relations, and communication skills to broaden the message of Royal Gold's value proposition. Jason, who is the Vice President, Corporate Development at Sabina Gold and Silver, brings financial and business development expertise, strong commercial and technical acumen, and a thorough knowledge of the precious metals business. We welcome both Karli and Jason to the Royal Gold team. At the same time, it is with mixed emotions that we recognize this is Karen's last quarterly conference call. We are sorry to see her leave, but we congratulate her on a wonderful career and wish her all the best in her retirement. What has it been, Karen, 26 years in service? 27 years of service -- 27 years to Royal Gold.

In summary, this was a quarter of good operational results. The strength of our portfolio is highlighted, as we saw revenue gains despite a decrease in the current quarter -- current gold and other metal prices. Over the last 18 months we have talked about growth in our production profile, as several of our properties worked towards full design capacity. Their advancements have allowed us to reach our current level of steady production, which we expect will continue in the coming quarters, with a lower gold rate expected at Andacollo, somewhat offset by higher grade ore at Penasquito for the balance of this calendar year. And we look forward to commercial production at Mt. Milligan during the fourth quarter of this calendar year. This will mark the next step change in production and financial growth for Royal Gold.

Operator, that concludes our prepared remarks. We would be happy to open the call up now to any questions that there might be.

(Operator Instructions)

John Tumazos, John Tumazos.

Thank you. My question concerns the Mt. Milligan legal framework where Royal Gold is a senior. Could you review the seniority rights just in case metals prices are low, copper is $1 or $2, and you end up exercising your rights, please?

John, this is Tony. I'm going to turn that question to Bill Heissenbuttel.

John, our position at Mt. Milligan with respect to the assets at Mt. Milligan is we do have a secured position there. That security is subordinated to the senior notes that they issued -- I think it was late last year, mid last year. That is the only thing that we are subordinated to. We would be senior to any unsecured or subordinated obligations at the (technical difficulties) metals at the operating company level, and we would be structurally senior to any unsecured obligations that might be supported by a guarantee of the sub at the parent level.

How much are the notes that are ahead of you? (multiple speakers)

John, just one second, please. I think we have also limited the amount of secured debt with those notes (multiple speakers) 350 -- $350 million. Sorry, John, go ahead.

$350 million is the amount of debt that is senior to you?

Yes, and that is the maximum that they can put in front of us.

Continuing, I recall Newmont sold the Holt-McDermott mine to St Andrews Gold Fields a few years ago. But somehow the Canadian court ruled that Newmont had to pay the royalty and not the Canadian company. Do you think it would be good if you moved your domicile to Canada just to make sure that courts are not spurious?

John, I don't think that issue would drive the decision of domiciling the Company. That alone I don't think would sway our interest.

Thank you.

Garrett Nelson, BB&T Capital Markets.

On the royalty revenue from all other properties, or the ones you don't specifically break out, could we basically just assume royalty revenue will be lower in subsequent quarters than the $12.6 million you just reported, if gold and other metals prices are lower? Obviously there are a lot of properties in the number. I'm just trying to better understand how to model the revenue on that line.

Garrett, I think that is a safe assumption overall. Those properties are not going to change very much. We have got a few that are coming in, like Gold Hill, and a few that are going out, like El Chanate. But overall I think we're going to have a reasonable amount of contribution there, so they would be impacted by the price of gold.

The other thing that we would talk to there is the sliding scale; royalty nature is often embedded in the royalty agreements, and I do not think there is any in there, save the Holt one, that would be really impacted on a leverage basis to the gold price. Long answer to your question, but, yes, that is a good assumption.

And then I was wondering if you would just comment on the current market for royalty deal flow. Obviously your equity issuance last fall at $90 was very well timed. You are sitting on substantial cash and liquidity. You are winding down your final payments to Thompson Creek. But with the distress a lot of gold miners are experiencing with the recent price drop, is the phone ringing more than it was six months ago?

Garrett, there's no question that it truly is ringing more than six months ago. In fact, weekly we are getting in new solicitations. But we're going to continue to remain patient and measured and disciplined, and we very much want to align with properties that we think have very good opportunities to realize revenue, even in price markets even lower than where we are today.

So we want to make sure that we have a lot of confidence in the assets that we invest in. So, we're not feeling compelled to deploy the cash we have on hand. We think we're wonderfully positioned to take advantage of opportunities as they present themselves.

Okay, thanks. And I guess we will have to wait until next Wednesday for a Mt. Milligan update. Congratulations to both Karen and Karli.

Michael Peterson, MLV and Company.

My first question today regards your 2012 reserve report. Were there any meaningful positive or negative revisions within the portfolio that you would care to discuss?

Bill Zisch, do you have anything there?

Hello, Mike, this is Bill. There's no major moves. Most of the change in that reserve portfolio was really just a depletion of what the existing reserves were. Internally to our royalty reserves, the other thing was last year versus this year, we increased the amount at Mt. Milligan, but there was no major moves. The prices that people used are reasonably similar to prior years, and then there has been some depletion.

Okay, that's helpful. I appreciate that. Tony, perhaps you can give us a little perspective. I appreciate Bill's comments a few minutes ago with regard to the M&A deal flow. Could you give us some perspective on your outlook in terms of the gold macro? Certainly things have changed a lot in the last quarter, and that might create different windows of opportunity, depending on your perspective, to the degree you are prepared to share that with us today.

Well, this is an environment where we think there are going to be some wonderful opportunities, and that is exactly why we took the opportunity last year to restructure our balance sheet. We took three or four measured events last year to make sure that we were going into a period where we perceive to be weakness, we wanted to have a very strong balance sheet. And we do have that now.

I think that this is an opportunity of acquiring assets in the time -- point in time where there's not a lot of momentum in the gold sector. People with a good balance sheet can take advantage of opportunities when they come up. I think we're -- Michael, I think we're in a very good position to continue to grow the Company, and again, as I mentioned just a moment ago, we're going to do that on quality -- assets that we feel are quality and on a disciplined basis.

That's helpful, and I share your perspective. I think there is a real opportunity here for a company positioned as you are. If I could do a follow up, though, with regard to commodity strip pricing, specifically gold, but the other commodities as well. When you look at the current curve, does that look like an opportunity for value? Are you more bullish or bearish? We have seen a lot of change both in the level as well as the slope of the curve recently. Does that change your outlook at all, or is that something you are comfortable commenting on?

Well, maybe just a few real broad paintbrush strokes there. We don't see anything different in the macroeconomic environments worldwide that would change our focus on being supportive to gold price. We're still in this business; we are in it to continue to grow our business, but having the opportunity to transact when the market is somewhat out of momentum is a very good time.

Our most difficult times to acquire royalty interests are when the gold price is moving up steeply, and expectations of price tomorrow are so much greater than they are today. It is hard for us to transact in that environment. So, with the jaunt aside, we do look at this as an interesting time for us.

That's helpful. Thank you very much. That's all I have today.

Cosmos Chiu, CIBC.

We will miss you, Karen.

Thank you, Cosmos.

Maybe first off on Mt. Milligan. I appreciate the fact that it is likely going to be coming into production in Q3 and commercial production in Q4, but I also understand that in terms of the actual payment to Royal Gold, there could be a lag in terms of -- depending on the shipment of the actual concentrate itself. Maybe, Bill, can you walk us through in terms of when you would be expecting Royal Gold to receive the first royalty payment?

Bill Zisch is prepared to answer that question, I think, Cosmos.

It is a bit complicated, as you're saying, and dependent upon an awful lot of assumptions, but typically we are going to see that concentrate lag about three months. But we get paid when that is produced at Mt. Milligan. We will be looking at the assumptions we have as far as the timing and the clearing of those sales. I really can't go into all the details right now, but we would be happy to consider addressing that on a future call.

If I could just add to that, what we would expect is that they would start producing in the third quarter of this year. Then they would start building some concentrate volume up. It will take them a while to build a sufficient concentrate up to begin to ship, and there might be 10,000 or 20,000, 30,000 tons or so before they put it on the seas. But we have a structure where we get paid on the provisional payments initially, and then that ratchets back where we get paid on the final settlement. It is a bit of a complicated thing, but I think you will see us starting to get revenue flow in the first quarter of next year --

Okay.

-- first calendar quarter of next year, and then we will give more guidance as to how that goes. But it is important for the market to understand how we shift from provisional payments to final settlements and the percentages we get with those. So we'll look forward to guiding you a little closer on that as we get closer to production.

Okay, great. And then maybe shifting gears a little bit in terms of Andacollo. I know in the past, Teck had talked about maybe considering a 20% increase in terms of capacity. Any kind of update on that front at this point in time?

Yes, Cosmos, Bill Zisch again. What they continue to look at is they are looking at de-bottlenecking and optimizing what they currently have. They made some reference in the past to some expansions. I think they have kind of thought that they're going to take a look at what they have installed. They are really kind of operating the plant as they have installed it. They have added about 20,000 ton a day additional crushing, and they are going to now step back and see whether or not they can de-bottleneck that to increase some throughput.

When they get done with that optimization, I think they step back and say, okay, what is the next step change in capital they might consider? What makes the most economic sense? It may be an incremental increase. It may be another addition of some sort, but they're going to probably, over the next year or so, be optimizing and de-bottlenecking, and at the same time evaluating what the longer-term expansions may consider from an economic standpoint.

Okay. And maybe looking at the others category, I think two assets that have been kind of embedded starting two -- a year and a half, two years ago in your others category would be two African assets, Inata and Taparko. When I was looking -- once again, I guess I've neglected those two assets as well. But looking at the guidance that was given out for calendar 2013 today, doing the calculation behind it, to me it seems like it could still be a pretty significant contributor in 2013. Am I incorrect on that front? I'm just wondering what the actual performance was in calendar year 2012 for those two assets and how I should look at it in 2013.

Cosmos, I don't know if -- Bill, are you prepared to answer that? I don't have that detail in front of me.

Yes, from a Taparko standpoint, Cosmos, we would expect them to be producing about as they did this year and continuing at about that rate. Don't know of any real plans for much expansion, but they have been performing very steadily.

Inata, on the other hand, when Avocet picked up the asset, prior to that there had been some discussion about an expansion up to -- I believe it was about 165,000 ounces a year. Subsequent to that Avocet's come in and said they are not necessarily going to be looking at that kind of an expansion, so the guidance that you see now reflects their current view. I do not know whether that means there's any other opportunities as they get more comfortable with it, but that's been kind of the state of Inata.

Okay. I'm just -- because when I work out the numbers, multiply out the guidance and some kind of gold price assumption, I'm still getting about $4 million to $5 million in annual revenue from each one. Am I overstating it?

I wouldn't be surprised if it was that range.

That is reasonable, Cosmos. This is Stefan.

Great. That's all I have; and thanks again, Karen, for the help all these years.

You are welcome.

(Operator Instructions)

Patrick Chidley, HSBC.

Just a quick question on the Mt. Milligan, just coming back to the sensitivity there. What is your understanding about what sort of prices that mine could take in terms of copper and gold prices on the downside before the operator starts to get squeezed a little bit in terms of its own cash flow?

Patrick, Tony here. We have -- we took a very good look at that when we made our last tranche of investment decision. I think that was in last summer, August of last summer. We wanted to make sure if we put more royalty financing or streaming into the project, that after our investment was considered, that it would still be a very attractive cash cost producer.

If we use Thompson Creek's numbers and subtract out the amount of credit, gold credit that would come from -- to us, we still think that is somewhere in the low second quartile, right in the -- sorry, higher second quartile -- lower third quartile type of worldwide cash cost of production on copper. So, once this is up and running, I think we have a project that is pretty attractive.

And so where is that, Tony, just in terms of the copper world? I'm not sure where that would be.

Bill, do we you know what the --

$2?

No, no, it is less than that. Do we know what the break is between the second and third quartile of worldwide copper production? You know what, Patrick? Let me guide you a little bit differently. You can look in our recent public presentations. We do have a slide in there on Mt. Milligan that shows that detail.

Okay. Thank you very much. Great. And second question would be -- you mentioned in the press release here about going underground at Voisey's Bay, in terms of that being part of the new agreement with the government there with Vale. Any idea what timing that might be, and then what the impact might be for you guys?

As you can imagine, Voisey's -- Vale has a big world, where they do not necessarily report all of the detail on each operation. So we've actually taken a lot of our guidance out of the joint press release that was held between Vale and the government. The government put out a very nice press release that describes a lot of these issues, and according to them, I think they're looking at starting the underground development in --

2019.

Production in 2019.

Production 2019, okay. Then, just a quick question around Andacollo. You mentioned a higher grade. Is the current last quarter grade going to be what they are expecting for the rest of the year?

No, I think that you're going to see probably lower grade going forward. If you were to take a look at their annual guidance at 63,000 ounces and then consider what they produced in the first quarter, they had a very, very strong first quarter. Some of that was due to additional sales over production, but we think that if you go on those numbers, Patrick, we would expect a softer second half of the year than we saw the first quarter.

Okay great. Perfect. And then just a final question, coming back to your rather large cash pile and the myriad of opportunities in front of you, what sort of projects are you really looking for? Are you going to be looking to do anything different in terms of the strategy that you have been following? Or are you looking in base metals companies again with gold flow? Or are there a different set of opportunities that have come up just because of what we're seeing in the gold market, perhaps on the earlier stage in terms of exploration?

I think you should continue to look at us doing what we have done in the past as still over the center of the plate kind of thing. But where we are today in the gold environment, we're seeing a lot of earlier opportunities than what we've seen in the past, because those folks don't have the equity that they can turn to.

And to the extent we do get involved in some of those earlier opportunities, we won't be putting -- or committing large amounts of money there. It might be tens of millions of dollars, but we'd always wanted -- we'd always want to look for an opportunity to invest a lot more significant dollars later on once the project is de-risked.

So we might take some -- in this environment, if you asked what a change in your business strategy would be or a supplement or your business strategy, I would say that perhaps we would look to get involved with attractive opportunities at a low dollar value but always have an option to invest more money at a later point in time.

Sort of an option to help them get the thing actually going, instead of just taking royalty now and expecting the market to get the project going?

Exactly, but always remember, if we do get associated with a project, we want to be associated for the long term. And so we would look for a royalty position option into the future as well.

Okay. Thank you very much, Tony. Cheers.

I would like to now turn the call back over to the presenters for closing remarks.

Well, thank you very much for your interest in Royal Gold. We very much look forward to updating you in the coming month on how the activities of the Company are going. We appreciate your interest and your continued support of our Company. Bye for now.

Thank you, everyone. This concludes today's conference call. You may now disconnect.