RGLD

Royal Gold, Inc. (RGLD)

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Royal Gold, Inc (RGLD)

F1Q2013 Results Earnings Call

November 1, 2012 12:00 PM ET

Executives

Tony Jensen - President and CEO

Stefan Wenger - Chief Financial Officer

Bill Heissenbuttel - Vice President, Corporate Development

Bill Zisch - Vice President, Operations

Bruce Kirchhoff - Vice President and General Counsel

Stanley Dempsey - Chairman

Analysts

Michael Peterson - MLV & Co.

Stephen Walker - RBC Capital Markets

Tanya Jakusconek - Scotia Bank

Shane Nagle - National Bank Financial

Presentation

Operator

Good morning. My name is Loral, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold Fiscal 2013 First 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)

Thank you. Ms. Karen Gross, you may begin your conference.

Karen Gross

Thank you, operator and good morning everyone, and thank you for joining us today to discuss Royal Gold’s fiscal 2013 first quarter results. This event is being webcast live and you will 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 Stanley Dempsey, Chairman.

Tony will open with an overview of the quarter followed by Stefan who will provide a financial update and then Bill Zisch will discuss our operations and review some of our producing and development properties. After management completes their opening remarks, we’ll open the line for Q&A session.

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.

With that, I’ll turn the call over to Tony.

Tony Jensen

Good morning and thank you for joining us today. I am pleased to report strong results for our first quarter of fiscal 2013, in which we achieved record revenue and cash flow, primarily driven by increased production volume. Relative revenue increased 21% to $78 million, while operating cash flow increased 16% to $53.5 million. In addition net income was $25 million or $0.42 per share.

For the quarter just over 50% of our revenue came from three cornerstone producing properties, including Andacollo, Voisey’s Bay and Peñasquito, each of these assets reported year-over-year improvements in metal sales and revenues. Andacollo, was again our largest revenue source contributing approximately $20 million, followed by Peñasquito at $11 million and Voisey’s Bay contributed about $9 million.

Our top 12 producing assets contributed 82% of our revenue and compared to the prior year period volume expansion at nine of our top 12 assets, more than offset lower production at Cortez, Leeville and Dolores. Our percentage of revenue from precious metals was 75%. The majority of our revenue was derived from Chile, Canada and Mexico, with each country contributing in the range of 22% to 26%, while the United States operations contributed 17%.

Also during the quarter we were pleased to have an opportunity to increase our investment at Mt. Milligan in August. We will now receive 52.25% of the gold from Mt. Milligan in exchange for total preproduction commitment of $781.5 million and a payment of $435 per ounce upon delivery of the gold. We understand construction is on schedule and we look forward to production next year at this time. This is also a very interesting time in our business and we are continuing to identify new investment opportunities. To have the ability to pursue these royalty and streaming opportunities we completed an equity offering in mid-October, which Stefan will speak to in just a minute.

With that let me turn to Stefan Wenger our CFO for a brief financial report followed by a report from Bill Zisch our VP of Operations, with an update on some of our producing and development properties. Stefan?

Stefan Wenger

Thank you, Tony and good morning everyone. For the first quarter of fiscal 2013 we had revenue of $77.9 million compared to $64.5 million for the prior year period. Adjusted EBITDA totaled $71 million or 91% of revenues, record highs compared with $57.6 million or 89% of revenue for the comparable quarter. Net income was $24.8 million or $0.42 per share compared with $22.5 million or $0.41 per share for the prior year period. Cash flow from operations was $53.5 million or $0.90 per share compared with $46.2 million or $0.84 per share for the comparable quarter.

Looking at our costs and expenses G&A decreased 4% compared with the comparable quarter, while we experienced an increase of 15% of production taxes, which was directly related to higher revenue at Voisey’s Bay. DD&A increased to $21.5 million compared with $17.2 million in the prior year period. However, the DDA rate per gold equivalent ounce was $456 consistent with the $455 per ounce rate that we experienced in the prior year period. For fiscal 2013 we continue to expect DD&A of between $450 and $500 per ounce compared with the rate of $475 per ounce we had in all of fiscal ‘12.

As expected interest expense increased as a result of recording the first full quarter of expense associated with our $370 million convertible notes. For the period total interest expense was $6.1 million, which included $5.1 million of expense associated with the convertible notes. Of that $5.1 million about $2.7 million related to cash interest on the notes while the remaining $2.4 million was related to non-cash accretion of the debt discount and amortization of debt issuance costs.

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