Royal Gold, Inc. (RGLD)

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Royal Gold, Inc. (RGLD)

F2Q12 Earnings Conference Call

February 2, 2012 12:00 PM ET


Karen Gross – VP and Corporate Secretary

Tony Jensen – President and CEO

Stefan Wenger – CFO and Treasurer

Bill Heissenbuttel – VP, Corporate Development

Bill Zisch – VP, Operations


Lawson Winter – Bank of America Merrill Lynch

Tony Jensen – Royal Gold

Stefan Wenger – Royal Gold

Andy Schopick – Nutmeg Securities



Good morning. My name is Jessica, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Royal Gold Fiscal 2012 Second 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, you may begin your conference.

Karen Gross

Thank you, operator. Good morning, everyone, and thank you for joining us today. This event is being webcast live. You will be able to access a replay of the call on our website at www.royalgold.com.

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. After management completes their opening remarks, we’ll 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’ll turn the call over to Tony.

Tony Jensen

Good morning and thank you for joining us today. We had a very busy and successful quarter, and I wanted to take some time to highlight those and particularly to highlight some of the management teams. So today, I’d like ask Stefan Wenger and Bill Heissenbuttel and Bill Zisch all to have a part in the call this morning.

But before I turn the call over to Stefan, I would like to provide some introductory comments about the quarter. Today, Royal Gold reported record quarterly revenue of $69 million, a 22% increase, and net income, also a record, rose 28% to $23 million or $0.42 per share. Operating cash flow totaled $29 million, up 8% from the comparable year-over-year period.

And looking at our first half performance, Royal Gold achieved record finance results in revenue, net income and operating cash flow. Six-month royalty revenue was $133 million. Operating cash flow was $75 million, and net income was $46 million or $0.83 per basic share. In reviewing the composition of our quarterly revenue, Andacollo was again our largest revenue source, contributing approximately $16 million. Voisey’s Bay reported strong production and associated revenue for the quarter, contributing approximately $12 million, while Peñasquito added just over $6 million. Total revenue from these three producing cornerstone properties was approximately half of our revenue for the quarter.

Holt was our next biggest contributor, adding over $4 million in revenue. Compared to the September 2011 quarter, we saw volume expansion within the portfolio at Peñasquito, Voisey’s Bay, Holt, Mulatos, Dolores and Las Cruces. This increased production more than offset lower silver and copper prices, a flat gold price and lower production at Cortez and Robinson. Our percentage of revenue from precious metals was 72%.

Now I’d like to briefly talk about our current financial status. As you know, we have been very busy during the December quarter with acquisitions involving Mt. Milligan and Tulsequah Chief projects, both in British Columbia. Combined, we committed $330 million to these transactions subject to certain conditions. In early December, we drew down an additional $100 million on a revolver to fund the Mt. Milligan II transaction. And to restructure our balance sheet and position the company for additional opportunities, we sold 4 million shares of common stock in January, resulting in proceeds of approximately $268 million.

Now I’d like to turn the call over to Stefan Wenger, our Chief Financial Officer, to give you a bit more detail on DD&A and tax expense during the quarter as well as some of the financial activities after quarter end. Stefan?

Stefan Wenger

Thank you, Tony, and good morning, everyone. DD&A for the second quarter was $21.4 million compared to $16 million for the comparable quarter of fiscal 2011. The increase was due to higher production at the Andacollo, Voisey’s Bay as well as the new production from Canadian Malartic and Holt. DD&A for the quarter was $525 per gold equivalent ounce compared with $388 per ounce in the prior year.

This increase per gold equivalent ounce is attributable to higher revenue from Voisey’s Bay and a corresponding decrease in revenue from Cortez or Voisey’s Bay has a higher cost per ounce versus Cortez, which has a very low cost per ounce. For fiscal 2012 as a whole, we expect our DD&A rate per gold equivalent ounce to be in a range of $450 to $500.

Moving on to taxes, income tax expense increased to $14.1 million or 36.7% for the quarter compared with $11.4 million or 35.4% in the prior year period. The increase in our effective tax rate was a result of an increase in tax expense on foreign earnings. For the six-month period, our effective tax rate was 34.4% compared with 35.2% for the comparable period in fiscal 2011. For fiscal 2012, we expect our effective tax rate to be at or slightly higher than 35%.

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