Royal Gold, Inc.
Q3 2013 Earnings Call Transcript

Published: 2 May 2013

[Operator:]

Good morning. My name is Michele and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Gold Fiscal 2013 Third 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) I would now like to turn the call over to Ms. Karen Gross. Please go ahead.

[Karen Gross:]

Thank you, operator. Good morning everyone and thank you for joining us today to discuss Royal Gold’s fiscal 2013 third quarter results. This event is being webcast live and you will be able to access a replay of the call on our website. 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 Stan Dempsey, Chairman. Tony will open with an overview of the quarter followed by Stefan with the financial review and the Bill Zisch will discuss the performance of our portfolio. After management completes their opening remarks we will open the lines for Q&A. 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. Now I will turn the call over to Tony.

[Tony Jensen:]

Good morning and thank you for joining us today. The company reported a 7% increase in year-over-year revenue which was largely driven by increased production at three of our principal properties, Andacollo, Holt and Wolverine. Specifically a 10.5% volume increase in production for the entire portfolio of 36 revenue generating assets (inaudible) offset the 3.5% lower metal prices compared to the prior year quarter. While operating cash flow remained strong net income for the period was impacted by two items. First, a non-cash loss we recognized related to the securities we own. And second a higher income tax expense related to the filing of our June 30, 2012 income tax return. Stefan will discuss both of those items in more detail. For the quarter, 51% of our revenue came from our three producing cornerstone properties, Andacollo, Voisey's Bay and Peñasquito. Andacollo was again our largest revenue source contributing approximately $23 million followed by Voisey's Bay at $9 million and Peñasquito at $5.12 million. Compared with the prior year period, we saw production increases at six of our 12 principal properties most notably at Andacollo. Our percent of revenue from precious metals was 79% of which 73% was from gold. Approximately 32% of our revenue was derived from Chile, 26% from Canada followed by Mexico and the United States each contributing 17% and 15% respectively. Now I would like to ask Stefan Wenger our Chief Financial Officer to give you some more detail on our financial results for the quarter.

[Stefan Wenger:]

Thank you Tony and good morning everyone. For the quarter, we had revenue of $74.2 million, an increase of 7% over revenue of $69.6 million in the comparable period. Cash flow from operations increased by 43% to $68.1 million or $1.05 per share compared with $47.5 million or $0.81 per share for the third quarter of fiscal 2012. Adjusted EBITDA totaled $66.1 million or 89% of revenues compared with $63.6 million or 91% of revenues for the prior year period. Net income was $6.5 million or $0.10 per share compared with $26 million or $0.44 per share for the third period of fiscal 2012. Our net income was impacted negatively by a couple of unique items. First, due to the prolonged decline in the value of our investment in Seabridge common stock, we determine that a writedown of this investment was necessary during the period. As this writedown was for accounting purposes only, there was not a related tax benefit on the loss and as a result the impact on net income was $12.1 million or $0.17 per share. Excluding the loss on Seabridge shares, net income would have been $17.4 million or $0.27 per basic share. Second, net income for the quarter was also impacted by higher income tax charges of approximately $7 million. A majority of which resulted from a reduction in foreign tax credit benefit recorded in the current quarter, related to the filing of our June 30, 2012 income tax return. While this amount relates to taxes for the year-ended June 30, 2012, it was recorded as an additional expense in the current quarter. This additional tax expense resulted in an impact to net income of $0.10 per share for the quarter. Excluding these two item, net income for the quarter would have been $24.3 million or $0.37 per share. For the nine month period ended March 31st, net income excluding these items would have been $76.3 million or $1.22 per share. Looking at our cost and expenses, G&A expenses were $7.2 million versus $4.4 million for the previous period; primarily due to increased business development activities. For the quarter, our DD&A expense per gold equivalent ounce was $476 compared with $479 in the comparable quarter. For the full year, we continue to expect DD&A of between $450 and $500 per ounce. Interest and other expense increased to $5.8 million from $1.6 million in the comparable quarter due to additional interest expense of $5.2 million associated with our convertible notes issued in June of 2012. Of the amount associated with the notes, $2.6 million was cash interest for the coupon while the remaining $2.6 million was related to accretion of the original bond discount and amortization of expenses related of issuance of the notes. Due to the securities loss and the additional tax expense, our effective tax rate for the quarter was 72.6%. Excluding these items, our normalized tax rate for the quarter would have been 33.7%. For fiscal 2013, we expect that our effective tax rate will now be in the range of 44% to 46%. Excluding unique items recorded in the quarter, our expected normalized rates for the full year would have been 36% to 38%. For the fiscal year-to-date, our cash tax rate is about 28% of pre-tax income. For the full year, we would expect a cash tax rate of approximately 30%. Now I will turn the call over to Bill Zisch. Bill?

[Bill Zisch:]

Thank you, Stefan, and good morning everyone. Once again, to provide you with the current view of our operational performance, I will compare the March 2013 quarterly results with the December 2012 quarterly results rather than the prior year comparables. With many of our principal properties remaining at steady state operating levels and somewhat typical soft production in the first calendar quarter of a new year, (inaudible) which consists of 36 producing properties performed as expected. Overall, production was down about 3% from the December quarter, well within the expected variation of ongoing operations particularly in the first calendar quarter of the year. At Andacollo, gold sales were inline with expectations and exceeded the preceding quarter by 5% totaling 19,000 ounces to our account as higher gold grade material was mined as planned and sales exceeded production by about 600 ounces more than in the preceding quarter. Given the full year guidance of 63,000 ounces for calendar 2013, we anticipate future production will likely reflect transition to lower grade. In March at Voisey’s Bay, the government of Newfoundland and Labrador announced amendments to their Voisey’s Bay development agreement including a commitment from Vale to pursue underground mining to extend the mine life. The underground mine is expected to start producing ore in 2019. Also included in the new agreement is Vale’s right to continue processing Voisey’s Bay ore at the Sudbury smelter for up to another three years as construction and start-up of the Long Harbour facility in Newfoundland is completed. The hydromet facility is expected to start operations in the second half of 2013 initially using imported nickel concentrate as Voisey's Bay concentrate being introduced gradually in 2014. Treatment of copper concentrates will continue in [Europe], so the seasonal shipping schedule that impacts the timing of concentrate sales is likely to continue even after start-up of Long Harbour. Quarterly sales at Voisey’s Bay were 50% above the December period as nickel production was up significantly and a copper shipments expected at year end 2012 was delayed until this quarter. Nickel production typically runs about 40 million pounds per quarter. However, nickel production in December and March periods was 31 million pounds and 49 million pounds respectively, resulting in a significant quarter-over-quarter increase. Yukon Zinc’s Wolverine mine continued to increase production over the past two quarters. Production increases were 80% in the December quarter and 26% for this quarter, as Yukon Zinc continued to increase throughput and improve metallurgical performance in the plant. Let me now discuss the producing properties that were a part of our 3% decrease in production quarter-over-quarter. While production was in line with the plan at KGHMs Robinson mine, it did not match the record levels reported during the previous quarter resulting in a 38% decline for the March period. Gold Corp’s 2013 annual guidance for Penasquito anticipated backend weighted production as mining moves from a lower grade portion of the pit to higher grade ore. For this reason, the first calendar quarter of production was below the preceding quarter’s level and at about 17% of their expected 2013 production. Gold Corp stated that studies to develop a long term water strategy continued to progress and that a new water source has been identified within their current permitted basin with the potential to supply sufficient freshwater to continue the plant ramp up to full design capacity. Studies for this new oil field are expected to be completed in the second quarter of calendar 2013. Gold Corp has maintained their guidance, as they continue to expect increased production throughout the year. Production from St. Andrews Holt mine was similar to the December quarter. However with the 5% decrease in gold price under production credited to our account was lower as the royalty rates slides with the price of gold. Overall Osisko’s Canadian Malartic mine had a very strong quarter, reporting records for quarterly gold production, quarterly tonnage processed and daily tonnage processed in the mill. However, we do not have an interest over the entire property and mine plants sequencing resulted in less material mine from areas covered by our royalty than in the previous quarter. Other properties with decreased production for the quarter as a result of mine plan sequencing include Cortez, Gold Strike and Leeville. One final property update relates to our AuRico’s gold El Chanate Mine. This royalty which we acquired in 2008 has a $17 million cap that was realized at the end of March. So looking at our portfolio as a whole with plusses offsetting most of the minuses, performance was well within the expected level of predictability for the steady state nature of most of our producing assets. And with that I will turn the call back over to Tony.

[Tony Jensen:]

Thanks for the update Bill. I would now like to bring you up-to-date on two of our key development properties. At Pascua-Lama through March about 70% of the structural steel is erected for the process plant facility; 65% of concrete was (inaudible) Port, 55% of earthworks was completed and the ore [convinced] on was approximately 80% complete. AuRico spent approximately $4.8 billion on the project as of the end of March. During the fourth quarter of calendar 2012, [AuRico] reported that pre-striping activities in Chile were halted and addressed increased dust in the open pit area and that the project has since strengthened dust mitigation control measures. In addition, regulatory restrictions have also been placed on the project due to the need to repair and improve certain aspects of the water management system in Chile. In April, a Chilean court granted a request for a preliminary injunction to suspend construction activities on the Chilean side of the project. The corresponding action alleges non-compliance with the environmental requirements of the projects environmental approval. Construction activities in Argentina were the majority of Pascua-Lama critical infrastructure is located including the process and tailing [search] facilities were not affected. Given these pending regulatory and legal issues, Barrick stated on the April 24 that they were not or were unable to fully assess the impact of the capital budget, operating cost and schedule of the project. We acquired our Pascua-Lama Royalty interest through several transactions, because these were existing royalty interest, we had to honor the agreement terms and I should note that we do not have any redemption rates. Production does not occur by a specific date. Our carrying value for book purposes is about $400 million or $600 per net royalty ounce. If Barrick were to delay the project, our investment would remain intact but Royalty revenue would be postponed. On the April 3rd, we had the pleasure of hosting a trip to Thompson Creek’s Mount Milligan project in British Colombia. During the visit, Thompson Creek reiterated that as of December 31, 2012, the project capital cash spend totaled approximately $1.14 billion. Approximately $370 million to $390 million remains to be spent, with $250 million of that amount contractually committed. This brings the total spent and committed to $1.4 billion or 91% of the $1.5 billion budget. The pit is in full operation, the mining and stripping a small amount of waste which is integral for the continued construction of Tailings dam and exposing ore in advance of the mill start-up. The Tailings dam is at the desired level for start-up of the plant and more than sufficient water has been captured. The primary crusher stands ready for operation and with the exception of installing liners in the segment in one of the two ball mill, the grinding circuit is about ready to roll. The primary focus of activity and the concentrator includes electrical instrumentation and floatation circuit. The operations senior management team is in place, and a large portion of the operating team is already hired and on site completing readiness reviews and craning. Thompson Creek reiterated that start-up will commence in the third quarter of calendar 2013 or just a few months from now, with a commercial production expected in the fourth quarter. I would like to highlight the results for these recent reserve rate announcement. At the end of calendar 2012, precious metal reserves on properties subject to our interest net of depletion were approximately 83 million ounces of gold and 1.2 billion ounces of silver. This compares the two reserves of approximately 85 million ounces of gold and 1.2 billion ounces of silver, estimated as of December 31, 2011. The reserve reductions were mainly due to production depletion. A more meaningful way to look at our value of these reserves as the calculated reserves ounces are attributable to Royal Gold. We do this by applying our interest at each property to the reserves associated with the property to arrive at our net reserve ounces. Evaluating this way, the net gold reserves is attributable to Royal Gold at the end of December 2012 totaled 5.7 million ounces, which is the same reserve figure that we reported at last year. Reserves represented [analysis] that is indicative of future opportunities for any mining company. Reserve additions represent tremendous leverage in our royalty and streaming model as future production gains from reserve increases come at no additional cost to us. Before I close, I would like to mention the addition of two new management team members who will be joining us in a very near future. I'm pleased to announce that Karli Anderson will assume the position of Vice President, Investor relations starting on May 15, and Jason Hynes will come on Board as Director of Business Development and Global Sales beginning on July 8. Karlie who has been serving as Senior Director, Investor Relations at Newmont Mining has the financial expertise, industry relations and communications skills to broaden the message of Royal Gold’s value proposition. Jason, who is the Vice President, Corporate Development at Sabina Gold and Silver brings financial and business development expertise, strong commercial and technical acumen, and a thorough knowledge of the precious metals business. We welcome both Karli and Jason to the Royal Gold team. At the same time, we’ve fixed motion that we recognized this is Karen’s last quarterly conference call. (Inaudible) and congratulate on her wonderful carrier and wish her all the best in her retirement. What has it been Karen , 26 years at service, 27 years of service, 27 years at Royal Gold. In summary, this was a quarter of good operational results. The strength of our portfolio is highlighted as we saw revenue gains despite a decrease in the current quarter -- current gold and other metal prices. Over the last 18 months we have talked about growth in on production profile as several of our properties work towards full design capacity. Their advancements have allowed us to reach our current level of steady production which we expect will continue in the coming quarters with lower gold rate expected at Andacollo somewhat offset by higher gold grade ore at Penasquito over the balance of this calendar year. And we look forward to commercial production at Mt. Milligan during the fourth quarter of this calendar year and this will mark the next step change in production and financial growth for Royal Gold. Operator, that concludes our prepared remarks. We should be happy to open the call up now to any questions that there might be.

[Operator:]

(Operator Instructions) Your first question comes from John Tumazos [Very Independent Research].

[John Tumazos:]

Thank you. My question concerns the Mt. Milligan legal framework where Royal Gold is senior. Could you review the seniority rights just in case metals prices are low, copper’s $1 or $2 and you end up exercising your rights place?

[Tony Jensen:]

John, this is Tony. I am going to turn that question to Bill Heissenbuttel.

[Bill Heissenbuttel:]

John, our position at Mt. Milligan with respect to the assets at Mt. Milligan is we do have a secured position there. That security is subordinated to the senior notes that they issued. I think it was late last year, mid last year. That is the only thing that we are coordinated to and we would be senior to any unsecured or subordinated obligations at the Terrane Metals, at the operating company level and we would be structurally senior to any unsecured obligations that might be supported by a guarantee in the sub at the parent level.

[John Tumazos:]

How much of the notes that are expected?

[Tony Jensen:]

John, just one second please, I think we've also limited the amount of security debt of $350 million.

[John Tumazos:]

So $350 million is the amount of debt that's senior to you.

[Tony Jensen:]

Yes and that's the maximum that they can put in front of us.

[John Tumazos:]

Continuing I recall Newmont sold the Holt-McDermott mine to St. Andrew Goldfields a few years ago, but somehow the Canadian court ruled that Newmont had to pay the royalty and not the Canadian company. Do you think it would be good if you move your domicile to Canada just to make sure that courts are not spurious?

[Tony Jensen:]

John, I don't think that issue would drive our decision of domiciling the company so that alone I don't think would sway our interest.

[Operator:]

Your next question comes from Garrett Nelson from BB&T Capital Markets. Your line is open.

[Garrett Nelson:]

Thank you. On the royalty revenue from all other properties are the ones you don’t specifically breakout. Can we basically just assume royalty revenue will be lower in subsequent quarters than the 12.6 million you just reported if gold and other metals prices are lower. Obviously, there are a lot of properties in that number, I am just trying to better understand how to model revenue on that line?

[Tony Jensen:]

Yeah, Garrett, I think that’s a safe assumption overall. That is probably not going to change very much. We’ve got a few that are coming in like Gold Hill and a few that are going out like (inaudible), but overall I think we're going to have a reasonable amount of contribution there. So they would be impacted by the price of gold. The other thing that we would talk to there is the sliding scale. Royalty nature is often embedded in the Royalty agreements. I don't think there was any in there saved, the Holt one that would be really impacted on a leverage basis to the gold price. So long answer to your question, but yes, that's good.

[Garrett Nelson:]

Okay. And then I was wondering if you could just comment on the current market environment for Royalty deal flow. Obviously, your equity issue and class forward $90 was very well timed. You are sitting on substantial cash and liquidity. You are winding down your final payments to Thompson Creek, but with the distress a lot of gold miners are experiencing with the recent price drop, is the phone ringing more than say it was six months ago?

[Tony Jensen:]

Garrett, there is no question that truly is ringing more than six months ago. In fact, weekly we're getting in new solicitations, but we're going to continue to remain patient and measured and disciplined, and we very much want to align with properties that we think have very good opportunities to realize revenues even in then price markets see the lower than what we are today. So we want to make sure that we have a lot of confidence in the assets that we invest in. So we are not feeling compelled to deploy the cash we have on hand. We think we are wonderfully positioned to take advantage of opportunities as they present themselves.

[Garrett Nelson:]

Okay, thanks. And I guess lots of weight for next Wednesday for a Mt. Milligan update. Congratulations to both Karen and Karlie.

[Operator:]

The next question comes from Michael Peterson from MLV & Company. Your line is open.

[Michael Peterson:]

My first question today -- hi, my first question regards your 2012 reserve report, where there any meaningful positive or negative revisions within the portfolio that you’d care to discuss?

[Tony Jensen:]

Bill Zisch, do you have anything there?

[Bill Zisch:]

Mike, this is Bill. There is no major moves. The most of the change in that reserve portfolio was really just a depletion of what the existing reserves were and internally to our growth reserves, the other thing was last year versus this year we increased the amount of Mt. Milligan, but there was no major moves, the prices that people used are reasonably similar to prior years and then there has been some depletion.

[Michael Peterson:]

Okay. That’s helpful. I appreciate that. Tony, perhaps you can give us a little perspective, I appreciate the Bill’s comments a few minutes ago with regard to M&A deal flow. Could you give us some perspective on your outlook in terms of the gold macro, certainly things have changed a lot in the last quarter and that might create different windows of opportunity depending on your perspective, to the degree you are prepared to share that with us today?

[Tony Jensen:]

Well, this is an environment, we think that there are going to be some wonderful opportunities and that’s exactly why we took opportunity last year to restructure our balance sheet. We took three or four measured events last year to make sure that we were going into a period where we perceived to be weakness, but we wanted to have a very strong balance sheet, and we do have that now. So I think that this is an opportunity of acquiring assets and the point in time there is not allowed a momentum in the gold sector, people with a good balance sheet and take advantage of opportunities when they come up. So I think Michael we are in a very good position to continue to grow the company. And again as I mentioned just a moment ago, we are going to do that on quality assets that we feel of quality and in on a disciplined basis.

[Michael Peterson:]

That's helpful. And I share your perspective, I think there is a real opportunity here for a company positioned as you are. If I can do a follow up there with regard to commodity strip pricing specifically gold but the other commodities as well. When you look at the current curve, does that look an opportunity for value, are you more bullish or bearish, I mean we have seen a lot of change both in the level as well as the slope of your curve recently, does that change your outlook at all or is that something you are comfortable commenting on?

[Tony Jensen:]

Well, maybe just a few real broad paintbrush strokes there. We don't see anything different in the macro economic environment worldwide that will change our focus on being supportive to gold price. And so we are still in this business and we are in to continue to grow our business, but having the opportunity to transact when the market is somewhat out of momentum is a very good time, our most difficult times to acquire royalty interest are when the gold price is moving up steeply and the expectations of the price tomorrow are so much greater than they are today. It’s hard for us to transact in that environment. So beyond this (inaudible) we do look at this as an interesting time for us.

[Operator:]

Your next question comes from Cosmos Chiu from CIBC.

[Cosmos Chiu:]

Maybe first off on Mount Milligan, I appreciate the fact that it’s likely going to be coming into production in Q3 and the commercial production in Q4, but I also understand that in terms of the actual payment to Royal Gold there could be a lag in terms of depending on the shipment of the actual concentrate itself. Maybe Bill can you walk us through in terms of when you would be expecting Royal Gold to kind of receive the first royalty payment.

[Bill Zisch:]

Yeah, it is a bit complicated as you say and dependent upon an awful lot of assumptions, but typically we are going to see that concentrate lag about three months, but we get paid when that is produced at Mount Milligan. So we will be looking at the assumptions we have as far as the timing and the clearing of those sales. Really I can't go into all the details right now, but would be happy to kind of consider addressing that on the future calls.

[Tony Jensen:]

Yeah Cosmos if I could just add to that, what we would expect is that they would start producing in the third quarter of this year and then they start building some concentrate volume up and it will take a while for them to build a sufficient concentrate after digging the [shift]. And there might be 10,000 or 20,000 or 30,000 tons or so before they put it on the seeds. But we have a structure where we get paid on the provisional payments initially and then that kind of rats back where we get paid on the final settlement. So it’s a bit of our complicated thing, but I think you will see us starting to get revenue flow in the first quarter of next year, and then we will give more guidance as to how that goes. But it is important for the market to understand how we ship from provisional payments to final settlements and the percentages we get with those. So we look forward to guiding you a little closer on that as we get closer to production.

[Cosmos Chiu:]

And then maybe shifting gears a little bit in terms of Andacollo. I know in the past you know (inaudible) had talked about maybe considering a 20% increase in terms of capacity, any kind of update on that front at this point in time.

[Bill Zisch:]

What they continue to look at is they are looking at debottlenecking and optimizing what they currently have. They made some reference in the past, some expansion that I think they have kind of thought. But they are going to take a look at what they have installed, and they are really kind of operating the plant as they have installed it and added about 20,000 ton a day additional crushing and they are going to now step back and see whether or not they can debottleneck that to increase in throughput. When they get done with that optimization, I think they step back and say okay what's the next step changing capital they might consider what makes the most economic sense, it maybe an incremental increase, it maybe another addition of some sort. But they are going to probably over the next year or so be kind of optimizing debottlenecking at the same time evaluating what the longer term expansions may consider from an economic standpoint.

[Cosmos Chiu:]

And maybe looking at the others category, I think two assets that have been kind of embedded starting a year and half, two years ago, in your other category would be two African assets Inata and Taparko. But when I was looking, once again I guess I have neglected those two assets as well, but looking at the guidance that was given out for calendar 2013 today, I was doing the calculation behind it. To me it seems like it will still be a pretty significant contributor in 2013. Am I incorrect on that front? I am just wondering what the actual performance was in calendar 2012 for those two assets and how I should look at it in 2013?

[Tony Jensen:]

Cosmos I don’t know, but Bill are you prepared to answer that. I don’t have that detail in front of me.

[Bill Zisch:]

Yeah, from a Taparko standpoint, Cosmos we would expect them to be producing about as they did this year and continuing it about that rate. Don’t know if any real plans for much expansion, but they have been performing steadily. Inata on the other hand, when that was picked up the asset, prior to that, there had been some discussion about an expansion up to I believe it was about 165,000 ounces a year. Subsequent to that (inaudible) come in and said they are not necessarily going to be looking at that kind of expansion. So the guidance that you see now reflects their current view. I don't know whether that means there is any other opportunities as they get more comfortable with it but that’s been kind of the state of Inata.

[Cosmos Chiu:]

Okay. Because when I work out the numbers, multiply out the guidance and some kind of gold price assumption, I am still getting above $4 million to $5 million in annual revenue from each one. Am I overstating it or -?

[Tony Jensen:]

I wouldn't be surprised if it was in that range.

[Stefan Wenger:]

Perhaps reasonable. Cosmos this is Stefan.

[Cosmos Chiu:]

Okay. Great that’s all I have. And thanks again Karen for the help all these years.

[Operator:]

(Operator Instructions) Your next question comes from Patrick Chidley from HSBC. Your line is open.

[Patrick Chidley:]

Just a quick question on the Mt. Milligan, just coming back to the (inaudible), what’s your understanding about what sort of prices that mine could take in terms of copper and gold prices on the downside before the operator starts to sort of gets squeeze a little bit in terms of its own cash flow?

[Tony Jensen:]

Patrick, Tony here. We took a very good look at that when we made our last tranche of investment decision; I think that was in last summer or obviously last summer. We want to make sure that if we put more royalty financing or streaming into the project that after our investment was considered that I would still be a very attractive cash cost producer. If we use Thompson Creek’s numbers and subtract out the amount of gold credit that would come from to us, we still think that’s somewhere in the low second quartile, right in the -- higher second quartile, lower third quartile type of worldwide cash cost of production on copper. So once this is up and running, I think we have a project that’s pretty attractive.

[Patrick Chidley:]

And so where is tonnage, just in terms of the copper world, I am not sure where that could be just $2?

[Tony Jensen:]

No, it's less than that. (Inaudible) the break gives between the second and third quartile of (inaudible) copper production. What Patrick let me guide you a little bit differently, you can look in our recent public presentations and we do have a slide in there Mt. Milligan that shows that detail.

[Patrick Chidley:]

And second question then would be just you mentioned on press release about going underground at Voisey's Bay and in terms of that part being part of the new agreement but the government would draw, any idea what timing that might be and what the impact might be for you guys?

[Tony Jensen:]

As you can imagine, Voisey's Valley has a big world where they don't necessarily report all of the detail on each [shop reference]. We have actually taken a lot of our guidance out of the joint press release that was held between Valley and the government and the government put out a very makes press release that describes a lot of these issues. And according to them, I think they are looking at starting the underground development and putting them in production in 2019.

[Patrick Chidley:]

Production 2019, okay. And then just a quick question on Andacollo, you mentioned high grade is the current sort of last quarter grade going to be sort of what they are expecting progress for the year?

[Tony Jensen:]

No, I think that you are going to see probably lower rate going forward. If you were to take a look at their annual guidance of 63000 ounces, then consider what they produced in the first quarter, they had a very, very strong first quarter. Now some of that was due to additional sales over production, but we think that, if you go on those numbers Patrick, we would expect the softer second half for the year than what we saw in the first quarter.

[Patrick Chidley:]

Okay, great. And just final question, just coming back to your for the large cash pile and the myriad of opportunities in front of you. What sort of projects are you really looking for -- you know are you going to be looking to do any different in terms of the strategy that you've sort of been following or are you looking in based on those companies again with gold flow or are there sort of a different set of opportunities that have come up just because of what we are seeing in the developed markets perhaps on the earlier stage in terms of exploration?

[Tony Jensen:]

I think you should continue to look at us doing what we've done in the past and still over the center of the play kind of thing, but where we are today in the gold environment, we are seeing a lot of earlier opportunities than what we've seen in the past because those folks don't have the equity that they can turn to. And to the extent we do get involved in some of those earlier opportunities, we won't be putting or committing large amounts of money there. It might be tens of millions of dollars, but we always want to look for an opportunity to invest a lot more significant dollars later on once the project is derisked. So we might take some in this environment if you asked what a change in your business strategy be or supplement to your business strategy, I would say that perhaps we would look to get involved with attractive opportunities at a low dollar value but always have an option to invest more money at a later point in time.

[Patrick Chidley:]

Okay. So [sort of option] to held them, get the thing actually going instead of just taking royalty now and expecting the market to get the project going.

[Tony Jensen:]

Exactly but always remember if we do get associated with the project, we want to be associated for the long term and so we look for a royalty position option into the future as well.

[Operator:]

I would like to now turn the call back over to the presenters for closing remarks.

[Tony Jensen:]

Well, thank you very much for your interest in Royal Gold. We very much look forward to updating you in the coming months on all the activities that the company is doing. We appreciate your interest and your continued support of our company. Bye for now.

[Operator:]

Thank you, everyone. This concludes today's conference call. You may now disconnect.