Royal Gold enjoys record quarter

Atop the mill at the Pipeline gold mining complex in Nevada.Atop the mill at the Pipeline gold mining complex in Nevada.

Vancouver — The rising bullion price has prompted the largest U.S.-based precious metals royalty company to top up its till and look for acquisitions.

Royal Gold (RGL-T) earned US$2.5 million (or US12 per share) on royalty revenue of US$5.6 million in the three months ended March 31. In the corresponding period of 2002, the Denver-based company earned US$1.6 million (US9 per basic share) on revenue of US$3.1 million. The gain included a non-cash charge for a deferred tax expense of US$1 million (US5 per share).

“We have robust cash flow, strong working capital, and are in a position to take advantage of growth opportunities,” says CEO Stanley Dempsey.

The dramatic increase in profits is due to higher gold prices on Royal Gold’s sliding-scale royalty at the Pipeline complex in Nevada, as well as to the completion of a full quarter of production from two new royalty positions.

“We had a superb quarter,” says Dempsey. “We benefited from higher gold prices, higher sliding-scale royalty rates, and increased production.”

Free cash flow for the quarter rose to US$4.3 million, representing 77% of revenue.

Most of the revenue continues to derive from the Pipeline operation in Lander Cty., Nev. The mine supplies cash to Royal via four royalties: two sliding scale, one fixed gross smelter, and one net value return. The mine is owned 60-40 by Placer Dome (PDG-T) and Kennecott Exploration, a subsidiary of Rio Tinto (RTP-N).

Royal’s share of production from Pipeline jumped to 326,043 oz. from 278,008 oz. between the first quarters of 2002 and 2003. Royalty revenue rose to US$4.9 million from US$3 million. The average gold price was US$352 per oz. and Royal’s main royalty rate was 3.4% in the recent quarter, compared with US$290 per oz. and 2.25% a year earlier.

In fiscal 2003, gold production from the Pipeline complex is expected to reach 1.1 million oz.

Meanwhile, higher production was reported from Placer Dome’s Bald Mountain mine, also in Nevada. Royal’s 1.75% royalty at the mine accounted for 24,289 oz., generating US$149,252 in royalty revenue, significantly higher than the 23,674 oz. and US$130,764 in the first quarter of 2002. The improvement reflects higher recoveries, which in turn are a result of changes in leaching techniques.

The company also owns a 2% net smelter royalty on the Martha silver mine in Argentina’s Santa Cruz province. Operated by Coeur d’Alene Mines (CDE-N), the producer added US$33,000 in royalty revenue to Royal’s bottom line during the quarter.

In July 2002, Royal sold 500,000 shares priced of US$13.75 each, which added nearly US$6.9 million to its coffers. Then in September, it unloaded another 500,000 shares priced at US$14.50 each, resulting proceeds of US$7.25 million.

By the end of 2002, the company had raised its assets to US$31.3 million, with only US$3.9 million in liabilities, whereas at the end of the previous year, its assets were worth US$9.6 million, with liabilities of US$1.1 million.

Royal wasted little time putting the cash to work. In December 2002, it purchased junior High Desert Mineral Resources for US$2.3 million in cash and 1.4 million shares. High Desert’s assets include a royalty stake in the Leeville project in Eureka Cty. and the Betze-Post open-pit operations, both of which are in Nevada, as well as US$853,480 in cash.

“This is a major step forward in Royal Gold’s effort to secure royalty interests in major gold mines with quality operators,” says Dempsey.


The acquisition started to pay dividends in the latest quarter, with the Leeville operation providing US$183,520 in royalty revenue to Royal by producing 28,882 oz. gold. The company now owns a 1.8% net smelter royalty over a portion of the underground mine, currently under development by Newmont Mining (NEM-N). The mine is expected to enter production by 2005-2006. Current production on the Leeville royalty land is derived from underground operations on a portion of the Carlin East deposit.

The recent first quarter also saw Royal get a boost from its new 0.9% net smelter royalty covering a portion of the Betze-Post open pit at the Goldstrike mine. This portion, known as the SJ claims, is in Eureka Cty. The Goldstrike mine is operated by Barrick Gold (ABX-T). During the latest quarter, the SJ claims produced 89,528 oz. gold, providing US$284,361 in revenue.

At March 31, the company had a working capital surplus of US$32 million with US$34.2 million in aassets and current liabilities of US$2 million.


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