18% share earnings increaseRoyal reports 18% share earnings increase
By: Dorothy Kosich
Posted: '10-FEB-05 05:00' GMT © Mineweb 1997-2004
RENO--(Mineweb.com) While Royal Gold's revenues and share earnings both increased 18% during the second quarter fiscal 2005, several investors were not enthralled that increased costs absorbed a substantial part of the earnings increase.
Sarbanes-Oxley compliance, increased relations expenditures, and higher exploration and business development expenses were attributed Wednesday by Royal Gold executives for consuming a substantial share of the increased revenue. For the six months ended December 31, 2004, the company reported net earnings of $5.1 million or 25-cents per basic share, up from net earnings of $3.6 million or 17-cents per share reported for the six months ended December 31, 2003.
Operations costs increased to $978,685 for the six months ended December 31, 2004, compared to $674,458 for the same period a year ago. The increase was related to an increase in accrued Nevada net proceed taxes, an increase in consulting services for operations, and higher employee costs.
General and administrative expenses increased to $1.8 million for the six months ended December 31, 2004, up from $674,458 for the same period a year ago. An increase in legal and consulting fees, primarily due to Sarbanes-Oxley compliance, contributed to higher expenses.
During a conference call with investors Wednesday, Royal Chairman and CEO Stan Dempsey said these expenditures put the company "ahead of the game as far as Sarbanes-Oxley," adding that Royal's peers will experience higher compliance-related costs in the future.
As of December 31, 2004, the company had a working capital surplus of $46.4 million with no debt. During the second quarter of fiscal 2005, the Pipeline Mining Complex produced 218,682 ounces of gold, providing royal with royalty revenue of $5.1 million, up 19% from the same quarter of fiscal 2004. Dempsey attributed the increased revenue to higher gold prices and a GSR1 royalty rate step-up from 4% to 4.5%.
Dempsey and Royal President and COO Tony Jensen both praised Royal's investment in the Troy mine in Lincoln County, Montana, which, they said, will produce royalty revenues for Royal during the current quarter. On October 14, 2004, Royal paid $8.5 million to Revett Silver in exchange for two royalty interests in the Troy underground silver and copper mine.
When asked whether the reserve estimates for Troy were conservative, Jensen responded, that the mine reserves currently stand at 14 million ounces of silver and 113 million pounds of copper. Since its inception, Jensen estimated, Royal has produced 44 million of silver and 300 million pounds of copper. "That's a pretty robust deposit," Jensen declared. "We are anticipating some kind of revenue upside there."
Jensen added that Troy's mill is running and concentrates have been shipped.
Royal CFO Don Baker explained that Royal has also earned a royalty position in a subsidiary of Phelps Dodge Exploration through Royal's new RG Russia subsidiary. Royal funded its entire $1.3 million commitment with PD as of December 31, 2004.
Dempsey said Royal continues to have a "bias toward the precious metals" but will end up with some base metal content. He added that the company is looking worldwide in geography for both royalty and exploration opportunities.