Royal Gold, Inc. (RGLD)

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Royal Gold, Inc. (RGLD)

F3Q10 (Qtr End 03/31/10) Earnings Conference Call

May 6, 2010 12:00 PM ET


Karen Gross – VP, Corporate Secretary

Tony Jensen – President and CEO

Stefan Wenger – CFO and Treasurer

Bill Zisch – VP, Operations

Bruce Kirchhoff – VP, General Counsel


Cosmos Chiu – CIBC

Adam Schatzker – RBC Capital

Imaru Casanova – BJM

Andy Schopick – Nutmeg Securities

Mike Jalonen – Bank of America

John Doody – Gold Stock Analyst



Good morning. My name is Chris and I’ll be your conference operator today. At this time I’d like to welcome everyone to the Royal Gold fiscal 2010 third quarter 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. Ms. Gross, you may begin your conference.

Karen Gross

Hello everyone. Welcome to our fiscal third quarter 2010 conference call that is being webcast live. You will be able to access a replay of the call on our website at www.royalgold.com. Also on the website you will find our release detailing 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 release and is presented in greater detail in our filings with the SEC.

Participating on the call today are Tony Jenson, 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 Stan 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’ll turn the call over to Tony.

Tony Jensen

Good morning and thank you for joining us today. We are pleased to bring you up to date on our performance for the third fiscal quarter. Our business development activities during the quarter were very important for the future of our company.

In January we closed the Andacollo transaction with Teck. This investment combines the important characteristics of a long lived gold royalty revenue stream, near-term production and the quality operator operating in an attractive close country of Chile.

With the Andacollo concentrator now in ramp up, we expect this property will quickly become our largest contributor to royalty revenue in just a few more quarters.

In February we completed the acquisition of the International Royalty Corporation, the largest acquisition in the history of our company. The combination of Royal Gold and IRC brings together a portfolio of nearly 200 royalty properties and creates a combined company that holds royalty interest in some of the highest quality mines in the world. It generates substantial free cash flow and yields one of the most attractive budget development pipelines in the entire mineral industry.

It is particularly exciting to add the IRC assets to our portfolio at this time. As both Andacollo and Penasquito mines are ramping up initial production. It is also impressive to see the effect this business activity had on our reserves.

As of the end of December, gold reserves subject to our royalty interest increased 22% to 78.4 million ounces. Silver reserves subject to our royalty interest increased 12% to 1.3 billion ounces, and on a royalty ounce basis, we calculated that our equity gold reserves increased 148% to 3.3 million ounces. And, of course, as a royalty company these ounces are essentially cash free as we are not responsible for the development or operating cost to recover them.

This gold growth is largely driven by the Andacollo transaction and the additional royalty interest at Pascua Lama as a result of the IRC transaction.

Our portfolio of 33 revenue generating royalties performed well. We had record revenues for the fifth consecutive quarter. However, our financial results for the quarter were impacted by the acquisition cost related to the IRC transaction.

I will now ask Stefan Wenger, our CFO to report on those details and after Stefan, Bill Zisch, our Vice President of operations will provide an update on certain development in operating royalties. Stefan?

Stefan Wenger

Thank you, Tony and good morning everyone. For the third quarter we had royalty revenue of $35 million and free cash flow of approximately $14 million. Our revenue increased 68% over the comparable period; however, due to expenses associated with the IRC transaction, our free cash flow decreased by 22%. After adjusting for the IRC costs, our free cash flow is nearly $31 million, which was a 75% increase over the prior quarter and 87% of total revenue.

The contribution from gold represented 81% of our total revenue. One time transaction cost of $16.9 million associated with IRC impacted our net income, free cash flow, and earnings per share for the quarter.

In addition, we accrued a tax charge of approximately $2 million associated with our intention of making a 338 tax election, which would step up the basis of the assets we required in the IRC transaction for U.S. income tax purposes. We believe that the benefit associated with the step up election will be significant over the life of the IRC properties.

The impact of $0.33 per share associated with these IRC and tax election related costs resulted in a net loss of $5.8 million or $0.13 per share in the current quarter compared with net income of $4.1 million or $0.12 per share for the third quarter of fiscal 2009. Excluding the IRC related costs, net income would have been $8.9 million or $0.20 per share.

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