Royal Gold, Inc. (RGLD)

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Royal Gold, Inc. (RGLD)

F4Q11 Earnings Call

August 11, 2011 12:00 p.m ET


Karen Gross – VP and Corporate Secretary

Tony Jensen – President and CEO

Stefan Wenger – CFO

William H. Heissenbuttel - VP of Corporate Development

Bill Zisch – VP, Operations

Bruce Kirchhoff – VP and General Counsel


Imaru Casanova – McNicoll, Lewis, & Vlak

Andy Schopick – Private Investor



Good morning. My name is Jessica and I'll be your conference operator today. At this time I’d like to welcome everyone to the Royal Gold Fiscal 2011 Fourth 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. Karen Gross, Vice President and Corporate Secretary you may begin your conference.

Karen Gross

Thank you operator and hello everyone. Welcome to our fiscal 2011 fourth quarter and year end conference call. The event is being webcast live and you will be able to access the replay of it on our website. 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 CEO; Stefan Wenger, Chief Financial Officer and Treasurer; Will Heissenbuttel, Vice President Corporate Development; Bill Zisch, Vice President in Operations; and Bruce Kirchhoff, Vice President and General Counsel.

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. Fiscal 2011 was an outstanding year for Royal Gold. We achieved record revenue, free cash flow, and net income and continue to execute on our long term growth plan by adding another high quality long life royalty to our portfolio. During the year, we closed the Mt. Milligan transaction, where we acquired the right to 25% of the payable gold produced from this project in British Columbia, and we also completed a transaction to acquire an additional NSR sliding-scale royalty on the Pascua-Lama project in Chile bringing our royalty interest to 5.23% and gold prices above $800 per ounce.

Our total property count now stands at 184 of which 36 are producing properties and 21 are development properties. In addition, we recently announced a transaction of Seabridge Gold on the KSM project that allows us an excellent entry point into one of the largest undeveloped gold deposits in the world. I'll speak more about this later in the call.

We also saw growth in reserves during the year with gold reserves subject to our royalty interest increasing 7% to 83.9 million ounces and silver reserves increasing 4% to 1.4 billion ounces. More importantly, we consider the impact of these reserves on Royal Gold by calculating the royalty ounces which were simply the reserves subject to our royalty interest multiplied by the applicable royalty rate.

On a royalty basis then we estimate that reserves is 7 million gold equivalent ounces are attributable to our interest which represents an increase of 26% over the prior year largely due to Mt. Milligan transaction.

Our growing revenue stream for fiscal 2011 was primarily driven by production growth at our cornerstone properties, solid production from our other key royalties and higher metal prices. Revenue from three of our cornerstone properties including Peñasquito and Andacollo Voisey's Bay totaled $98 million or 45% of total revenue for the year.

Now, Stefan Wenger our CFO will review the financial highlights for both the year and the quarter in more detail, and after that Bill Zisch, our Vice President of Operations will provide an update on certain producing in developed royalties. Stefan?

Stefan Wenger

Thank you Tony and good morning everyone. For the fiscal year we had record revenue of $217 million, an increase of nearly 60% over revenue of $137 million in fiscal 2010. Net income increased 232% to $71.4 million or a $1.29 per share compared to $21.5 million or $0.49 per share for fiscal 2010.

Our free cash flow for fiscal 2011 was a record at a $190 million or 88% of revenues. This compares with a $100 million or 73% of revenues for fiscal 2010. Free cash flow was negatively impacted during the fiscal 2011 by higher production taxes of $9 million compared to $2.9 million in fiscal 2010.

Higher production taxes were associated with the increase in revenue at our Voisey’s Bay royalty which carries a production tax burden of 20% of revenues. Before production taxes our free cash flow increased to 92% of revenue during fiscal 2011 demonstrating the strong operating efficiency of our royalty model.

Working capital as of June 30 was a $140 million including cash from receivables on the balance sheet totaling a $163 million. We also had a $125 million in additional liquidity available from our revolving credit facility to fund future growth. We ended the fiscal year with the $226.1 million in debt under our credit facilities.

I would like to briefly comment on our income statement presentation as we’ve changed a few things this year. For fiscal 2011 we broke out our production cash expense into a separate line item on the income statement as production taxes have become a larger component of our cash costs.

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