Royal Gold, Inc. (RGLD)

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Royal Gold Inc. (RGLD)

F1Q2011 (Qtr End 09/30/10) Earnings Conference Call

November 4, 2010 12:00 PM ET


Karen Gross – VP and Corporate Secretary

Tony Jensen – President and CEO

Bill Zisch – VP, Operations

Stefan Wenger – CFO

Bruce Kirchhoff – VP and General Counsel


Michael Tsada – UBS

Andrew Schopick – Nutmeg Securities Ltd.

Imaru Casanova – MLV



Good afternoon. My name is Andrea, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold Fiscal 2011 first quarter earnings 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. I would now like to turn the call over to our host, Ms. Karen Gross, Vice President, Corporate Secretary. Please begin your conference.

Karen Gross

Thank you, operator and hello everyone. Welcome to our first quarter fiscal 2011 conference call. The event 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 press release and is presented in greater detail in our filings with the SEC.

Participating on the call today are Tony Jensen, President and Chief Executive Officer; Stefan Wenger, Chief Financial Officer and Treasurer; Bill Heissenbuttel, Vice President and 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 press release.

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

Tony Jensen

Thanks, Karen and good morning everybody. We are pleased to report another quarter of robust financial performance. Fiscal first quarter results were strong as Royal Gold achieved record revenue and free cash flow.

We reported $45.3 million in royalty revenue, a 74% increase from $26.1 million in the comparable period.

Quarterly net income rose 66% to $11.8 million, or $0.22 per basic share and free cash flow was $40.8 million or 90% of total revenue. These results represent not only continued strong performance from our traditional portfolio of royalties, but also mark a fundamental shift in the source of our royalty revenue, as we begin to transition away from maturing projects to our new generation of long lived core properties.

An example of this transition is that 25% of our revenue for the quarter came from Andacollo and Voisey's Bay; two properties that were not even part of the Royal Gold portfolio 12 months ago. Andacollo has become the single largest contributor to our quarterly revenues; quite an accomplishment for all involved and our congratulations go out to the Teck and Andacollo teams.

Also during the quarter, our GSR1 royalty at Taparko reached its cap of $35 million in September. With the achievement of this milestone, the GSR1 and GSR2 royalties have been extinguished as planned and a 2% GSR3 royalty along with the 0.75% GSR milling royalty now take effect for the remainder of the mine life.

In total, we received $57.4 million from GSR1 and GSR2 royalties. This milestone is commendable and is the result of all associated parties’ ability and willingness to work through previous operational and financial challenges.

We have been discussing this revenue reduction at Taparko in a similar cap Siguiri for several quarters. We have also been updating you on our growth expectations within our company and it is gratifying to see the Andacollo and Peñasquito royalty revenues increasing at the same time to us at these reductions. And in this fiscal year, we still look forward to further growth associated with the potential resolution of labor issues at Voisey's Bay, the continued ramp up of Dolores and Las Cruces, as well as new production from the Canadian Malartic and Wolverine projects.

I will now ask Bill Zisch, our Vice President of Operations to provide an update on these and other key properties. Bill?

Bill Zisch

Thank you, Tony and good morning, everyone. I'll start with an update on Teck’s Andacollo property and add to Tony's earlier comments.

Teck declared commercial production at Andacollo beginning October 1. It described the achievement of commercial production as marking the completion of project development, commissioning and operational ramp up. The plant has been averaging 53,000 tons of ore per day or 97% of the design capacity of 55,000 tons per day. The ramp up that began in mid-February was completed by the end of September, within seven months our first ore to the mill. Payments thus, began with commencement of shipments in May.

On September 12, Goldcorp reiterated their annual guidance for gold sales of 180,000 ounces from their Peñasquito mine. At the same time they declared the project had achieved commercial production. They realized a combined 30-day average throughput rate in excess of 70,000 tons per day, including peak daily throughput as high as 105,000 tons. And last week Goldcorp announced they achieved mechanical completion of the high pressure grinding roll circuit and that commissioning of the circuit is underway.

Read the rest of this transcript for free on seekingalpha.com