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