Royal Gold, Inc. (RGLD)
F2Q 2012 Earnings Call
January 31, 2013 12:00 pm ET
Karen Gross - VP and Corporate Secretary
Tony Jensen - President and CEO
Bill Zisch - VP, Operations
Stefan Wenger - CFO and Treasurer
Bill Heissenbuttel - VP, Corporate Development
Bruce Kirchhoff - VP and General Counsel
Stan Dempsey - Chairman.
Michael Peterson - MLV & Company
Shane Nagle - National Bank Financial
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Thank you, operator, good morning. Thank you for joining us today to discuss Royal Gold’s fiscal 2013 second quarter results. This event is being webcast live. And you will be able to access the 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 and Bill Zisch will discuss our operations and will review our producing and development property.
After management completes their opening remarks, we will open the line for a 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 will turn the call over to Tony.
Thank you, Karen. And good morning everybody thank you for joining us today.
Royal Gold had strong second quarter results for fiscal 2013 in which we achieved record revenue in EBITDA through increased production volume as well as metal prices. Royalty revenue increased 16% to $80 million compared to $69 million for the prior year period.
Adjusted EBITDA totaled $73 million or 92% of revenues compared to $62 million or 90% of revenues for the comparable quarter. Operating cash flow totaling $11 million was negatively impacted by provisional income tax payments of $23 million in a timing of the withholding tax payment of $17 million which is expected to be recovered prior to fiscal year end.
As we just mentioned in our calendar year, our fiscal year we have two tax payments that both come due in our second fiscal quarter so that’s always a consumption of cash in that particular period.
Net income was $27 million compared with $23 million for the prior year period. Although net income increased both period resulted in $0.42 per share due to the equity offering we completed in October to strengthen our balance sheet.
For the quarter just over 46% of our revenue came from our three producing cornerstone properties including Andacollo, Voisey's Bay and Peñasquito. Andacollo was largest revenue source contributing approximately $23 million followed by Peñasquito and Voisey's Bay both at about $7 million.
Compared with the prior year period we saw volume expansion at 8 of our 12 top paying properties, most notably at Andacollo. Our percentage of revenue from precious metals was 79% of which 73% was from gold. Approximately 30% of the revenue is derived from Chile with Canada, Mexico and United States each contributing around 20%.
During the quarter we increased our net smelter return option at the KSM property for a net cost of $3.6 million. This now gives us the right to purchase either a 1.25% NSR royalty for C$100 million, or a 2% NSR royalty for C$160 million on all of the gold and silver production from the projects. We do not expect to exercise our option until all material approvals and permits are received, construction funding is in place and a construction decision has been made.
With that I will turn the call over to Bill Zisch for a detailed review of our operations. Bill?
Thank you Tony and good morning everyone. To give you a more tiny review of operational performance I will compare December 2012 quarterly results with September 2012 quarterly results as in prior year comparables. We saw continued improvement from many of our principal properties including Andacollo, Mulatos, Canadian Malartic, Dolores, Holt, Robinson, and Wolverine. Solid performance from the core properties in our portfolio was offset by lower production at Voisey's Bay, Cortez, Las Cruces and Peñasquito.
Across the portfolio our production stated in terms of net gold equivalent ounces paid to our account was about 1% below the September quarter. A 4% increase in metal prices with relatively flat production resulted in another quarter of record revenue. At Teck’s Andacollo mine production once again exceeded the preceding quarter as the benefits of the recently installed crushing circuit were realized and as planned slightly higher grade ore was mined. Teck has reported they will continue the optimization and de-bottlenecking process. Production to our account at Andacollo was up 12% over the September quarter.
Alamos Gold’s Mulatos mine produced a record 67,800 ounces of gold exceeding the preceding quarter by 41%. The company reported that production in the fourth quarter benefited from higher than budgeted throughput in grade from the gravity mill, which is processing ore from the Escondido high grade zone.