Royal Gold Inc (RGLD) 2015 Q3 法說會逐字稿

Good day, and welcome to the Royal Gold Fiscal 2015 Third Quarter Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Karli Anderson. Please go ahead.

Thanks, Alison. Good morning, and welcome to our discussion of Royal Gold's Fiscal Third Quarter 2015 results. This event is being webcast live and you will be able to access a replay of this call at our website.

Participating on the call today are Tony Jensen, President and CEO; Stefan Wenger, CFO and Treasurer; Bill Heissenbuttel, Vice President, Corporate Development and Operations; and Bruce Kirchoff, Vice President, General Counsel, and Secretary. Tony will open with an overview of the quarter followed by Bill Heissenbuttel with an operational update, and then Stefan Wenger will provide a financial update. After management completes their opening remarks, we will open the line for a Q&A session.

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.

Thanks, Karli. Good morning. Thank you for taking time to join us today. I'll begin our presentation on Slide 4. We had a very good third quarter as our gold equivalent volume grew 36% on a gross basis. That higher volume drove a 28% increase in revenue from a year ago despite a 6% decline in gold price.

And in turn, adjusted EBITDA increased 16% from the same period in 2014.

We're proud to have paid over $14 million in dividends during the quarter, which was about one-fourth of our nearly $66 million of operating cash flow. Stefan will provide more details on our financial performance momentarily.

From an operating standpoint, Q3 volume was particularly strong relative to a year ago at Mount Milligan, Cortez, Mulatos, and Robinson.

We expect three major catalysts to drive our performance in 2015 at Mount Milligan and Penasquito, where in both cases the operators are forecasting 20% to 30% volume growth, and at Rubicon's Phoenix project, where production is set to begin mid-year. Bill will talk more about our operating performance and provide some insights into what to expect for the remainder of calendar 2015 in a moment.

On the business development front, we made our final scheduled payment to Rubicon Minerals for the Phoenix stream in the third quarter and made the first $7.5 million deposit to Euromax for the Ilovitza stream.

We are actively working to add new business to our portfolio and continue to believe this is an excellent time to do so.

Turning to Slide 5, you'll see that we received record quantities of gold from Mount Milligan and are making progress towards the average quarterly run rate at design capacity. Thompson Creek reported quarterly production at Mount Milligan of over 46,000 ounces of gold and reiterated their guidance that they expect to achieve design capacity of 60,000 tons per day by calendar year end.

In our June quarter, we expect to receive deliveries from Mount Milligan based exclusively on final settlement timing volumes, which could take three to five months after concentrate is produced at the mine. Based on the shipments we have seen so far, we currently expect slightly lower sales from Mount Milligan in the June quarter.

On Slide 6, we've shared an interesting chart from GoldCorp's recent Investor Day. It highlights long-term potential growth at Penasquito associated with their metallurgical enhancement project, which they forecast could extend mine life by five years. This is in addition to the 20% to 30% higher volume expected at Penasquito this calendar year.

I should also note as future value embedded in our portfolio that we have a 1.4% royalty on a portion of the El Morro project, which is also available for viewing on this slide.

On Slide 7 you'll see photos of the mill and some underground development work at the Phoenix project. It's only been 14 months since we acquired our stream at Phoenix, and we've enjoyed watching the project rapidly evolve through further exploration, underground development, and construction. Rubicon is now commissioning the mill and continues to guide for full production mid this calendar year

I'll now turn the call over to Bill.

Thanks, Tony. On Slide 8, we first compare March quarter versus December quarter gold equivalent ounces on the right side of the slide, and also year-over-year results on the left. Relative to last quarter, the big story is that we had higher GEOs from Mount Milligan. Moving forward, we will be receiving gold from Mount Milligan based on final settlements only for all future shipments. Which, by agreement, must be no more than five months after it leaves the mine.

As Tony stated, we expect our June quarter volume to be down slightly from the March quarter.

You also see in the chart that Voisey's Bay production is lower than the prior quarter. Historically we've received nickel and copper concentrate shipment data from Vale on a regular basis, which allowed us to estimate our Voisey's Bay royalty revenue for financial reporting purposes.

When actual quarterly payments differed from our estimates, we adjusted the estimate during the subsequent quarter based on actual payment information received. We did not receive nickel and copper shipment data for the December 2014 and March 2015 quarters. For the March quarter estimate reported today, we used historic concentrate shipment data and then made an adjustment for our December quarter estimate based on the actual royalty payment we received in February.

From this point forward, we intend to recognize Voisey's Bay royalty revenue on a cash basis. This means that Voisey's Bay revenue we recognize for the June quarter may only include whatever adjustments to the March quarter estimate are necessary based on the actual payment information we receive next month.

And finally, volume at Penasquito was fairly flat from the December quarter and [Golpe] has disclosed that they expect 2015 volume to be back-end weighted.

Now, in the comments that follow I will compare third quarter production versus the prior-year quarter, which is summarized on the right of the chart. Mount Milligan production increased 18% to 46,100 ounces of payable gold during the quarter. However, throughput and production were impacted by frozen and plugged feeders and unscheduled maintenance issues in the March quarter. Thompson Creek implemented action plans to address the issues.

Mill throughput averaged 39,500 tons per day during the quarter compared to 33,000 tons per day for the prior-year quarter. Throughput improved during the last half of March 2015, achieving 50,000 to 54,000 tons per day. Thompson Creek continues to guide to design throughput of 60,000 tons per day by calendar year end.

At Andacollo, payable gold production and concentrate decreased 8% as a result of lower mill production over the last few months. Harder ore and unplanned maintenance downtime in the concentrator impacted copper concentrate shipments early in calendar 2015, while a failure of the tailings [thickener] and scheduled maintenance impacted mill production late in the March quarter, which may impact what we receive in this current quarter. We are expecting a stronger second half of the year at Andacollo.

At Cortez, production increased 59% over the prior-year quarter as surface mining activity increased at the Pipeline mining complex where our royalty applies, while no significant mining activity occurred in these areas during the prior-year quarter. Production subject to our royalty interest was about 201,000 ounces in all of calendar 2014 and Barrick is forecasting about 132,000 ounces in calendar 2015, most of that front-end loaded.

We have long waited for Crossroads pre-stripping to begin and we are excited to learn Barrick is commencing stripping this calendar year. Crossroads is an area of approximately 3 million ounces, subject to Royal Gold's 5% NSR royalty interest.

At Mulatos, GEOs attributalbe to our royalty interest increase 24%, aided by the timing of final settlement of gold that was produced at the end of the fourth calendar quarter of 2014 but for which settlement with the refinery had not yet occurred. Alanos announced an increase in 2015 production guidance from calendar 2014 levels as a full year of no production is expected to more than offset lower heap leach ore grades during calendar 2015.

At Penasquito, gold production subject to Royal Gold's royalty interest, which lags GoldCorp's reported production due to the timing of concentrate shipments, increased nearly 50% over the prior-year quarter to approximately 174,000 ounces, while silver, lead, and zinc production decreased by 16%, 13%, and 8%, respectively, over the prior-year quarter.

GoldCorp expects the gold production for calendar 2015 to be weighted to the second half of the calendar year as mining will move into the higher-grade portions of the Penasco pit beginning in the June quarter.

On Slide 9, we've provided operator estimates, where available, for calendar 2015 on the areas subject to our interest. The important takeaways for 2015 are that we expect (a) a stronger second half of the calendar year at Andacollo, Mount Milligan, and Mulatos, and Penasquito. These operations comprised about 65% of our revenue in the third quarter and their performance should more than offset a weaker remainder of the year at Cortez.

And (b) we have no volume guidance available for Voisey's Bay but point out that it was a nominal percentage of our revenue in the March quarter.

Today we are also reporting our 2014 year-end reserves. Gold equivalent ounce reserves were 5.3 million ounces at year-end 2014 compared with 5.6 million ounces at year-end 2013. The reduction was due mainly to depletion.

And I'll turn the call over to Stefan.

Thanks, Bill. I'll start on Slide 10. Today I'll summarize the financial results we disclosed this morning with comparisons to the prior-year quarter. I'll also discuss the tax rate and our amended credit facility.

Revenue of $74.1 million was up 28%, driven by Mount Milligan once again. Our DD&A rate was $408 per gold equivalent ounce for the quarter, reflecting greater contribution from Mount Milligan.

We reported net income of $25 million, or $0.38 per share, up 23% on a combination of higher revenue from Mount Milligan and a lower effective tax rate.

For the quarter, we reported income tax expense of $1 million for an effective tax rate of 4%.

Since December, the US dollar has appreciated significantly against the Canadian dollar, increasing from a rate of 1.16 Canadian dollars per US dollar to a rate of 1.26 during the March quarter alone. This dollar movement resulted in an $8 million noncash gain, which is reflected as lower income tax expense upon remeasurement of our Canadian deferred tax liabilities to their US dollar value. For the full year, we have recorded lower tax expense of $11.4 million as a result of the dollar movement since July 1, 2014.

Absent these foreign exchange gains in the third quarter, EPS would have been $0.26 per share and our tax rate would have been 35%. Looking forward, we will continue to remeasure our Canadian dollar denominated deferred tax liabilities for currency movements at each balance sheet date.

Today the Canadian dollar versus US dollar exchange rate is approximately 1.21, a decrease of about 5% from the March 31 rate. As we look ahead to our full-year results, a 5% movement in the Canadian dollar exchange rate would impact our full-year effective tax rate by about 7 percentage points.

Unrelated to tax, I also want to flag that our March quarter results have a small amount of exploration costs on the income statement. This is related to our exploration funding at the Peak Gold joint venture, and we would expect to have some costs associated with the summer exploration program reflected in the June and September quarters as well.

Now, turning to Slide 11. This morning we also announced an amendment to our credit facility which expanded our revolver capacity to $650 million from $450 million on the same terms and with the same syndicate. The previous $150 million accordion feature was eliminated.

I'd like to thank our banking syndicate partners at HSBC, Scotia Bank, CIBC, Goldman Sachs, and Bank of America Merrill Lynch for their support of Royal Gold through the credit facility.

You'll see on the slide that our enhanced liquidity position is nearly $1.4 billion. Our outstanding commitments are few and are success based. We have $1.2 billion completely uncommitted after deducing all current and success-based commitments.

We've also generated over $180 million in operating cash flow over the last 12 months, which gives us great flexibility to balance return of capital to shareholders growth.

And finally, on a housekeeping note, this morning we filed an updated S3 shelf registration statement, which is immediately effective. This shelf will allow us to remain flexible with respect to our capital-raising decisions in the future.

And now I'll turn the call back over to Tony.

Before closing I would like to take an opportunity to just welcome Alistair Baker to our business development team. Alistair was most recently with Barrick Gold in their corporate development group and brings a wealth of experience to Royal Gold. He will join Marcus in establishing our Toronto office.

Now to wrap up on Slide 12. I'll update you on three key themes to watch this year. The first is growth. Our gold volume from Mount Milligan will continue to grow as the mine ramps up towards full design capacity.

Phoenix is expected to further enhance our growth profile of our streaming business in the second half of this calendar year. And likewise, Penasquito is poised for a strong second half of the year as well.

The second theme is quality. Through the end of the December quarter, the average gross margin amongst our producing properties was 52%, holding fairly steady from a year ago. As you would expect, asset quality is one of our principal screens as we look to add new business.

And the third theme is opportunity. We've enhanced our liquidity today with no dilutive impact to our shareholders and continue to offer an attractive cost of capital to counterparties who, like us, want to grow their business in a way that preserves and enhances shareholder value.

Operator, that concludes our prepared remarks and we'd be happy to take any questions.

Thank you. (Operator Instructions) Andrew Quail, Goldman Sachs.

Yes. Hi Tony and team, thanks very much for taking my question and congratulations on a solid quarter. Just a couple, one on Mount Milligan. So Tony, you just outlined that you guys are moving to a receipt basis. Is this obviously a timing issue for next quarter and then will pretty much flatten out going forward?

Good morning, first of all. Let me just make sure -- you said Mount Milligan we're going to a receipt base?

Yes.

So what's happening at Mount Milligan is that we're going to a final settlement basis. So remember our first 12 shipments at Mount Milligan, we had provisional payments that we got paid on as well as final settlements. And by contract, that was to evolve into only payments on final settlements. So that's what's happening there.

As Bill and I both mentioned, that can take about five months. And so we'll have pretty good transparency of what's in the quarter because we'll be able to see the ships that are on the water and things like that. But there still is some unknowns with regard to what particular shipments will close in any particular quarter. So I hope that's responsive to your question.

With regard to going to cash receipts, we also talked about Voisey Bay. And I wanted to make sure that your question wasn't directed towards Voisey.

No, it was Mount Milligan. Sorry, I didn't want to get anyone mixed up.

One on Andacollo. Obviously it's sort of been -- or, it's declined the last -- probably the last 12 months, what you guys received. Obviously you expect a stronger second half. Do you sort of see going in not just for the next sort of six months but the next sort of 12 to 18 months, do you sort of see it getting back to levels previously seen in 2014?

No. Now, the -- and I go back to 2013 when we talk about the response to the question. We always knew that the higher-grade at Andacollo was in the first few years. And we saw that higher gold grade at that time. If memory serves me correct, 2014 was a little bit flatter and I think we have a slightly stronger 2015 projected.

But I think if you look forward and just keep your estimates around the reserve grade, maybe a little bit higher, and as the reserve tails, the grade will deplete a little bit. But not any major movements that I foresee at that property.

Okay. And last one, I ask you probably every second time, Tony, but you guys are obviously paying out 25% of your -- I think it's 25% of your operating cash flow. Do you see a scenario over the next sort of foreseeable future that that could be increased or revised upwards? As dividends.

I've always responded when questioned about dividends that we're very, very proud of the dividends we've had in place since the year 2000, and increased them every year since 2001. So that's a fantastic trend and having 25% of your operating cash flow pay out is a pretty impressive payout ratio in any business.

But for us, I wouldn't expect a real large swing. I would hope that we can continue to show the confidence in our business by having a healthy dividend and I don't see a reason why not to do that.

But on the other side of the allocation of capital, we see a lot of interesting opportunities in the marketplace today and most of our growth through our history has been through share price appreciation. And so that's where we're mainly focused, and I think the yield will only go up in a significant way if we felt we are running low on opportunities in the business.

And last one and I'll leave it. Just on Phoenix. For our modeling purposes, what do you think -- when do you actually think you actually get revenue? Obviously it's ahead of schedule and that's fantastic, but what sort of quarter do you sort of see you guys receive revenue that will go into your P&L?

Yes. Andrew, it's a good question; thanks for that question. It's probably a piece of guidance that will be helping the marketplace, do you think? This is not a complex circuit and it's not a large concentrate circuit. So we probably expect to see gold flowing through that rather quickly. But maybe small amounts of revenue to our account.

Let me characterize that differently -- small amounts of gold deliveries to our account in September quarter. But I wouldn't be surprised if it wasn't until the December quarter that we actually received gold sales and perhaps had a few deliveries and gold sales.

Awesome. Thanks very much for answering those questions, Tony.

Thanks for your interest, Andrew.

Patrick Chidley, HSBC.

Morning, Patrick.

Morning, afternoon, everybody. Just wanted to -- you've obviously got a lot of cash on the balance sheet. You've just made some initiatives to increase liquidity and I'm wondering what kind of opportunities are you looking for with this war chest, as it were.

Would they be -- you mentioned just now I think to help companies maybe achieve some objectives in terms of financing things. Would that be new projects or would that be projects in development or would it be looking at opportunities with existing production?

Patrick, let me ask Bill Heissenbuttel to respond to that and I'll probably have a follow-up comment or two.

Thanks.

Actually, we talk about the business development as really falling into three buckets. The first one is project development. But of course in those instances, you're probably talking about a period of time from our investment into an asset that's actually delivering gold to us.

The two more recent buckets, if you will -- recent I say over the last couple of years -- we've seen the ability for us to potentially participate in mergers and acquisition opportunities. That was initially base metals and it got a precious metal byproduct.

But now what we're also seeing is debt restructuring. To the extent you've got a company with a levered balance sheet, perhaps some near-term debt maturities, a stream can alleviate the financial distress because streams are valued and paid over the life of the mine.

So those three are really the areas in which we try to find new opportunities.

We'll definitely be active in all three of those areas, Patrick. The one thing that I think has changed probably in the last 12 or 18 months is that there's more cash-flowing opportunities in the marketplace I think today than there has been in the past. So we're excited about being able to put that money to work and getting gold deliveries associated with that relatively quickly.

Great. Okay, thanks; sounds encouraging. And also just on exploration, you mentioned the Peak project. Is it -- could you give us an update on that, and is that a one-off sort of thing still, or do you think you'd do more of those?

Well, sure. Happy to give you an update on that Peak joint venture. We're just very pleased to have an opportunity to work with the Tetlin Village people in Alaska there on their land associated with a company called Contango Ore in a joint venture.

It is a bit of a one-off. We -- in my tenure here we haven't been attracted to do any exploration ourselves. You'll remember, Patrick, being a long-term follower of the Company, that we started in the business at Cortez as an exploration company and this company actually discovered the south part of the south Pipeline. So there is a tremendous value to be created there.

And when it comes to the Peak Gold joint venture we just saw a really interesting prospect in an area that wasn't remote like many places are in Alaska. Already a million ounces, a little bit more, of equivalent gold resource at this point. Three-gram kind of materials. So it had a lot of the boxes ticked as far as what would attract us to be interested in the project.

And we just have a real good support network in Alaska, having worked there in my early career. And we're using a company called Avalon Resources to help us do that exploration. So we're not having to staff up for that. We just had a lot of the stars come together on that project.

As far as what are we doing with it, this year we have a $5 million initial budget, and as Bill -- maybe Stefan, I think, actually talked about a success-based investing. This is one of them. We'll start out with $5 million, and if we continue to see encouragement we may put additional money in this year. But it's a long-term play over a number of years here, so I don't want to get out in front of it, but we are quite excited about it.

Okay, thanks. And then, I did notice that you mentioned that Barrick had started stripping the Crossroads deposit for the first time, I guess. Is that on the road to a full development then? And is it sulfide ore or [magnesium]?

Let me answer the latter question first. It's mostly oxide, and I think about 85% of that will go on the heap leach pad and just a small fraction of that will go into refractory-type -- a gold [strike] roaster, but the rest of it will be milled. So the bulk of it is heap-leaching available. And it doesn't compete against any other ores through the mill. So that's a piece of good news.

As far as the schedule goes, I don't think we're in a position yet to have confidence and be able to guide you as far as how fast the stripping might occur. So just give us a little bit more time there to understand that schedule a little bit clearer. But it surely is a great thing to see a step forward because this is something we've been asked about for many, many years.

Right. It's about 3 million ounces -- is that correct?

You're correct, yes.

Okay, great. All right. Thanks, Tony, everybody.

Thanks, Patrick.

(Operator Instructions) Garrett Nelson, BB&T Capital.

Hi. My questions have already been answered; thanks.

Thanks, Garrett.

Kevin Chiu, CIBC.

Hi, Tony and team; it's actually Cosmos here.

Hey, Cosmos.

Hey, how are you doing?

I'm well.

I have a question on Voisey's Bay. Certainly -- I don't know how much you can tell us, but I guess it's two parts. First off, how would you recommend us forecasting future production, future revenue coming from the stream to Royal Gold? It sounds like you might be having a bit of trouble at your end as well, just given the reports that [aren't] being provided at this point in time.

And the second part of my question would be -- I though I read about two months ago that Vale had come to an agreement with the government in terms of an extension of full production at Voisey's Bay -- or at Long Harbor until 2018, 2019. It won't be exclusively processing ore from the Voisey's Bay until that point of time with the extension. Does that benefit this agreement in any way? Do you foresee any kind of benefit to Royal Gold from that extension?

Yes. Again, let me answer the latter question first and then I'll go to the former. Let me back up even further and say that the province had placed a limit at how much concentrate could be processed outside of the province. And that's the material that went off to the Sudbury Complex. And they also required Vale to bring that amount of concentrate back in to process through the Long Harbor facility in years to come.

So they had initially a specific amount of concentrates they felt were sufficient to build Long Harbor and Long Harbor was not built within that time frame, so that it was extended to another term, and I think that was just about the end of last year some time that it was about ready to be filled up. So they extended it what I believe is a second time, and that gives them a little bit more breathing room.

I think it's fair to say -- it's our belief that if they hadn't got that extension, they would not probably be able to be processing ore outside of the province today. So yes, that has come to a benefit for us because they haven't switched over completely to the Long Harbor facility yet. That's scheduled to happen during the course of the year, and we understand in the latest press release that they talked about having it almost entirely Long Harbor by the end of the year for Voisey Bay.

So that brings me to your former question, as far as what can we recommend as far as forecasting? And here, too, I ask for your patience. We understand that there's been some material that's been processed at Long Harbor already and so we'll be receiving payment schedules associated with that at some time in the near future.

And once we fully understand how they intend to treat our royalty and the associated deductibles at Long Harbor, then we'll be able to give you a much clearer picture, Cosmos. But I'm not talking about by the end of the year we should have that clarity; I think we'll have that clarity much sooner than that.

Okay, sounds good.

Just one more comment I'd like to make. With all of this change happening there, we just thought it was prudent to take a more conservative approach and not forecast what's likely to be because this is absolutely new turf for us.

Yes. And that's why, as you mentioned in the press release as well, Tony, that you've now transitioned to a more cash accounting method for the Voisey's Bay royalty, right?

Exactly.

Okay. And then maybe a bit more guidance as well in terms of taxes. Maybe for Stefan, what should we use in terms of a tax rate or -- given it was a 4% effective tax rate in the current quarter, how should we look at it again if you can give us a bit of more guidance in terms of how we should forecast for the rest of the fiscal year as well as maybe next year as well?

Sure, Cosmos. With respect to forecast, I'm not going to give specific guidance on the full-year tax rate because with the FX in particular, there's a lot of moving parts there. But if you look at our year to date, the nine-month tax rate's about 8%. That's obviously a big benefit from the FX that I talked about. If we keep all things static for the full fiscal year ended June, we would end the year with about a 12% effective tax rate.

So to get to that point the one thing that's unclear is what that FX rate would do during the period. And I said today the FX rate's about $1.21, down from $1.26. So I would see -- depending on where that FX rate is you've got to solve to get to that 12%. If the FX rate moves, you might see something closer to a 35% tax rate in the fourth quarter to get to that 7-point movement I talked about from that 12%.

Okay. Great, that's all I have.

Thank you, Cosmos.

Cosmos.

Farooq Hamed, Barclays.

Hi. Good morning, guys. I actually had follow-up question off of one of Patrick's questions. Bill, you referred to kind of the opportunities that you're looking for in three buckets, and one of the buckets was debt restructuring. I'm just wondering -- and that's something that's kind of new for you guys.

I'm just wondering, how do you think about counterparty risk when entering into a debt restructuring deal?

I mean, counterparty risk is probably first and foremost where we start, and it probably starts with the people involved. I can tell you my background is actually from the lending industry so everything I do probably starts with a bit of a credit analysis. Because in some of these instances, the stream may be done at levels in a corporate structure that aren't actually at the operating company level and you might be somewhat dependent on the parent company to make sure that the deliveries are there.

So we pay attention to financial statements and corporate cash flows and debt ratings and everything else. But it stops and starts with the counterparty risk because if they're not financially strong to deliver, we could have a big problem very quickly.

My issue is kind of that -- I mean, this doesn't always have to be the case, but if you're looking at partnering or buying a stream from somebody that has a short-term or a near-term pressure on their balance sheet from a near-term debt being due and so they're looking for relief and looking to sell a stream, doesn't that by nature suggest a weaker counterparty?

It could. Every situation is different. If we can alleviate a near-term debt maturity with something that gets paid out over 20 or 30 years, that may actually change the credit profile of the company. Now, if that company has two more debt maturities two years after and three years after, that may be a completely different analysis. So it really comes down to the level of debt and the timing of the maturities, and that all goes into whether or not we're willing to take that counterparty risk.

One more thing that I would add to that is it all starts to follow the asset and it aligns to the piece of business that we do. We have to have a lot of confidence in that and make sure that that asset can provide that cash flow.

And there are -- to Bill's point, there are times where we simply -- we've quite liked an asset but we haven't been able to get comfortable with the entire debt package on the project. And we've had to walk away from some of those things. So we are very much cued to what you're saying, Farooq.

Okay. No, that's fair. I just -- I was thinking about kind of with some of the trials that you went through kind of on the Mount Milligan site.

And then, maybe just a second part to that question, in terms of participating in the M&A process. You're thinking somewhere along the lines of kind of offering financing to facilitate an M&A deal between two producers, something like that?

That's right.

Okay. And in that environment, how has the traffic kind of changed in the last three, six months versus the end of 2014?

Over the short term I don't think it's changed all that much. I think probably a few years ago you saw many of the major diversifieds rationalizing their portfolio and selling some -- I'll call smaller assets, noncore assets, and they had precious metals streams in them.

And that's a situation where we go to a producer and we say, we believe our cost of capital is lower than your cost of capital. Therefore, we think we can add value to your bid.

That's historical. I'd say what you use a little bit more on the project finance side is the precious metals companies willing to actually entertain streams. So who knows? That could be another opportunity for us.

Sure; okay. No, that's helpful. Thank you for that.

Thanks, Farooq.

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Tony Jensen for any closing remarks.

Well, thank you very much for taking time to join us today and we appreciate your continued interest in Royal Gold and we look forward to updating you on our progress in our next quarterly call. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.