Royal Gold's CEO Discusses Q2 2012 Results - Earnings Transcript

Royal Gold, Inc (RGLD)

Q2 2012 Earnings Call

August 09, 2012 11:00 a.m. E.T

Executives

Tony Jensen – President, CEO

Stefan Wenger – CFO

Bill Heissenbuttel - Vice President, Corporate Development

Bill Zisch – VicePresident Operations

Analysts

Tom Murray – Advent Capital

Shane Nagle – National Bank Finance

Presentation

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold Fiscal 2012 Fourth Quarter and Year End 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 fourth quarter and yearend conference call. This event is being webcast live. You will be able to access a replay of this call on our website, where you will also find our release detailing our financing results.

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.

Tony will open with an overview of the quarter followed by Stefan who will give the financial highlights and then Bill Zisch will give an operations review. After management completes their remarks, we’ll open the line for a Q&A session. We will also be discussing the company’s adjusted EBITDA, which is a non-GAAP financial measure and there is a reconciliation in today’s press release.

Before we begin, I also 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 release and is presented in greater detail in our filings with the SEC.

Now, I’ll turn the call over to Tony.

Tony Jensen

Good morning and thank you for joining us today. I’d like to focus at the beginning of this call on our annual and quarterly results, but I hope you also saw Mulligan transaction this morning. We will discuss that investment after Stefan and Bill had given you financial and operational updates.

Royal Gold stood apart from general gold equities during the fiscal year due to our royalty business plan and financial results. Our investments in projects are fixed and are not subject to rising capital and operating costs. We are not responsible for the operations at mines, which keep our expenses in check. This business plan coupled with growth from previous investments and solid performance from our large portfolio of 39 producing assets, resulted in another record year of financial results for Royal Gold.

Fiscal 2012 marks the 11th consecutive year of achieving record revenue and cash flow. In addition to higher average metal prices, our revenue increase in fiscal 2012 was driven by production growth at Andacollo, Peñasquito, Voisey’s Bay, Holt, Canadian Malartic and Wolverine. Our three producing cornerstone properties, Peñasquito, Andacollo and Voisey’s Bay, contributed $129 million or 49% of total revenue for fiscal 2012, compared with $98 million or 45% of the previous year’s revenue.

Precious metals accounted for 77% of our fourth quarter revenue and 75% of our annual revenue. And approximately 92% of our revenue for both quarter and the year were derived from assets located in the U.S., Canada, Chile, Mexico and Australia, all very geopolitically stable countries.

During fiscal 2012 we added three new business interests. In early December, we extended our interest in Mount Milligan with an additional commitment of $270 million, which increased our interest in the gold production from 25% to 40%. In mid-December, we acquired an initial interest in 12.5% of the gold production and 22.5% of the silver production on the development stage Tulsequah Chief project also located in British Columbia for a total commitment to $60 million. And in May, we acquired a 3% net smelter return royalty on Barrick’s operating Ruby Hill mine in Nevada for $38 million.

Once again we saw reserves grow in fiscal 2012. Net gold reserves attributable to Royal Gold increased 25% versus the prior year, which includes the benefit of the December Mount Milligan transaction. On a gold equivalent basis using a ratio of approximately 50 to 1, silver to gold, precious metal reserves attributable to Royal Gold increased from 5.2 million to 6.2 million ounces as of December 31, 2011, a 19% increase. And it’s important to remember when comparing our attributable reserves to other companies that our ounces are cost free and that we don’t have to pay for the extraction costs as a royalty company.

We are uniquely positioned to enter into additional business opportunities. Gold companies are anxious to develop properties are looking for alternatives to equity and debt financings. Given that gold equities are trading at historically low values companies are not interested in financings associated with excessive equity dilution. It is also becoming limited and expensive for many.

Given these trends over the last year, we repositioned our balance sheet during fiscal 2012 to take advantage of potential future opportunities. Our fourth quarter revenue was about the 11% less than our average quarterly rate, we had been experiencing for the first three quarters of the fiscal 2012. This was due to lower metal prices during the June quarter, lower production from certain assets and a large swing in the timing of concentrate shipments at Voisey’s Bay.

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