Record revenue of $7.6 million
GSR1 royalty rate increases to 5.0% at the Pipeline Mining Complex
Free cash flow (a non-GAAP financial measure) equals 71% of revenues
Expanded portfolio with three new royalties and a strategic alliance
DENVER, Feb. 2 /CNW/ -- ROYAL GOLD, INC.
(Nasdaq: RGLD; TSX: RGL), the leading publicly-traded precious metals royalty
company, today announced fiscal second quarter 2006 net income of $2.9 million
or $0.12 per basic share, on royalty revenue of $7.6 million. These amounts
compare to net income for the second quarter of fiscal 2005 of $2.6 million,
or $0.13 per basic share, on royalty revenue of approximately $6.0 million.
Included in the second quarter results is non-cash stock compensation
expense of $1.1 million, or $0.03 per basic share net of tax, related to the
Company's equity compensation plans. The non-cash compensation expense has
been allocated among cost of operations, general and administrative, and
exploration and business development in the Company's consolidated statements
of operations and comprehensive income.
In the prior year period, non-cash stock compensation expense was
$119,125, allocated to cost of operations, general and administrative, and
exploration and business development in the Company's consolidated statements
of operations and comprehensive income.
Net income for the six-month period ended December 31, 2005, was
$6.0 million, or $0.27 per basic share, on royalty revenue of $14.4 million.
This compares to net income of $5.1 million, or $0.25 per basic share, for the
six-month period ended December 31, 2004, on royalty revenue of $12.0 million.
Included in the six-month period is non-cash stock compensation expense of
$1.3 million, or $0.04 per basic share net of tax, related to the Company's
equity compensation plans. The non-cash compensation expense has been
allocated among cost of operations, general and administrative, and
exploration and business development in the Company's consolidated statements
of operations and comprehensive income. In the prior year period, non-cash
stock compensation expense was $119,125, also allocated to cost of operations,
general and administrative, and exploration and business development.
Free cash flow for the fiscal second quarter of 2006 was approximately
$5.4 million, or 71% of revenues. For the six-month period ended December 31,
2005, free cash flow was approximately $10.5 million, or 73% of revenues. The
Company defines free cash flow, a non-GAAP financial measure, as operating
income plus depreciation, depletion and amortization, non-cash charges and any
impairment of mining assets (see, Schedule A-Reconciliation).
Also during the quarter, we expanded our royalty portfolio with the
completion of the High River transaction on its Taparko-Bouroum Project in
Burkina Faso, West Africa; the Kennecott transaction for royalties on the
Robinson mine in eastern Nevada, and the Mulatos mine, in Sonora, Mexico; and
entered into a strategic alliance with Taranis Resources for its exploration
program in Finland.
At December 31, 2005, the Company had a working capital surplus of
approximately $85.3 million. Current assets were $90.9 million (including
$79.9 million in cash) compared to current liabilities of $5.6 million for a
current ratio of nearly 16 to 1. The Company has no debt.
Stanley Dempsey, Chairman and CEO, commented, "The rising price of gold
continues to showcase the benefits of our royalty-based precious metals
business model and the substantial cash flow we are able to generate. I am
also pleased that we have been able to put our balance sheet to work by
expanding the Company's portfolio to include three new royalty properties
during the quarter, and adding one new strategic alliance."
PERFORMANCE-BASED COMPENSATION PLAN
In late 2004, the Company implemented an innovative performance-based
equity compensation plan targeting reserve expansion and cash flow growth.
The plan also established share ownership requirements for key personnel.
Based on the structure of the Company's royalty-based business model,
management believes that reserve expansion and cash flow growth are important
drivers of shareholder value. Given the royalty transactions finalized during
the second fiscal quarter, Royal Gold estimates that these performance shares
will begin vesting during the Company's fiscal years 2006 and 2007.
Consistent with Royal Gold's plan, the Company has begun recognizing the
expenses associated with these performance awards.
Commenting on the Company's performance-based equity stock compensation
plan, Dempsey remarked, "The new compensation plan is a powerful incentive for
continuing our growth in the Company's key performance metrics -- reserves and
free cash flow. We believe there are strong links between senior-level stock
ownership, corporate performance and, ultimately, shareholder returns."
REVIEW OF OPERATIONS
Pipeline Mining Complex, Lander County, Nevada
At the Pipeline Mining Complex in Lander County, Nevada, the Company holds
two sliding-scale gross smelter return royalties ("GSR1" and "GSR2"), and a
fixed rate gross smelter return royalty ("GSR3"). A GSR royalty is a defined
percentage of the gross revenue from a resource extraction operation, with no
deduction for any costs paid by or charged to the operator. In addition, the
Company holds a net value royalty ("NVR1") at this complex. This NVR is
defined as a passive interest in a resource extraction operation that is
determined on the basis of deducting contract-defined processing-related and
associated capital costs, but not mining costs. The GSR1 royalty covers the
current mine footprint, and the GSR2 ("Super") royalty covers any reserves
that are developed on the claim block lying outside the current mine
footprint. The GSR2 royalty pays out at a rate that is 80% higher than that
of the GSR1, at all gold prices. The GSR3 royalty rate is fixed at 0.71% for
the life of the mine. The 0.39% NVR1 royalty covers production from the GAS
Claims, an area of interest of approximately 4,000 acres that includes the
South Pipeline deposit and Crossroads area, but not the Pipeline deposit.
Current production from the Pipeline Mining Complex is subject to GSR1, GSR3,
and NVR1 royalties.
The Pipeline Mining Complex is owned by the Cortez Joint Venture
("Cortez"), a joint venture between Placer Cortez Inc. (60%), a subsidiary of
Placer Dome Inc., and Kennecott Explorations (Australia) Ltd. (40%), a
subsidiary of Rio Tinto plc.
During the second quarter of fiscal 2006, the Pipeline Mining Complex
produced 196,616 ounces of gold providing royalty revenue of $5.5 million,
compared to 218,682 ounces of gold produced providing royalty revenue of
$5.1 million for the same quarter in fiscal 2005. This 8% increase in
quarterly royalty revenue was driven by a two-step increase in the GSR1
sliding-scale rate. During the quarter, the average gold price was $485 per
ounce, resulting in a royalty rate of 5.0% compared to an average gold price
of $434 per ounce and a royalty rate of 4.5% for the same period in fiscal
2005.
Leeville Project, Eureka County, Nevada
Royal Gold holds a 1.8% carried working interest, which calculates as a
net smelter return ("NSR") royalty covering a portion of the Leeville project
("Leeville"). An NSR royalty is a defined percentage of the gross revenue
from a resource extraction operation, less a proportionate share of incidental
transportation, insurance and smelting costs.
In the past, Royal Gold's share of production on the Leeville royalty land
was derived from underground operations on a portion of the Leeville South
(formerly known as Carlin East) mine. Beginning with the first quarter of
fiscal 2006, the Company's royalty includes production from the recently
developed Leeville North underground mine, as well as the production from
Leeville South. Both of these mines are operated by Newmont Mining
Corporation.
During the second fiscal quarter of 2006, Leeville South produced 16,820
ounces of gold subject to Royal Gold's royalty interest providing royalty
revenue to Royal Gold of $138,600. This compares to 23,143 ounces of gold
produced, providing $169,095 of royalty revenue to Royal Gold, for the same
quarter in 2005. Also during the second quarter of fiscal 2006, Leeville
North produced 8,483 ounces of gold subject to Royal Gold's royalty interest
providing royalty revenue of approximately $74,771. Leeville North began
production in late calendar 2005 and the mine is expected to continue to ramp
up production during calendar year 2006.
SJ Claims (Goldstrike Mine), Eureka County, Nevada
Royal Gold holds a 0.9% NSR royalty covering a portion of the Betze-Post
mine, known as the SJ Claims. The Betze-Post mine, which is a portion of the
larger Goldstrike operation, is operated by Barrick Gold Corporation
("Barrick").
During the second quarter of fiscal 2006, SJ Claims produced 272,138
ounces of gold, providing royalty revenue of $1.2 million, compared to 158,741
ounces of gold produced, providing royalty revenue of $617,605 for the same
quarter in fiscal 2005. This 71% year-over-year increase in production was
due to a greater proportion of total mine production being derived from
property subject to the Company's royalty interest.
Troy Mine, Lincoln County, Montana
Royal Gold holds a 7.0% GSR royalty that covers the Troy underground mine
operated by Revett Silver Company, a subsidiary of Revett Minerals Inc.
("Revett"). This 7.0% GSR royalty extends until either cumulative production
reaches approximately 9.9 million ounces of silver and 84.6 million pounds of
copper, or Royal Gold receives $10.5 million in cumulative payments, whichever
occurs first.
Royal Gold also holds a perpetual GSR royalty that begins at 6.1% on any
production in excess of 11.0 million ounces of silver and 94.1 million pounds
of copper. This 6.1% GSR royalty steps down to a perpetual 2.0% GSR royalty
after cumulative production has exceeded 12.7 million ounces of silver and
108.2 million pounds of copper.
During the second fiscal quarter of 2006, the Troy mine produced 244,037
ounces of silver and 1,927,950 million pounds of copper that were subject to
Royal Gold's interest, providing approximately $380,789 in royalty revenue. A
comparison with the year earlier quarter is not available because production
from the Troy mine did not begin until January 2005.
Bald Mountain, White Pine County, Nevada
Royal Gold holds a 1.75% to 3.5% NSR sliding-scale royalty on a portion of
the Bald Mountain mine, operated by Placer Dome U.S. Inc. The sliding-scale
moves up 0.25% for each $25 per ounce of gold price increase, starting at a
per-ounce price of $375, in 1986 dollars. As such, the royalty rate will
remain at 1.75% until the average gold price reaches approximately $535 per
ounce in today's dollars.
During the second quarter of fiscal 2006, Bald Mountain produced
approximately 16,700 ounces of gold, resulting in royalty revenue of
approximately $142,572, compared to 4,592 ounces of gold produced providing
royalty revenue of $35,394 for the same quarter in fiscal 2005.
Martha Mine, Santa Cruz Province, Argentina
The Company holds a 2.0% NSR royalty on the Martha silver mine operated by
Coeur d'Alene Mines Corporation. Royalty revenue for the second quarter of
fiscal 2006 was $115,719 compared with $62,849 for the same quarter in fiscal
2005.
Mulatos, Sonora, Mexico
In December 2005, Royal Gold acquired a sliding-scale NSR royalty at the
Mulatos Project, an open pit, heap leach gold mine, nearing completion of
construction. The sliding-scale ranges from 0.30% at an average quarterly
gold price of $299.99 or below, up to a maximum of 1.5% when the price of gold
averages $400 per ounce or higher. The mine is owned and operated by Alamos
Gold, Inc. The operator expects commercial production to commence in early
calendar 2006, and once full production is reached the operator estimates
yearly production will average approximately 150,000 ounces of gold. The
royalty is capped at two million ounces of gold.
Robinson, White Pine County, Nevada
In December 2005, Royal Gold acquired a 3% NSR royalty on the Robinson
mine, an open pit copper mine with significant gold and molybdenum credits.
The operator, Quadra Mining Ltd. ("Quadra"), estimates that calendar year 2006
production will be in the range of 55,000 to 65,000 ounces of gold and 145 to
150 million pounds of copper. Quadra also stated that its molybdenum circuit
is near completion, which is expected to produce in the range of 1.0 to 1.6
million pounds of molybdenum in calendar year 2006.
The Company will begin receiving revenue from this 3.0% NSR royalty when a
$20.0 million reclamation trust account is fully funded. At the end of
October 2005, this trust held approximately $14.7 million. If metal prices
continue at current levels, Royal Gold expects to receive royalty revenue in
the second half of calendar 2006.
Taparko-Bouroum, Burkino Faso, West Africa
Royal Gold has entered into an agreement to acquire two initial and two
subsequent GSR royalties at the Taparko-Bouroum Project, an open pit gold
operation currently under construction. The operator, High River Gold Mines,
Inc., expects the majority of construction of the Taparko-Bouroum Project to
be completed in the fourth quarter of calendar 2006.
The initial royalty is fixed at a 15.0% GSR ("TB-GSR1"). The second
initial royalty is a 4.3% GSR ("TB-GSR2") when the average monthly gold price
ranges between $385 and $430 per ounce, and changes to a sliding-scale royalty
at a calculated percentage rate when the average monthly gold price is outside
of this range. The calculated rate, expressed as a percentage, is determined
by dividing the average monthly gold price by 100 for gold prices above
$430 per ounce, or by dividing the average monthly gold price by 90 for gold
prices below $385 per ounce (e.g., a $450 per ounce gold price results in a
rate of 450/100 = 4.5%). Both TB-GSR1 and TB-GSR2 royalties continue until
either production hits 804,420 ounces of gold or payments totaling $35 million
under the TB-GSR1 royalty are received by Royal Gold, whichever comes first.
The two subsequent royalties consist of a 2.0% GSR tail royalty ("TB-
GSR3"), applicable to gold production from defined portions of the Taparko-
Bouroum Project area, and a 0.75% milling royalty ("TB-MR1"). The TB-MR1
applies to ore that is mined outside of the defined area of the Taparko-
Bouroum Project that is processed through the Tarparko facilities to a maximum
of 1.1 million tons per year. Both the TB-GSR3 and TB-MR1 royalties commence
once TB-GSR1 and TB-GSR2 royalties described earlier have ceased.
Strategic Alliance
In November 2005, Royal Gold entered into a strategic alliance with
Taranis Resources. The Company invested $320,000 for a private placement, the
right to a 2% NSR royalty, and future earn-in rights on properties Taranis
obtains from its exploration program in Finland. The Company also entered
into an Exploration and Earn-In Agreement with Taranis on its Kettukuusikko
property, also located in Finland. By expending $500,000 for exploration
work, Royal Gold can obtain a 2.0% NSR royalty on the Kettukuusikko property.
Royal Gold also has an option to fund an additional $600,000 in exchange for a
51% joint venture interest in the project, in addition to an option to earn an
additional 24% joint venture interest (75% joint venture interest in total) by
funding 100% of the costs of the Kettukuusikko project through completion of a
feasibility study.
OTHER EVENTS
On November 9, 2005, Royal Gold's Board of Directors approved a 10%
dividend increase of $0.02 per share, increasing the total annual dividend to
$0.22 per year.
Additionally, the Company's Line of Credit facility was increased from $10
million to $30 million during the second quarter of fiscal 2006.
Corporate Profile
Royal Gold is a precious metals royalty company engaging in the
acquisition and management of precious metals royalty interests. Royal Gold
is publicly traded on the Nasdaq Market System under the symbol "RGLD," and on
the Toronto Stock Exchange under the symbol "RGL." The Company's web page is
located at www.royalgold.com.
NOTE: Management's conference call reviewing its second quarter of fiscal
2006 results will be held today at 12:00 noon Eastern, 10:00 a.m. Mountain.
The call will be simultaneously carried on the Company's web site at
www.royalgold.com under the "Presentations" section. A replay of the call
will be available on the Company's website approximately two hours after the
call ends. The conference call is also available live by calling 800-603-2779
or 706-634-7230. Replays will be available until February 9th by dialing
800-642-1687 or 706-645-9291, access number 4476381.
Cautionary "Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995: With the exception of historical matters, the matters
discussed in this press release are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from projections or estimates contained herein. Such forward-looking
statements include statements regarding commercial production start-up and
production estimates from the operators and statements about vesting of
management's performance shares and the drivers of growth and shareholder
value. Factors that could cause actual results to differ materially from
projections include, among others, precious metals prices, decisions and
activities of the operators of our royalty properties, unanticipated grade,
geological, metallurgical, processing or other problems the operators of the
mining properties may encounter, changes in project parameters as plans
continue to be refined, results of current or planned exploration activities,
management's ability to increase our reserves and cash flow, and economic and
market conditions, as well as other factors described elsewhere in this press
release and in our Annual Report on Form 10-K, and other filings with the
Securities and Exchange Commission. Most of these factors are beyond the
Company's ability to predict or control. The Company disclaims any obligation
to update any forward-looking statement made herein. Readers are cautioned
not to put undue reliance on forward-looking statements.
The Company discloses information on free cash flow and free cash flow as
a percentage of revenues in its reporting. The Company defines free cash flow
by operating income plus depreciation, depletion and amortization, non-cash
charges, and any impairment of mining assets. While we believe free cash flow
is a useful measure of the Company's performance, we also want to advise that
this is not a measure recognized by generally accepted accounting principles.
See Schedule A -- Reconciliation, attached to this press release.
ROYAL GOLD, INC.
Consolidated Balance Sheets
December 31, June 30,
2005 2005
(Unaudited)
Assets
Current assets
Cash and equivalents $79,873,075 $48,840,371
Royalty receivables 6,391,361 6,601,329
Income taxes receivable 536,393 --
Deferred tax assets 211,653 452,730
Prepaid expenses and other 3,935,579 333,883
Total current assets 90,948,061 56,228,313
Royalty interests in mineral properties, net 68,166,253 44,817,242
Available for sale securities 1,110,746 554,812
Deferred tax assets 438,684 160,417
Advance to High River Gold 6,687,550 --
Other assets 474,667 557,771
Total assets $167,825,961 $102,318,555
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $3,375,960 $1,140,509
Income taxes payable -- 253,496
Dividend payable 1,296,344 1,050,628
Accrued compensation 750,000 278,500
Other 227,211 175,095
Total current liabilities 5,649,515 2,898,228
Deferred tax liabilities 7,134,267 7,586,402
Other long-term liabilities 83,434 96,634
Total Liabilities 12,867,216 10,581,264
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, authorized
40,000,000 shares; and issued 23,682,799
and 21,258,576 shares, respectively 236,827 212,585
Additional paid-in capital 163,105,445 104,163,515
Accumulated other comprehensive income (59,766) (284,920)
Deferred compensation -- (524,659)
Accumulated deficit (7,226,889) (10,732,358)
Treasury stock, at cost (229,224 shares) (1,096,872) (1,096,872)
Total stockholders' equity 154,958,745 91,737,291
Total liabilities and stockholders' equity $167,825,961 $102,318,555
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
For The Three Months Ended
December 31, December 31,
2005 2004
Royalty revenues $7,575,307 $6,031,833
Costs and expenses
Costs of operations 617,509 525,016
General and administrative 1,647,996 1,088,811
Exploration and business development 1,026,540 598,843
Depreciation, depletion and amortization 1,030,444 867,121
Total costs and expenses 4,322,489 3,079,791
Operating income 3,252,818 2,952,042
Interest and other income 1,016,562 181,250
Gain on sale of available for sale securities -- 163,526
Interest and other expense (33,773) (29,018)
Income before income taxes 4,235,607 3,267,800
Current tax expense (1,591,236) (549,600)
Deferred tax benefit (expense) 262,924 (99,882)
Net income $2,907,295 $2,618,318
Adjustments to comprehensive income
Unrealized change in market value of
available for sale securities,
net of tax 139,197 25,452
Realization of the change in market
value on sale of available for sale
securities, net of tax -- (104,657)
Comprehensive income $3,046,492 $2,539,113
Basic earnings per share $0.12 $0.13
Basic weighted average shares outstanding 23,276,477 20,814,226
Diluted earnings per share $0.12 $0.12
Diluted weighted average shares outstanding 23,564,037 21,129,742
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
For The Six Months Ended
December 31, December 31,
2005 2004
Royalty revenues $14,402,927 $11,955,924
Costs and expenses
Costs of operations 1,107,207 984,297
General and administrative 2,607,504 1,904,674
Exploration and business development 1,461,250 1,054,458
Depreciation, depletion, and amortization 1,928,469 1,727,309
Total costs and expenses 7,104,430 5,670,738
Operating income 7,298,497 6,285,186
Interest and other income 1,453,656 312,415
Gain on sale of available for sale securities -- 163,526
Interest and other expense (54,780) (58,035)
Income before income taxes 8,697,373 6,703,092
Current tax expense (3,354,727) (1,208,534)
Deferred tax benefit (expense) 622,080 (377,812)
Net income $5,964,726 $5,116,746
Adjustments to comprehensive income
Unrealized change in market value of
available for sale securities, net of tax 225,154 76,595
Realization of the change in market value
on sale of available for sale securities,
net of tax -- (104,657)
Comprehensive income $6,189,880 $5,088,684
Basic earnings per share $0.27 $0.25
Basic weighted average shares outstanding 22,201,543 20,798,792
Diluted earnings per share $0.27 $0.24
Diluted weighted average shares outstanding 22,452,460 21,101,455
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For The Six Months Ended
December December
2005 2004
Cash flows from operating activities:
Net income $5,964,726 $5,116,746
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 1,928,469 1,727,309
Gain on available for sale securities -- (163,526)
Deferred tax (benefit) expense (622,080) 377,812
Non-cash employee stock option
compensation expense 1,312,826 119,125
Changes in assets and liabilities:
Royalty receivables 209,968 13,919
Prepaid expenses and other assets (3,569,200) (330,876)
Accounts payable 2,235,451 730,167
Income taxes (receivable) payable (789,889) --
Accrued liabilities and other current
liabilities 530,305 481,208
Other long-term liabilities (13,200) (13,200)
Net cash provided by operating activities 7,187,376 8,058,684
Cash flows from investing activities:
Capital expenditures for property and
equipment (5,066) (104,437)
Acquisition of royalty interests in
mineral properties (25,221,805) (7,500,000)
Advance to High River Gold (6,687,550) --
Purchase of available for sale
securities (204,715) (1,000,000)
Proceeds from sale of available for
sale securities -- 539,513
Net cash used in investing activities (32,119,136) (8,064,924)
Cash flows from financing activities:
Tax benefit from exercise of stock
options 502,404 --
Dividends paid (2,213,541) (1,558,754)
Net proceeds from issuance of common
stock 57,675,601 130,554
Net cash provided by (used in) financing
activities 55,964,464 (1,428,200)
Net increase (decrease) in cash and
equivalents 31,032,704 (1,434,440)
Cash and equivalents at beginning of
period 48,840,371 44,800,901
Cash and equivalents at end of period $79,873,075 $43,366,461
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $3,382,212 $1,325,000
Non-cash financing activities:
Declared dividends $2,459,257 $1,042,662
Deferred compensation (equity offset) $-- $729,960
Non-GAAP Financial Measures
The Company computes and discloses free cash flow and free cash flow as a
percentage of revenues. Free cash flow is a non-GAAP financial measure. Free
cash flow is defined by the Company as operating income plus depreciation,
depletion and amortization, non-cash charges, and any impairment of mining
assets. Management believes that free cash flow and free cash flow as a
percentage of revenues are useful measures of performance of our royalty
portfolio. Free cash flow identifies the cash generated in a given period
that will be available to fund the Company's future operations, growth
opportunities, and shareholder dividends. Free cash flow, as defined, is most
directly comparable to operating income in the Statements of Operations.
Below is reconciliation to operating income:
For The Three Months Ended For The Six Months Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
Operating income $3,252,818 $2,952,042 $7,298,497 $6,285,186
Depreciation,
depletion and
amortization 1,030,444 867,121 1,928,469 1,727,309
Non-cash employee
stock compensation
expense 1,074,485 119,125 1,312,826 119,125
Free cash flow $5,357,747 $3,938,288 $10,539,792 $8,131,620
